Crony Capitalism Is Alive and Well During COVID-19

The following appeared on on August 24, 2020.

Then-Incoming House Speaker Nancy Pelosi, D-CA, holds the gavel during the opening session of the 116th Congress at the US Capitol in Washington, D.C., Jan. 3, 2019. (Photo credit: SAUL LOEB/AFP via Getty Images)

Congress is in recess until after Labor Day. As a result, people across the nation are furious with their elected representatives for leaving Washington without passing another COVID-19 economic relief package.

The implications for extra unemployment insurance that keeps people out of the workforce and stimulus checks that increase our national debt notwithstanding, there’s another silver lining: Speaker of the House Nancy Pelosi’s crony capitalist giveaway to health insurance giants is at least a few weeks closer to the ashbin of history.

Democrats in the U.S. House passed a bill that would fund COBRA premiums for nine months. This program allows recently unemployed people to keep their insurance plan if they pay the full premium. Pelosi’s plan would use federal funds to cover these premiums via direct payment to the insurance companies, which would have cost taxpayers $157 billion in the first four months and almost $500 billion by the end of the year.

No one wants Americans to lose health insurance, but this COBRA bailout was so expensive that even socialist Bernie Sanders was against it and the Colorado Foundation for Universal Health Care panned it as a “bailout for corporations.”

Keep in mind, Pelosi and House Democrats planned this massive transfer of wealth from the U.S. Treasury to health insurance companies at the same time they are making money hand over fist. This is because insurance companies are continuing to collect premiums while millions of Americans are putting off going to the doctor due to COVID-19, resulting in far fewer claims to pay on their customers’ behalf.

As a result of this imbalance, the nation’s largest health insurer, UnitedHealth Group (UHG), posted its highest ever profit of more than $6.6 billion in the second quarter of the year. Profits are typically nothing to be ashamed of, but a megacorporation certainly doesn’t need a bailout during the most gainful time period in its history.

Why would Nancy Pelosi pursue a ham-handed giveaway of taxpayer dollars to a company worth $300 billion having the most profitable quarter of its existence?

The answer might be the AARP, an organization that “has become little more than a marketing scam for its big corporate financial sponsors — UnitedHealth and its wholly-owned OptumRx pharmacy business,” according to American Commitment President Phil Kerpen.

The organization recently released a report entitled “How AARP Puts Profits over Patients—And Principles,” that lays out the “the unholy alliance between AARP and UnitedHealth Group” in devastating detail.

Although AARP is a non-profit tax-exempt 501(c)(4), it earned a profit of $246.5 million in 2018 on a total of nearly $1.65 billion in gross revenue, a margin of nearly 15 percent. Not bad for a “non-profit” organization! Only 18 percent of AARP’s revenue in 2018 came from dues paid by members, while 57 percent came from selling AARP-branded goods and services to those members in the form of “royalty fees.” Between 2007 and 2018, the total royalties paid to AARP totaled a little over $9 billion, with $5.3 billion coming exclusively from UnitedHealth group.

AARP does not disclose how much money it receives from each of the plans it hawks for UnitedHealth Group, but it is required to include fine print on its Medigap plans that it receives a “royalty” of 4.95 percent for each plan sold. American Commitment’s report estimates this to be $350-400 million per year.

UnitedHealth Group certainly makes a tidy profit from the plans sold to AARP members, but it also gets something else for the cash: a bought-and-paid for lobbying group posing as a senior citizens organization. This could explain the sometimes-puzzling positions the AARP takes.

The Obamacare fight is a crystal-clear example of the organization fighting for its and UHG’s profits at the expense of seniors. In the runup to its passage, the bill was deeply unpopular with seniors.

A poll at the time showed strong opponents outnumbered strong supporters of Obamacare by more than two-to-one, with a total of 59 percent of seniors in opposition. Even more, a House Energy and Commerce Committee investigation uncovered an email from AARP lobbyists to the Obama White House that said, “We really need to talk. Our calls against [Obamacare] are coming in 14 to one.” Yet AARP went on to support the bill.

The American Commitment report explains how AARP looked out for its own financial interests during the legislative fight and how it ultimately hurt seniors:

“At the time of Obamacare’s passage, AARP claimed that it wanted to end ‘discrimination’ against individuals with pre-existing conditions. But what did AARP do to ensure that that policy applied to its lucrative Medigap insurance plans? Precious little. Press reports indicate that the seniors’ organization compelled then-Senate Majority Leader Harry Reid (D-Nevada) to close the ‘doughnut hole’ in the Medicare Part D prescription drug benefit before it would endorse the final version of the legislation.

By contrast, AARP imposed no such requirement on Democrats to ensure that Obamacare’s insurance provisions regarding pre-existing conditions applied to the Medigap insurance AARP sells. In fact, it stood idly by while Democrats stripped language applying pre-existing condition provisions to Medigap from the final version of the bill.”

Because of AARP’s inaction, “individuals with disabilities still cannot obtain access to coverage because of their pre-existing conditions.” AARP’s lucrative partnership and UHG’s profit margin were on the receiving end of other Obamacare carveouts: the tax on health insurance companies exempted Medigap policies, lower medical loss ratio standards for Medigap, and exempting Medigap insurance from the rate review process altogether.

Some ten years later, AARP is still pushing for Nancy Pelosi’s preferred policies that will pad UnitedHealth Group’s profit margin so they can continue to cash royalty checks and hurt seniors. Take H.R. 3, which will impose price controls on prescription drugs (if drug makers don’t accept it, they will face a 95 percent excise tax).

Americans for Tax Reform summarized the bill thusly:

“The Pelosi plan is not a good faith effort to negotiate lower prescription drug prices. It will end innovation in the U.S. and prevent the development of the next generation of life-saving and life-preserving medicines.

At present, the U.S. is the world leader in medical innovation with almost 60 percent of drugs being developed in the country.

This innovation benefits the U.S. in the form of high-paying jobs, a stronger economy R&D, and access to more life-saving medicines.”

While supporting these price controls that will slow cures for diseases, AARP also opposed a Trump plan to offer rebates directly to consumers instead of pharmacy benefit managers such as OptumRX, which is wholly owned by – you guessed it – UnitedHealth Group.

This triangle of crony capitalism between members of Congress, UnitedHealth Group, and AARP (which, as a non-profit, should be advocating for seniors, not its own revenues) is a perfect encapsulation of “the Swamp” that Americans loathe so much.

While Nancy Pelosi’s plan to transfer your tax dollars to the nation’s largest insurance company may be dead (for now), we need to stay vigilant to ensure it doesn’t return.

Patrick Brenner is a policy analyst for the Rio Grande Foundation, New Mexico’s free market think tank.