April 22,2009

Grassley urges AARP to set record straight with those indemnity health plan policy holders

Senator will continue oversight of plan

WASHINGTON --- Senator Chuck Grassley today asked the AARP to “go the extra
mile” to inform its policy holders about the limits and practical applications of its indemnity
health plans, which Grassley said had been marketed in a misleading way.

“I hope Congress can make limited benefit indemnity plans obsolete by making
meaningful insurance coverage available and affordable,” Grassley said. “Until then, people
who have limited benefit plans deserve complete and candid information about the plans. I’m
going to continue urging the AARP to make sure everyone who purchased these indemnity plans
knows what they have and what they don’t have. Beyond that, I hope this review results in on
one else being sold a plan that’s different than they were led to believe.”

In a letter sent today to the AARP’s chief executive officer, Grassley asked for regular
reports on how the organization will communicate with policy holders, what information is
provided, how many policy holders cancel or change plans after receiving the information, what
kinds of civil settlements are reached with individuals who purchased this product, and what
other actions are taken to make things right with existing policy holders. Grassley said he also
requested regular updates on the AARP’s monitoring of complaints about its health plans and
changes to marketing materials for products still on the market.

Last November, Grassley asked the AARP to account for the way its marketing materials
for a product it called health insurance fails to limit policy holders’ exposure to the potentially
high cost of a serious illness. Grassley said the AARP materials included examples of medical
expenses, but the examples are misleading and do not reflect how the policy would actually work
in a typical situation.

Within days of Grassley raising the issue, the AARP suspended the marketing and sales
of the product and began its own internal review. Grassley said his inquiry was prompted by the
experience of a cancer patient treated at M.D. Anderson Cancer Center in Houston, who was
forced to pay tens of thousands in up-front payments before she would be treated. Lisa Kelly’s
health policy was an AARP limited benefit policy. Grassley said his review of the health policy
led to the conclusion that the marketing materials are misleading and would cause an average
person to believe he or she is buying real insurance when the coverage is not insurance.

Grassley also wrote to state insurance commissioners to ask if they’ve received
complaints about the AARP policies or other limited benefit policies. Grassley is Ranking
Member of the Committee on Finance, where he is working with Chairman Max Baucus on a
bipartisan plan for comprehensive health care reform.

The text of Grassley’s letter to the AARP is below.

April 21, 2009

A. Barry Rand
Chief Executive Officer
601 E Street NW
Washington, DC 20049

Dear Mr. Rand:

I appreciate AARP’s continued cooperation with my staff and with the United States
Senate Committee on Finance (“Committee”) regarding AARP-licensed health insurance
policies. The briefings, responses, and document productions provided have helped my staff
shed light on AARP-licensed supplemental indemnity plans such as the “Essential Plus Health
Insurance Plan” (EPHIP) and the “Essential Health Insurance Plan” (EHIP). I want to take this
opportunity to share with you my findings, recommendations, and additional requests regarding
my inquiry.

Last year, I initiated this inquiry following Committee testimony by Lisa Kelly, a cancer
patient treated at M.D. Anderson Cancer Center in Houston, Texas. Allegedly led to believe she
had purchased AARP-licensed health insurance, Ms. Kelly found herself asked to pay tens of
thousands of dollars before she would be treated because of the very limited nature of her
AARP-licensed supplemental indemnity plan (“indemnity plans” or “limited benefit policy”). I
have also been made aware of the case of Janice and Gary Clausen, of Audubon, Iowa.

Apparently misled about the potential cost of medical care and the adequacy of limited benefit
plans, the Clausens purchased an AARP-licensed limited benefit plan for about $500 per month.
Soon after, Gary Clausen was diagnosed with colon cancer and the family was left with over
$150,000 in medical debt. The claims that Ms. Kelly and the Clausens had been mislead in their
search for health insurance resulted in my staff reviewing AARP’s marketing materials and to
my subsequent launch of this inquiry.

A preliminary review of AARP’s written and online marketing materials suggest that
these indemnity plans are neither health insurance in fact nor an adequate alternative. An AARP
brochure on the indemnity plans describes them as a “smart option for the health care insurance
you need,” then, in smaller font, “an indemnity plan that pays you fixed cash benefits for covered
doctor’s appointments, prescriptions, hospital stays, surgeries, outpatient lab tests, emergency
room visits and more – even though it’s not a major medical plan.” The promotional website
goes on to instruct individuals to apply for MAP if they “don’t have health coverage,” need “a
‘bridge’ to Medicare or until other coverage is available,” or “need to lower [their] medical
expenses.” Another promotional document, titled “Let me tell you how your plan works!”
describes how the plan pays for procedures. The document lists only a limited sample of lowercost
procedures such as an outpatient diagnostic colonoscopy. The document offers no examples
of how the benefit works for a surgery other than the relatively lower cost procedure, diagnostic
colonoscopy, which is not typically referred to as surgery. Moreover, the AARP document
provides no example of how the benefit would apply to an inpatient hospital stay or a surgery of
average cost. Telephone calls placed to AARP telephone sales representatives by my staff raised
further concerns about the information disclosed, or not disclosed, to AARP members seeking
health insurance.

Following this review, Committee staff held a preliminary meeting with AARP officials
to discuss the indemnity plans. During the meeting, these representatives stated that indemnity
plans, like the one purchased by Lisa Kelly for nearly $200 per month, were designed to be
purchased in addition to other health insurance, but for someone with no coverage, the plans
were, at least, “better than nothing.” They went on to say that they believed that these fixed
indemnity plans, which are targeted to people between 50 and 65 years of age, are indeed
purchased mostly by those who have no other health insurance. These differences in policy
design, AARP’s marketing campaign, and the acknowledged reality of the indemnity plan
market led me to launch a more in-depth inquiry into this matter.

On November 3, 2008, I wrote AARP a letter outlining the issues raised above and
subsequent concerns identified by Committee staff, as well as raising a number of additional
questions. This letter requested information regarding AARP’s marketing materials, telephone
representative talking points, what policies or programs the indemnity plans were designed to
“bridge,” complaints received, and other matters. I am attaching a copy of that letter for your
convenience. Let me also take this opportunity to outline the information provided in response to
this request.

AARP licenses its name to UnitedHealth Group (“United,”) which is the carrier for the
indemnity plans in question. United is responsible for the marketing, sales, and administration of
these policies; although AARP Services, Inc. oversees and monitors all use of AARP’s name,
approves all marketing materials, and monitors certain call-center activities. Calls to AARP
regarding the indemnity plans are often answered and serviced by Catalyst360, a division of
Hartford Fire Insurance Company.

Regarding the marketing of these indemnity plans, AARP stated that United widely
advertises the plans without regard to current coverage or health status. While United focuses
advertising activities on AARP members between 50 and 64, they do so with no knowledge of
the member’s current insurance status. Despite this, AARP stated that these indemnity plans are
designed to “provide a supplemental coverage option to AARP members who already have
comprehensive coverage but want to supplement their coverage.” Despite this design, AARP
call center representatives are instructed to tell AARP members with no other insurance “the
importance of having sufficient health insurance to help with medical expenses and how [AARPlicensed
indemnity plans are] uniquely designed as an affordable alternative to expensive major
medical insurance,” (emphasis added.) The indemnity plans, according to the AARP materials,
“may also be the only option available to individuals who do not qualify for, or cannot afford,
comprehensive insurance.”

This leaves open the question of whether AARP members that do not qualify for or can’t
afford “comprehensive insurance” are expressly advised of the limited nature of the plans they
are purchasing. For these members, call center employees are instructed to proceed in a way that
“assesses the caller’s eligibility and reviews the indemnity... products with the caller.” AARP’s
response makes clear that these AARP members are then directed toward only an AARPlicensed
product and not non-AARP policies available that may better cover the AARP member.
When talking to AARP members who cannot afford more comprehensive AARP-licensed
policies, call center employees describe the indemnity plans as an “affordable alternative to
major medical” and an “excellent choice” to an individual seeking a “less expensive option” to
major medical insurance. Call center employees are also instructed specifically not to mention
preexisting condition exclusions unless they are explicitly asked about them by members.
AARP marketing materials state that these indemnity plans are for individuals needing “a
‘bridge’ to Medicare or until other coverage is available.” Asked for further explanation of this
statement, AARP stated that the indemnity plans help AARP members bridge a “limited” period
of time, such as when they would otherwise go uninsured for financial or underwriting reasons
including being between jobs, not yet being eligible for employer-sponsored coverage, in
retirement but not yet Medicare eligible, or in cases that they otherwise cannot afford or qualify
for comprehensive health insurance. In light of AARP’s statement that these plans were
designed to supplement, rather than supplant, comprehensive health insurance, this makes the
sufficiency of AARP’s marketing materials all the more crucial. AARP’s response again made
clear that, in cases of AARP members needing this “bridge,” AARP markets to those individuals
only AARP-licensed products that are available to them.

My letter of November 3, 2008 also requested information regarding complaints and
other communications AARP received concerning their indemnity plans. AARP explained that
complaints and communications regarding these indemnity plans are received by AARP, United,
and Catalyst360. These complaints and communications aren’t categorized specifically as
complaints or concerns, and are not maintained in a consistent manner by the three entities. As a
result of not maintaining complaint information in a consistent and centralized manner across the
three entities that monitor complaints, AARP can neither adequately identify nor evaluate the
concerns and complaints lodged by its members who purchased an AARP-licensed indemnity

Again, the briefings, responses, and document productions provided by AARP have been
very helpful in assisting my Committee staff review this matter. After reviewing these materials
and Committee staff findings, I want to take this opportunity to share with you additional
recommendations and requests regarding my inquiry.

While AARP-licensed indemnity plans are marketed without regard to a member’s
insurance status, your organization’s marketing materials make clear that the uninsured are a
sought after customer and marketing techniques were designed to sell them indemnity plans
without regard to better options found elsewhere in the market. These materials establish that
AARP actively markets fixed-benefit indemnity plans to AARP members without medical
insurance. The marketing materials accomplish this by highlighting certain low-cost medical
procedures that are typically reimbursed by the indemnity plans. On the other hand the marketing
material fails to adequately highlight the risks associated with fixed-benefit indemnity plans. As
a result AARP is systematically misleading its members by failing to ensure that they are fully
apprised of the risks of underinsurance associated with the indemnity plans that are being sold
under its name. Furthermore, by informing its members only of the “best AARP-branded
product available,” and not non-AARP options that might be, in fact, better for their needs, your
organization is in fact doing its members a disservice by failing to present a full menu of the
available policies that may better suit their needs.

I remain deeply troubled by AARP’s practices regarding its indemnity plans. Further,
these plans have been sold to hundreds of thousands of AARP members, some of whom may
reasonably believe they were purchasing health insurance. Having sold these policies to so many
AARP members, AARP is also failing to maintain adequate communication systems to monitor
its members’ experiences and potential complaints about the product they have been sold under
its name. This situation in turn raises the additional question of how individuals currently
holding these limited indemnity policies will be advised of their insurance status, how problems
they encounter will be monitored and addressed, and how AARP will make things right for those
members that were led to believe they were purchasing adequate health insurance.

I request that AARP fully inform those individuals currently holding limited benefit
policies about the limited nature of these policies, and provide them with examples of how the
policies would work in reality. For these policies and all other AARP-licensed insurance
products, AARP should design a system to monitor and categorize complaints and other
communications from policyholders to make certain that AARP can adequately monitor its
members’ experiences and react responsibly to complaints.

Going forward, I request that AARP provide me with an update on these matters every
six months for the remainder of this Congress. The information provided in these updates should

1) How AARP’s complaint monitoring system has been improved, the number and
nature of complaints received regarding the remaining indemnity plans, and how they
were addressed.

2) Any update or modification of AARP’s marketing materials regarding health
insurance products it sells, including comparisons to prior versions.

3) Detailed information regarding any information provided to AARP members with
existing indemnity plans.

4) The number of AARP policy holders who cancel, switch, or otherwise modify their
plans after they receive such information, including how these cancellations and other
modifications compare to past activity.

5) Information regarding any civil settlement AARP executes with individuals who hold
or held the indemnity plans subject to this inquiry, with names and settlement details

6) Any actions AARP takes to compensate individuals who purchased an AARP limited
benefit policy.

As Congress moves to reform America’s health care system, it is my hope that we can
make limited benefit indemnity plans obsolete by making meaningful insurance coverage
available to everyone. In the meantime, it is crucial that we make certain that those with existing
policies fully and promptly understand them and that those choosing health care coverage can
make informed decisions based on accurate, timely and realistic information. Thank you again
for your continued cooperation in this matter.


Charles E. Grassley
Ranking Member