The health and oversight subcommittees at the House Ways and Means Committee held a hearing today on the nature of AARP.
Supporters of AARP, Washington, say it helps older Americans bargain for discounts from vendors and represents their interests in Washington and state capitals.
Critics say that AARP has abused its nonprofit status to become a major insurance marketing organization, and that it has lobbied for positions on issues such as health reform that many AARP members might oppose.
Republican critics of AARP recently released a report with the title “Behind the Veil: The AARP America Doesn’t Know.”
Barry Rand, the chief executive officer of AARP, told lawmakers at the Ways and Means hearing that he was surprised by the title and the content of the report.
“There is no veil,” Rand said.
The AARP is a genuinely nonpartisan group without a political action committee that posts its annual reports, financial statements and Form 990 tax returns on its website, Rand said.
AARP has been openly involved in setting up group insurance plans for older Americans since 1958, when the founder, Dr. Ethel Percy Andrus, began trying to create a group medical insurance plan for retired teachers, Rand said.
“After being turned down by no fewer than 42 companies, she finally found one that would offer a plan to her members–creating the first group health insurance plan for people 65 and older in the country,” Rand said. “A decade before Medicare.”
AARP sets up insurance programs to benefit members and would forgo insurance revenue in exchange for lifetime health and financial security for all older Americans, Rand said.
The AARP supported much of the Patient Protection and Affordable Care Act (PPACA), for example, even though
PPACA provisions could make AARP plans for people ages 50 to 64 obsolete, Rand said.
William Josephson, a retired lawyer, testified that AARP has complex organizational structure.
Many Section 501(c)(4) tax-exempt organizations have for-profit subsidiaries, “but it is uncommon for such a tax exempt organization to have eight affiliates, some for profit and some tax exempt,” Josephson said.
The Internal Revenue Service (IRS) should consider requiring AARP to file separate tax returns for the parent organization and each of the affiliates, such as the AARP Insurance Plan, Josephson said.
The AARP has been treating insurance business income as “tax-exempt royalty income” under Section 512(b)(2) of the Internal Revenue Code.
AARP insurance income seems to come from flat-fee commissions paid on each insurance policy sold, Josephson said.
“If so, there would be a substantial issue as to whether or not such commission income is properly excluded from [unrelated business income] tax as a royalty … or more properly included as income,” Josephson said.