Resistance to Medigap reforms

At KHN, Susan Jaffe reports:

A provision of the 2010 federal health law seeking to increase Medicare beneficiaries’ share of health care costs is meeting resistance from an unlikely group of 33 state insurance regulators, health insurers and consumer advocates charged with revising Medigap insurance policies that cover most out-of-pocket expenses.

What caught my eye was “resistance” from “consumer advocates.”

The overall top seller of Medigap and Part D policies is AARP, in its insurance program with UnitedHealth. The relationship with AARP is a very big deal, even for an insurance company with 2010 revenues exceeding $94 billion (2010 Form 10-k here).  The latest annual 10-k report filed with the SEC mentions AARP 57 times and states that the “loss of our AARP relationship could have an adverse effect on our business and results of operations.”   Note 12 of the 10-K gives the numbers: “Premium revenues from the Company’s portion of the Program for 2010, 2009 and 2008 were $6.3 billion, $6.0 billion and $5.7 billion, respectively.” That’s 6 to 7% of UnitedHealth revenues – an important chunk.

But some relationships are asymmetric, in business as well as life. How important is the relationship to AARP?

As a tax-exempt entity, AARP files an IRS Form 990, which is available here. AARP revenues from the most recently available year (2009) are summarized below. United pays AARP royalties for the joint insurance program.  It’s a huge deal for AARP.

Percentage of revenues
Contributions, gifts & membership dues$263 million24%
Program service revenues$135 million12%
Investment income$  64 million  6%
Royalties$657 million60%
Loss from sale of securities($  30 million)(3%)
Misc. revenues$  3 million
Total revenues (2009)$1.093 billion99% (rounding)

AARP does many, many excellent things, but 60% of their revenues come from selling insurance, including Medigap and Part D policies.  AARP wasn’t mentioned in Susan Jaffe’s article, but this financial conflict of interest is a relevant point, given their prominence.

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