Reader TTS

As we have explained in our submissions of November 2, 2009 and December 18, 2009, the specific royalty percentages are proprietary.  In order to provide the best prices and value for those

we serve, we cannot publicly disclose the details of arrangements we have agreed to with different providers because that affects the ability to negotiate on behalf of our members and others

who choose products that carry the AARP name as best meeting their specific needs.  Nonetheless, AARP is prepared to disclose the information to the Committee if the Committee guarantees

appropriate protections that are necessary for us to be able to fulfill our mission. 7. WHEN YOU WERE ASKED IF AARP MAKES MONEY OFF OF ITS NASCAR SPONSORSHIP YOU REPLIED, “WE DON’T MAKE ANY

MONEY ON THIS.” HOWEVER, ACCORDING TO NASCAR’S ANNOUNCEMENT OF THE AARP DEAL: “SALES WILL BE MANAGED BY KYLE LEWIS, AARP VICE PRESIDENT OF BUSINESS DEVELOPMENT, AND ANDREW CAMPAGNONE, SENIOR

VICE PRESIDENT OF MOTORSPORTS FOR WUNDERMAN, WHO HELPED PUT TOGETHER THE DEAL…[AARP] EXPECTS TO HAVE NO PROBLEM RECOUPING ITS INVESTMENT IN THE CAR OR COLLECTING DONATIONS FOR ITS EFFORT TO

END HUNGER.  IT PLANS TO SET A BENCHMARK EARLY NEXT YEAR FOR HOW MUCH OF EVERY DOLLAR IT RAISES IS DIRECTED TO FIGHTING HUNGER.” Given this statement, please clarify whether or not AARP,

Inc. or any of its affiliates, will receive revenue from selling advertisement space on the car.  If so, how much has AARP received thus far?  How much will AARP receive over the next three

years of the sponsorship deal, in accordance with advertising contracts with other entities that have already been signed?  Additionally, how much of every dollar of advertising revenue will

be directed to this hunger initiative that are not related to overhead costs? The goal of Drive to End Hunger is to raise funds, resources and awareness to end hunger among older Americans.

  At the time of the sponsorship announcement, AARP anticipated being able to recoup—and ideally to exceed—its initial investment in the Hendrick Motorsports sponsorship by selling space on

the Drive to End Hunger car.  In addition to raising charitable contributions for the hunger programs of the AARP Foundation, it was envisioned that any excess advertising revenue that AARP

received beyond its original investment would go to the AARP Foundation to fund its anti-hunger work.  At the time of the hearing six months later, however, it had become clear that

recouping the initial investment through the sale of advertising on the Drive to End Hunger car or related items (uniforms, transport trucks, etc.) is unlikely this year, in part because of

our decision to ensure high visibility for the hunger awareness campaign on the car throughout the NASCAR season. AARP and the AARP Foundation embarked on this effort because every day, more

than 6 million Americans over age 60 face the threat of hunger.  Drive to End Hunger is our multi-year commitment to solving this problem.  Core components of Drive to End Hunger include

building awareness of the issue of senior hunger; collaborating with national partners who share a goal of feeding seniors by working to enhance and supplement distribution networks – like

food banks and food pantries; generating resources for the cause through individual and corporate fundraising campaigns; local SNAP (Supplemental Nutrition Assistance Program) outreach and

enrollment assistance; and developing solutions to senior hunger through grant-making. Already, Drive to End Hunger has brought numerous resources to the AARP Foundation.  The generous

NASCAR fan base has contributed to food drives organized by AARP and the AARP Foundation that benefit local food banks and also has donated directly to AARP Foundation hunger programs. 

Additionally, the owner of a number of race tracks has announced it will donate all extra food items from race weekends to the local food banks that serve the race track areas.  These

contributions together have enabled us to provide for over 360,000 meals after just five of our 22 races this year.   To date, Drive to End Hunger has also attracted corporate donation

commitments of over $6 million to AARP Foundation for its hunger programs and additional significant corporate donations are anticipated as the race season progresses.  Further, 100 percent

of AARP revenues from sales of Drive to End Hunger car merchandise, such as T-shirts, caps, and toy cars, are donated to the Foundation’s work on hunger.  Finally, according to an Associated

Press story on March 18, 2011, a study by Joyce Julius & Associates shows the sponsorship has “totaled nearly $7.6 million of in-broadcast exposure value for new sponsor Drive to End

Hunger” after just two of 22 scheduled races at the time.    Overall, we believe that the impact of AARP’s sponsorship of the Drive to End Hunger car in bringing attention as well as

tangible contributions to the cause will play an essential role in the Foundation’s multifaceted effort to find a long-term solution to ending senior hunger in America. 8. YOU CLAIMED THAT

AARP DOES NOT COLLECT MEDIGAP INSURANCE PREMIUMS FROM SENIORS AND THAT AARP DOES NOT RECEIVE ROYALTY PAYMENTS FOR THE SALE OF AARP-RELATED MEDIGAP INSURANCE PLANS.  YOUR CLAIM IS

INCONSISTENT WITH AARPS MOST RECENT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS WHICH STATE THAT THE AARP INSURANCE PLAN, “A GRANTOR TRUST, HOLDS GROUP POLICIES, AND MAINTAINS DEPOSITORY

ACCOUNTS TO INITIALLY COLLECT INSURANCE PREMIUMS RECEIVED FROM PARTICIPATING MEMBERS.  IN ACCORDANCE WITH THE AGREEMENT REFERENCED ABOVE [CONTRACTS WITH UNITEDHEALTH GROUP, METROPOLITAN LIFE

INSURANCE COMPANY, GENWORTH LIFE INSURANCE COMPANY, AND AETNA LIFE INSURANCE COMPANY], COLLECTIONS ARE REMITTED TO THIRD PARTY INSURANCE CARRIERS WITHIN CONTRACTUALLY SPECIFIED PERIODS OF

TIME, NET OF THE CONTRACTUAL ROYALTY PAYMENTS THAT ARE DUE TO AARP, INC., WHICH ARE REPORTED AS ROYALTIES IN THE CONSOLIDATED STATEMENT OF ACTIVITIES.”  (EMPHASIS ADDED) ADDITIONALLY, PLEASE

SEE THE ENCLOSURE SHOWING AARP AND UNITEDHEALTH GROUP’S MEDIGAP INSURANCE FILING WITH THE RHODE ISLAND DEPARTMENT OF BUSINESS REGULATION’S DIVISION OF INSURANCE REGULATION IN 2010.  THIS

FILING SHOWS THAT 4.95 PERCENT OF THE MEDIGAP PREMIUMS ARE CLASSIFIED IN THE FILING AS “ROYALTIES.”  THESE ROYALTIES ARE PRESUMABLY BEING PAID TO AARP. GIVEN THESE FACTS, WE WOULD LIKE TO

PROVIDE YOU WITH THE OPPORTUNITY TO CORRECT WHAT APPEARS TO BE A CLEAR MISSTATEMENT.  WHICH ENTITY COLLECTS PREMIUMS DIRECTLY FROM MEDICARE BENEFICIARIES FOR AARP-BRANDED MEDIGAP INSURANCE

POLICIES?  FURTHER, WHAT PERCENTAGE OF THIS PREMIUM DOES AARP RETAIN BEFORE SENDING THE REMAINDER TO UNITEDHEALTH GROUP IN 2011?  WHAT PERCENTAGE OF PREMIUM PAYMENTS WILL AARP RETAIN IN EACH

OF THE REMAINING YEARS ON AARPS CURRENT MEDIGAP CONTRACT WITH UNITED? Thank you for the opportunity to clarify my statement at the hearing.  As we explained on page 3 of our December 18,

2009 letter to Representatives Herger, Brown-Waite, and Reichert: [T]he AARP Trust collects premiums, and remits them to the applicable insurance company, for the following products carrying

the AARP name: (1) the Medicare Supplement and under-65 insurance and indemnity plans offered by United HealthCare Corporation, (2) the under-65 insurance products from Aetna Life Insurance

Company, and (3) the long term care insurance products from Genworth Life Insurance Company and Metropolitan Life Insurance Company.  The insurers direct the Trust to pay the royalty owed

by the insurers to AARP, and certain deductions are made to pay expenses incurred by the Trust. The email from Ray Shepherd to Dan Elling and Jill Schmalz, dated June 16, 2010, and the email

from Ray Shepherd to Dan Elling, dated April 5, 2011 (sent shortly after the hearing to clarify the response on this issue) convey similar information, which is the correct explanation of

how the premiums are handled.  9. WITH REGARD TO THE INTEREST AARP EARNS BY KEEPING MEDICARE BENEFICIARIES’ INSURANCE PREMIUMS, YOU STATED THAT THE PREMIUM REVENUE IS HELD IN A “SIMPLE

INTEREST-BEARING ACCOUNT.”  AARP’S OUTSIDE COUNSEL CLARIFIED AFTER THE HEARING THAT THE MEDICARE BENEFICIARIES’ PREMIUM MONEY IS ALSO INVESTED BY AARP IN OTHER WAYS, INCLUDING SECURITIES.

PLEASE PROVIDE A DETAILED ACCOUNT OF WHAT YOUR OUTSIDE COUNSEL MEANT BY “OTHER INVESTMENTS” WHEN HE WROTE “THE TRUST ASSETS ARE HELD NOT ONLY IN AN INTEREST BEARING ACCOUNT, BUT THEY ARE

ALSO INVESTED IN SECURITIES AND OTHER INVESTMENTS.”  ALSO, PROVIDE THE TOTAL PREMIUM DOLLAR AMOUNT THAT THE AARP  INSURANCE PLAN AND AARP, INC. HAVE INVESTED SINCE 2002; WHAT PERCENTAGE OF

THAT ANNUAL TOTAL WAS INVESTED IN SECURITIES AND WHAT REMAINED IN AN INTEREST BEARING ACCOUNT; AND SPECIFY THE INDUSTRY SECTORS IN WHICH THESE “OTHER INVESTMENTS” ARE MADE. Thank you for the

opportunity to clarify my response to your questions at the hearing.  As we have explained in prior responses, “[w]hile within the Trust, [premiums] are invested, and income earned from the

investment of premiums while on deposit with the Trust is paid to AARP and used to support AARP’s mission and operation (and AARP bears the risk of any loss that may result from the

investment).” (Email from Ray Shepherd to Dan Elling and Jill Schmalz, June 16, 2010). We appreciate the opportunity to supplement and further explain how the Trust invests the premiums. 

The Trust assets are invested, pursuant to the Trust investment policy, in readily marketable securities, cash equivalents, fixed income, and equities as appropriate to the cash flow

requirements of the Trust.  Funds that will be needed to pay premiums near term are usually invested in cash equivalents and short term fixed income investments; funds that are expected to

be held over longer periods are typically invested in government, municipal, and corporate debt, large cap equities, small cap equities, and international equities.  The investment policy

provides that the investments are to be at all times broadly diversified both according to economic sector and industry; thus, no particular sector or industry is targeted.  The percentages

held in any of these investments vary depending on the cash flow needs of the Trust, which can change from time to time.  10.  WHEN ASKED IF AARP SERVICES HAS ANY ROLE WHATSOEVER IN SETTING

INSURANCE PREMIUMS OR RATES, YOU STATED, “THE ANSWER IS NO.” HOWEVER, AARP’S OUTSIDE COUNSEL INFORMED STAFF AFTER THE HEARING THAT, IN FACT, AARP SERVICES, INC. (ASI) DOES “REVIEW” PREMIUM

RATES AND MAY NEGOTIATE WITH THE INSURANCE CARRIERS SO THAT SUCH RATES ARE DEEMED “REASONABLE” BY AARP STANDARDS.  ONCE ASI AND AARP’S INSURANCE PARTNERS COME TO AN AGREEMENT, AARP’S

INSURANCE PLAN MUST APPROVE THE PREMIUM RATE.  IF APPROVED, THE RATE IS FORWARDED TO THE STATE INSURANCE COMMISSIONERS. WE WOULD LIKE TO GIVE YOU THE OPPORTUNITY TO ANSWER THE QUESTION

AGAIN. WHAT ROLE DOES AARP SERVICES HAVE IN SETTING THE PREMIUMS FOR AARP-BRANDED INSURANCE PRODUCTS?  IS AARP’S INSURANCE PLAN’S BOARD OF DIRECTORS RESPONSIBLE FOR APPROVING INSURANCE

PREMIUMS FOR AARP-BRANDED INSURANCE PRODUCTS?  IF SO, WHICH PRODUCTS? Thank you for the opportunity to clarify my comments at the hearing and to supplement our prior responses.  As we

explained in our correspondence of April 5, 2011, although ASI does not set the premiums for AARP-branded health insurance products, it does review the premiums proposed by the carriers as

part of its responsibility for quality control over the products.  In order for ASI to be satisfied about the reasonableness of the rates, consistent with its quality assurance

responsibilities, there may be a fair amount of back and forth discussions with the carrier.  This includes ASI prompting the carrier to keep its expenses low and thereby keep the premiums

reasonable for AARP members and insureds. Once ASI is satisfied with the rates, the AARP Insurance Trust reviews and approves the final recommendation for the average rate increases.  The

carriers then submit the rates to the state insurance commissions for final approval.  ASI and the Trust perform this review for the AARP-branded long term care insurance, health insurance

for persons aged 50-64, and Medicare Supplement insurance.  11. WHEN QUESTIONED ABOUT WHICH AARP ENTITY OVERSEES ITS INSURANCE CONTRACTS, MR. HAMMOND RESPONDED THAT “THEY ARE NOT OVERSEEN BY

THE [AARP, INC.] BOARD, THEY ARE OVERSEEN BY [AARP SERVICES, INC.], WHICH IS OUR FOR-PROFIT.  THEY MANAGE AND OVERSEE THE CONTRACTS.”  IT IS IMPORTANT TO NOTE THAT IN 2010, TWO OF AARP,

INC.’S DIRECTORS ALSO SERVED ON THE BOARD OF AARP SERVICES.