AARP Must Face Claims it Gouged Seniors on Insurance

AARP, the nation’s largest senior citizen lobby, must face a federal class action alleging it bilked seniors of millions of dollars in health insurance premiums by soliciting insurance sales without a license.

The 9th U.S. Circuit Court of Appeals on Wednesday reinstated a lawsuit alleging AARP transacts and solicits insurance without a license. The class action alleges that seniors were duped into believing a 5 percent fee it adds to insurance is a royalty when it is an illegal insurance commission.

Lead plaintiff Jerald Friedman has met the burden to persue his claim that AARP transacts insurance by collecting commissions from those who buy UnitedHealth’s Medigap policy.

He sued AARP and UnitedHealth in  2014 alleging the fee amounted to a commission on top of monthly premiums.  He claimed violation of California’s unfair competition law.

The panel held that Friedman plausibly alleged that the public was likely to be deceived when AARP allegedly told members that their payment only covered AARP’s expense and the premium for UnitedHealth’s Medigap coverage, but in reality, included an imbedded commission.

AARP is a dominant player in the market for Medigap health insurance, selling more than three times its closest competitor, the court noted.

AARP does not provide insurance coverage and has no license to do so. Instead, it is a group policyholder for Medigap coverage that is sold by UnitedHealth. AARP solicits its members to enroll and collects insurance premiums from its members then pays UnitedHealth. AARP first deducts a 4.95 percent of every dollar paid by enrollees. It is that fee that is the issue in the dispute.

Friedman is not the first to question AARP’s collection of this fee.  Federal regulators began to question AARP’s tax-exempt status based o the income it earned through this deal.  In 2011, a House committee reviewed the fee.

Friedman’s suit alleges AARP acted illegally as an “unlicensed insurance agent” who was paid a “commission” for the sale of insurance. The trial court rejected the claim and dismissed the lawsuit. Friedman appealed and the 9th Circuit reinstated the lawsuit, giving Friedman his day in court.

The opinion by visiting Judge Barrington Parker of the 2nd Circuit Court of Appeals and Judges Richard Tallman and Morgan Christen.

Case: Friedman v. AARP, No. 14-56765


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