NO: Group is protecting profits of insurance-industry partners
At the recent Democratic presidential primary debates, the candidates made prescription drug price reform a priority. Many of them have raised partisan criticisms about President Trump's supposed failure to act on prescription drug prices. "The president promised that he would bring down the prices of their prescription drugs," said candidate Amy Klobuchar last month. "And that just hasn't happened."
This perspective overlooks the Trump Administration's several executive orders to lower drug costs. Exhibit A is the proposed rule issued earlier this year by Health and Human Services to redirect the hundreds of billions of dollars of drug "rebates," which are currently tied up in the drug supply chain, to patients at the pharmacy counter.
The White House on Thursday withdrew the plan in favor of bipartisan legislation advancing in Congress.
Supply chain middlemen called pharmacy benefit managers demand these rebates from drug manufacturers in return for access to insurance plan formularies. HHS estimates that they account for between 26% and 30% of total drug costs. There's a bipartisan consensus that they're a major factor in rising list prices of prescription
drugs. Eliminating them could immediately reduce prices by around one-third.
This rule applies only to government health programs like Medicare. So its biggest beneficiaries would be seniors, who use prescription drugs more than any other segment of the population. It's no surprise, then, that seniors overwhelmingly support the reform. A recent Morning Consult poll finds that nearly three-quarters of seniors support the rule.
That's what makes opposition to the rule by the AARP, formerly known as the American Association of Retired Persons, so confusing. This giant seniors interest group, which boasts 38 million members, has submitted numerous public comments opposing it.
Why is the AARP taking a position so opposed to its members' interests? The answer, as usual, comes down to money.
The AARP receives the bulk of its $1.7 billion in annual revenues from its partnerships with health insurers, which are leading the fight against the rebate rule.
Specifically, Unitedhealth Group, the nation's largest health insurer, with over $200 billion in annual revenues, pays the AARP a royalty of 5% to sell Aarp-branded Medicare-related insurance products.
In 2017, AARP received $627 million in royalties from Unitedhealth versus $301 million in membership dues. Since 2010, it has received $4.5 billion in royalties and investment income as a result of this partnership.
Insurers oppose the rebate rule because it threatens the gravy train of rebate dollars that they receive from pharmacy benefit managers. If insurers lose out on these billions of dollars of rebates, their hefty royalty payments to the AARP may shrink.
This represents a major conflict of interest for AARP. Marilyn Moon, a former AARP public policy director, has noted that the organization has become dependent on these royalty payments.
An unwillingness to jeopardize this income stream means AARP'S financial interests are pitted against those of its members. The status quo allows the nonprofit to pay its CEO, Jo Ann Jenkins, $1.4 million in annual compensation.
AARP'S opposition is not only financial but also likely ideological. It has a proven track record of backing public policy based on partisan, not members', interests. Leaked emails reveal that AARP worked as an arm of the Obama administration in 2009 to help pass Obamacare despite opposition from its members concerned about how the law raided Medicare.
At some point, the AARP will have to decide whether it supports its members or its financial and political interests. In the meantime, seniors should take the organization's prescription drug reform position with a hefty dose of salt.