AARP Defends Kickbacks

$627 million per year must be nice
By Steve Hirsch June 1, 2019

AARP is a swamp creature headquartered in the Washington DC swamp. It shouldn’t be confused with Swamp Thing from DC Comics. Swamp Thing is a superhero who fights villains, while AARP is a villain fighting for kickbacks that hurt seniors and other Americans.

When you get a prescription filled, the drug company often pays a kickback to your insurance carrier or a company that represents your carrier. The average is about 20% of list price. Sometimes, it’s as high as 60%.

The Secretary of Health & Human Services, Alex Azar, says these kickbacks are driving up drug costs. He recently published a proposal to prohibit them. The AARP beast reacted, typing up a letter opposing the proposal. Here’s a link to AARP’s letter defending the kickbacks.

Please sign the petition against kickbacks and help us oppose AARP. It’s time to Drain the Swamp.

AARP gives a couple of half-cocked reasons for keeping the kickbacks legal. But the real reasons AARP likes kickbacks would seem to be numerous. I count 627 million of them. Check out AARP’s 2017 annual report to see how its insurance partner, United Healthcare, paid AARP $627 million* in 2017 for something that AARP calls “royalties.” I call them sales commissions (more on that later), but the point is that AARP makes lots of dough from United Healthcare insurance. And it appears that part of the reason that United Healthcare can pay so much to AARP is because United Healthcare takes lots of kickbacks that it calls “rebates.”

Sales commissions are called “royalties” while kickbacks are called “rebates.” Euphemisms are cool, huh?

The first thing you need to know is that insurance executives hire companies that call themselves Pharmacy Benefit Managers. PBMs for short. The job of a PBM is supposedly to negotiate with drug companies for the lowest possible prices. But PBMs are multi-taskers. They don’t just negotiate prices. They also negotiate kickbacks.

AARP’s insurance partner is United Healthcare, meaning that all Medicare-related insurance that AARP promotes is United Healthcare insurance.

United Healthcare is huge, so it doesn’t hire a third-party PBM. It owns one. It’s called OptumRx and it’s the biggest PBM. As they are united under the same United Healthcare corporation, I’ll just refer to both of them as United Healthcare.

HHS Secretary Alex Azar’s proposal gives an example of how the kickback-scheme works. I summarize it below, but the numbers might be a little confusing. I’ve put the math-heavy text in blue italics, so if math isn’t your strong suit, skip the blue italics.

kickback chart[6]

When the average American fills a prescription at the drug store, the pharmacist says it costs $104, but not to worry. The insurance company is paying $78 of that, and the average American only has to pay 25% of the $104, meaning $26. The average American nods while thinking good thoughts about the insurance company. But the insurance company’s generosity is an illusion, because the insurance company gets a $30 kickback from the drug company, meaning that the insurance company only spends $48 net.

The average American spends $26, but should have been required to pay only $18.50, which is 25% of the total $74 that was actually spent.

Regardless of whether or not you followed the above math, all you really need to know is the insurance company rips the average American off for $7.50. This kind of thing happens all the time when customers go to pharmacy counters. If you fill a lot of prescriptions, it’s possible that you’re getting ripped off for thousands of dollars per year.

Being a DC Swamp thing, AARP is a predator and doesn’t care about the average American. That’s why AARP doesn’t mind the kickback-scheme. As a matter of fact, AARP is all-for-it. Very all-for-it. So all-for-it that it wrote the aforementioned letter to Secretary Azar defending the kickbacks.

Join ASA. We’re the conservative alternative to AARP. It’s time to Drain the Swamp.

It makes you wonder. Does AARP stand for the special interests of senior citizens, or the special interests of its insurance partner, United Healthcare? Not for nothing, but it sure looks like AARP is especially interested in the special insurance company from which it receives $627 million of “royalties” per year. I mean, $627 million is special, isn’t it?

Speaking of which, $627 million sounds like a lot. Why would United Healthcare pay AARP that much for “royalties”? According to AARP’s 2017 annual report, its “royalties” are in return for the rights to use “AARP’s intellectual properties (including name, logo and membership information) in offering programs.” In my eyes, AARP is a sales division of United Healthcare.

I’ve got to give AARP credit for its letter to Secretary Alex Azar. It’s creative. It says because “the rebates are paid after a beneficiary has already purchased the drug, they typically are not reflected in beneficiaries’ out-of-pocket costs and are instead used to slow premium growth” [emphasis mine.] In other words, AARP says it’s ok for insurance companies to take kickbacks because, that way, they can charge less premiums.

One thing. HHS says the insurance companies tend to underestimate projected "rebates" when applying for premium increases.

Another thing. Using AARP’s reasoning, it would be a good thing to authorize your city’s policemen to regularly break into residents’ homes and steal stuff. That way, the city wouldn’t have to tax residents to pay police salaries. Which, by the way, is how the Venezuelan police force is financed. Cool, huh?

The old saying is if it looks like a duck and smells like a duck, it’s most likely a duck. Not only does AARP look and smell like an amphibious ogre, but it’s headquartered smack in the middle of Washington DC. Yeah, it’s a swamp creature and the swamp needs to be drained.

*AARP’s 2017 annual report shows $909 million from “royalties.” Note 2 of the financial statements says 69% of the “royalties” were from United Healthcare. Thus, $627 million “royalty” revenue from United Healthcare.

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Steve Hirsch

Steve Hirsch
I'm a businessman who is fast approaching retirement age.