Having worked around non-profits all my career, I have learned there are many kinds of them. They range from the mom-and-pop neighborhood ones that send kids to summer camp, to behemoths that pull in billions - yes, billions and influence national policy. The worst ones are those that lose their way and evolve to function, behave, and operate like for-profit corporations. The AARP with its billions of revenue, innumerable sales pitches for everything from cruises to car, life and health insurance, millions in kickbacks from major corporations, highly paid executives, lavish Washington, D.C. headquarters, a first-class lobbying machine, and perhaps a less-than-open organizational culture has become one of these non-profit behemoths. As reported today by Bloomberg News,the AARP behaves with all the characteristics and incentives of a major corporation.
Don't get me wrong. I think AARP serves some critical functions in terms of advocating for and educating seniors, and they obviously have an important role to play in our society. What I want to discuss in this diary is whether the AARP has veered too far from its original non-profit function, and whether some of its activities actually serve the public good.
I became suspicious of the AARP several years back when I saw that its President was making $1.0 million a year. Now, that annual figure is close to $2.0 million annually with sizable benefits. (Guide Star: AARP's IRS Form 990 for 2006) (This is non-profit work? Get me some of that!!)
I also cringed, upon joining the AARP, to find my mailbox filled with advertisements week after week for all kinds of services and plans to sell me. Then, there are the magazines and bulletins with many pages of ads for services and goods I could buy. It doesn't take too long to figure out that the AARP is just one big marketing machine.
And as with corporations, sometimes the ones who are harmed are the ones the corporation is supposed to be serving. Today's Bloomberg piece illustrates how the AARP functions as a great marketing firm with 40 million potential clients. Unfortunately, in many cases, AARP members who buy into AARP-sponsored health, life and automobile plans wind up paying hundreds and even thousands more than if they brought identical plans on the open market. Meanwhile, in 2007 AARP pocketed almost half-a-billion dollars in "royalties" from partner corporations. As per Bloomberg:
The insurance companies build the cost of these so-called royalties and fees, which amounted to $497.6 million in 2007, into the premiums they charge AARP members...AARP uses the royalties and fees to fund about half the expenses that pay for activities such as publishing brochures about health care and consumer fraud -- as well as for paying down the $200 million bond debt that funded the association’s marble and brass-studded Washington headquarters. In addition, AARP holds clients’ insurance premiums for as long as a month and invests the money, which added $40.4 million to its revenue in 2007.
Here is one example that the Bloomberg authors give to illustrate the potential adverse inpacts of such arrangements:
Arthur Laupus joined AARP because he thought the nonprofit senior-citizen-advocacy group would make his retirement years easier. He signed up for an auto insurance policy endorsed by AARP, believing the advertising that said he would save money.
When Laupus, 71, compared his car insurance rate with a dozen other companies, he found he was paying twice the average. Why? One reason, he learned, was because AARP was taking a cut out of his premium before sending the money to Hartford Financial Services Group, the provider of the coverage.
The AARP now markets 17 different kinds of insurance and they have a for-profit subsidiary that uses some of these funds. One critic who used to be associated with the AARP, Thomas Orecchio, who was chairman of the Arlington Heights, Illinois-based National Association of Personal Financial Advisors states:
"At the end of the day, it’s all about fattening the coffers of the organization..." [by] sponsoring insurance for its members at inflated prices.
"It’s the dirty little secret," he says.
I would like to see more transparency and accountability in non-profits like AARP, and I would like to see them adhere more to the original pronciples of their establishment. In short, while we are now crying for more government oversight of the corporate world, I think it is time for some greater oversight of these non-profit behemoths some of whose services may be ripping off the elderly.
Not least, all of these perverse incentives make me worry about the role that AARP might play in the coming debates and policy making around national health care. As we saw from their support of Bush's Medicare drug plan giveaway to big Pharma, AARP may not be the best representative for the elderly. Then again, they were on the right side of the Social Security privatization argument. What do you think?
Up-date: Here's how well one of AARP's corporate partner's has done this year off the backs of seniors.
HARTFORD, Conn. Dec. 5. (AP) -- Hartford Financial Services Group Inc. on Friday raised its profit expectations and reaffirmed the strength of its capital position, sending shares of the insurance company nearly 50 percent higher.