AARP support of Medicare bill raise some members' ire

The reason: AARP's endorsement of the $400 billion Medicare prescription drug bill.

"AARP will no longer be my representative in Washington,'' Bonfield said. ``It's just a big insurance company.''

An unexpected casualty of the bitter struggle over Medicare overhaul, according to many senior citizens and lawmakers, is the credibility of AARP. With 35 million members, AARP's support of the Medicare bill was provided ``the good housekeeping seal of approval'' that helped the Bush-backed initiative prevail, said Illinois Senator Richard J. Durbincq, an Illinois Democrat.

Critics like Bonfield say AARP supported the Medicare bill in part to leverage its already lucrative ties to large health care and drug companies. Last year, AARP collected royalty revenues of around $123 million from insurance plans marketed to their members.

Dr. David U. Himelstein, a physician at Harvard Medical School, calculates AARP stands to post profits of an additional $1.56 billion over the next decade from the new Medicare prescription drug coverage market.

"The bill dumps a huge chunk of federal monies into new coverage for private insurers,'' said Dr. Himelstein. "In effect, the AARP has shamefully agreed to sell out its members in exchange for the organization's financial gain.''

Hundreds of AARP members have barraged a message board on the group's website with e-mails condemning what they say is the group's unseemly ties with the health care industry. "AARP's big money comes from insurance kickbacks -- cancel ALL your AARP insurance policies," declared one. "We have been suckered," lamented another.

AARP last week took out full-page ads in major newspapers across the country supporting the Medicare bill as the best way to deliver a prescription drug benefit, a long-held AARP goal. AARP President William Novelli said the group's endorsement was unrelated to its partnerships with health care companies.

"We have a strict wall between policy making and product marketing," Novelli said. "We're not sitting here making decisions on policy based on revenues. When the board was considering the bill, not a word was uttered about our products."

Relations between AARP and many senior citizens could worsen amid more privatization efforts. "The next battle is over Social Security," said Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare in Washington, which opposed the Medicare bill. "I hope to God AARP doesn't leave us on that one."

Added Representative John Tierney, a Massachusetts Democrat who also fought the bill: "Social Security is the next battleground. Seniors shouldn't have to worry about privatization, but obviously Novelli has sold out on it."

Formerly known as the American Association for Retired Persons, AARP was founded in 1958 by Ethel Andrus, a retired teacher and principal who died in 1967 at the age of 83. The group counts as members 35 million people age 50 years or older. Its mission statement is to fight age discrimination, promote affordable health care, and protect such programs as Social Security.

The $12.50 annual subscription fee earns AARP members services and deals on a range of items, such as cruise packages, car rentals, and credit-card accounts that offer cash-back rewards.

When Bonfield traveled to Poland and Hungary last year, she did so on an 18-day tour that included airfare, stays at five-star hotels, tour guides, and restaurant vouchers -- all for $2,500. The trip was arranged by Grand Circle Travel, founded by Andrus as a branch of AARP and popular among group members for its senior discounts.

AARP has been marketing insurance and discounted pharmaceuticals to its members since it was founded. In 1999 the group established AARP Services Inc., a for-profit subsidiary that markets Medicare supplemental insurance on behalf of such firms as UnitedHealthcare Group and Metropolitan Life Insurance Co. Its mail-order drug service saved seniors $402 million in 2003, according to the group.

The money generated by the for-profit subsidiary is invested into AARP's nonprofit operations, Novelli said.

According to AARP's financial statement, insurance-related business accounted for $162 million of its total operating revenue of $636 million. Just over half of the $46 million AARP reported in investment income came from insurance-related activity. AARP publications, including its monthly AARP-The Magazine, reaped $76 million from ad sales in 2002, the bulk to pharmaceutical and health care companies.

Much of the $400 billion allocated by the Medicare bill will finance new supplemental Medicare prescription drug coverage. It also makes public funds available for discounted pharmaceuticals, greatly expanding demand for prescription drugs.

Because the bill leaves intact laws that prohibit the purchase of cheaper drugs from abroad, pharmaceutical companies were spared the pain of stiff price competition. Nor does the bill allow the Medicare program to use its buying power to lower the price of drugs, as some had called for.

"This bill was supposed to control the price of pharmaceuticals and it has done nothing," Tierney said. "Seniors see that and they get livid."

Novelli said parts of the drug bill may actually hurt AARP profits. He said the group is just as likely to discontinue some marketing services and drug packages because the new legislation made such products and services more affordable without the need of AARP discounts. "We're thinking that at least in the short-term, the bill could have a negative impact on revenue," Novelli said.

Criticism of the Medicare bill is softening as AARP intensifies its campaign to explain why it is good legislation, according to Novelli. He also said AARP isn't ganging up with conservative Republicans to privatize Social Security, though he adds the group is not opposed to partial privatization.

Stephen J. Glain can be reached at glain@globe.com.