    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                        HEARING ON AARP'S ORGANIZATIONAL
                      STRUCTURE, MANAGEMENT, AND FINANCES

    =======================================================================

                                    HEARING

                                   before the

                             SUBCOMMITTEE ON HEALTH

                                    and the

                           SUBCOMMITTEE ON OVERSIGHT

                                     of the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 APRIL 1, 2011

                                   __________

                                Serial No. HL-02

                                   __________

             Printed for the use of the Committee on Ways and Means

                      U.S. GOVERNMENT PRINTING OFFICE
    70-865                    WASHINGTON : 2011
    -----------------------------------------------------------------------
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    20402-0001

                          COMMITTEE ON WAYS AND MEANS

                             SUBCOMMITTEE ON HEALTH

                           SUBCOMMITTEE ON OVERSIGHT

                     WALLY HERGER, California, Chairman, &

                 CHARLES W. BOUSTANY, JR., Louisiana, Chairman

    SAM JOHNSON, Texas                   PXAVIER BECERRA, California
    PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
    DEVIN NUNES, California              EARL BLUMENAUER, Oregon
    DAVID G. REICHERT, Washington        RON KIND, Wisconsin
    DEAN HELLER, Nevada                  BILL PASCRELL, JR., New Jersey
    PETER J. ROSKAM, Illinois
    JIM GERLACH, Pennsylvania
    TOM PRICE, Georgia
    VERN BUCHANAN, Florida
    AARON SCHOCK, Illinois
    LYNN JENKINS, Kansas
    KENNY MARCHANT, Texas
    DIANE BLACK, Tennessee
    FORTNEY PETE STARK, California
    JOHN LEWIS, Georgia
    JIM MCDERMOTT, Washington

                           Jon Traub, Staff Director

                      Janice Mays, Minority Staff Director

    Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
    hearing records of the Committee on Ways and Means are also, published
    in electronic form. The printed hearing record remains the official
    version. Because electronic submissions are used to prepare both
    printed and electronic versions of the hearing record, the process of
    converting between various electronic formats may introduce
    unintentional errors or omissions. Such occurrences are inherent in the
    current publication process and should diminish as the process is
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                                C O N T E N T S

                                   __________
                                                                       Page
    Advisory of April 1, 2011, announcing the hearing................     2

                                   WITNESSES

    PANEL 1:
      A. Barry Rand, Chief Executive Officer, AARP Accompanied by,
        Lee Hammond, President, AARP Board of Directors..............     9
    PANEL 2:
      William Josephson, J.D., Of Counsel, Fried, Frank, Harris,
        Shriver & Jacobson LLP.......................................    79
      Frances R. Hill, J.D.,Ph.D, Professor, University of Miami
        School of Law................................................    88

           AARP'S ORGANIZATIONAL STRUCTURE, MANAGEMENT, AND FINANCES

                                  ----------

                             FRIDAY, APRIL 1, 2011

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                                        Washington, DC.
        The subcommittees on Health and Oversight met, pursuant to
    call, at 9:00 a.m., in Room 1100, Longworth House Office
    Building, the Honorable Wally Herger [chairman of the
    subcommittee on Health] presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

                     Chairmen Herger and Boustany Announce

            Hearing on AARP's Organizational Structure and Finances

    Friday, March 25, 2011

        House Ways and Means Health Subcommittee Chairman Wally Herger (R-
    CA) and Oversight Subcommittee Chairman Charles Boustany, Jr, MD (R-LA)
    today announced that the Subcommittees on Health and Oversight will
    hold a hearing on AARP's organizational structure, management, and
    financial growth over the last decade. The hearing will take place on
    Friday, April 1, 2011, in 1100 Longworth House Office Building,
    beginning at 9:00 A.M.

        In view of the limited time available to hear from witnesses, oral
    testimony at this hearing will be from invited witnesses only. However,
    any individual or organization not scheduled for an oral appearance may
    submit a written statement for consideration by the Committee and for
    inclusion in the printed record of the hearing. A list of invited
    witnesses will follow.

    BACKGROUND:

        AARP has long held itself out as the preeminent non-profit
    organization representing America's seniors. However, many do not
    realize that AARP collects billions of dollars each year through the
    sale and marketing of insurance products. Additionally, memberships on
    AARP's corporate for-profit and tax-exempt non-profit boards overlap.
    Given the Committee's responsibility to conduct rigorous oversight,
    jurisdiction over Medicare and sale of Medicare insurance products and
    sole jurisdiction over the Tax Code, the Committee will review AARP's
    organizational structure and finances.

        In announcing this hearing, Chairman Herger said, ``AARP is known
    for being the largest and most well known seniors' organization in the
    country. But what Americans don't know is that AARP was the 4th highest
    spending lobbying organization between 1998 and 2010 or that the AARP
    brand dominates the private Medicare insurance market. This hearing is
    about getting to the bottom of how AARP's financial interests affect
    their self-stated mission of enhancing senior's quality of life. It is
    important to better understand how AARP's insurance business overlaps
    with its advocacy efforts and whether such overlap is appropriate.''
        In announcing the hearing, Chairman Boustany said, ``As one of the
    country's most well-known non-profits, many of America's seniors trust
    AARP to represent their interests. But in light of AARP's dependence on
    its income from insurance products, there is good reason to question
    whether AARP is primarily looking out for seniors or just its own
    bottom line. Before seniors decide whether AARP is worthy of their
    trust, or their hard-earned dollars, they deserve all of the facts. The
    purpose of this hearing is to provide a public examination of the facts
    so seniors can decide those questions for themselves.''

    FOCUS OF THE HEARING:

        The hearing will examine AARP and its affiliates, revenue,
    charitable giving, Boards of Directors, and lobbying expenditures.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
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    FORMATTING REQUIREMENTS:

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        1. All submissions and supplementary materials must be provided in
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        The Committee seeks to make its facilities accessible to persons
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    materials in alternative formats) may be directed to the Committee as
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        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Chairman HERGER. The subcommittee will come to order.
        When Dr. Ethel Percy Andrus founded AARP in 1958, Medicare
    did not exist. Dr. Andrus understood that seniors needed access
    to health insurance and found a solution.
        What began as an organization that filled a need not yet
    met by society has grown and evolved over the last 50 years
    into AARP, Inc. and its affiliated entities. With the
    establishment of Medicare in 1965, health insurance became
    widely accessible to seniors.
        However, AARP kept on with its reported mission: to promote
    independence, dignity and purpose for older persons; to enhance
    the quality of life for older persons; to encourage older
    people ``to serve, not to be served.''
        These are unquestionably laudable goals. However, as we
    will discuss today, Mr. Reichert, former Congresswoman Ginny
    Brown-Waite, and I took a closer look into AARP over the last
    18 months, reviewing nearly every publicly available document,
    and the facts suggest that AARP has strayed from its core
    mission.
        The facts show that AARP no longer operates like a seniors'
    advocacy organization. Instead, it is more closely resembles a
    for-profit insurance company.
        In 2009, AARP raised 46 percent of its revenue from royalty
    payments versus just 17 percent from membership dues. While
    questions have indeed been raised in the past about AARP's
    reliance on royalties, the amount of these payments has nearly
    tripled just over the past decade.
        AARP asserts that their policy positions are made by its
    all-volunteer board of directors, which is separate from its
    business interests. The facts show otherwise.
        In 2010, the entire board of AARP Insurance Plan, which
    collected and processed $6.8 billion in insurance premiums in
    2009, also served on the board of directors of AARP, which
    makes policy decisions. The AARP Insurance Plan funneled
    millions of dollars to AARP, Inc. in 2009.
        The facts show that AARP is dependent on the hundreds of
    millions of dollars it receives primarily from insurance
    companies and could not continue to operate in its current
    fashion without this revenue. AARP revenue from membership dues
    totaled $246 million in 2009, just barely enough to cover its
    employee compensation and legal and accounting fees.
        AARP's decision to endorse more than one-half trillion
    dollars in Medicare cuts to pay for a new entitlement program
    seemed to directly contradict its mission. This became more
    disconcerting when Medicare officials warned that the Medicare
    cuts were so severe that seniors' access to care could be
    jeopardized. Medicare officials also revealed that the health
    care law will result in a migration from Medicare Advantage to
    Medigap plans that could force as many as 7 million seniors to
    give up a plan they know and like.
        What does this have to do with AARP? Well, it turns out
    that upon a close examination of AARP's Medicare insurance
    business, the facts show that AARP had a unique financial
    incentive that was not transparent to seniors, the public or
    Members of Congress during the health care reform debate. As a
    result of the unique contractual relationship between AARP and
    United Health Group, AARP stands to earn $1 billion over the
    next 10 years as a result of the Democrats' health care
    overhaul on top of hundreds of millions of dollars in insurance
    royalties that they currently collect.
        This is just one of a number of shocking details contained
    in a report issued earlier this week by Mr. Reichert and me,
    many of which will be discussed today.
        I would now like to recognize Mr. Reichert, who has been a
    driving force in this investigation, to make a brief opening
    statement.
        Mr. REICHERT. Thank you, Mr. Chairman, for allowing me some
    time to say a few words.
        First, I want to take a moment just to thank all of the
    volunteers that volunteer with AARP and the wonderful work that
    you all do. I know there are some here in the hearing room
    today, and some that may be listening across the Nation. Thank
    you for volunteering and being engaged in helping our seniors
    across this country.
        I know that Mr. Rand and Mr. Hammond and others here
    representing AARP, I know your hearts are in the right place,
    but sometimes we can sort of find ourselves misguided and going
    down the wrong path. We are here today just to make sure as
    representatives of the people and our districts and across this
    country that AARP is still on the right path. Your mission
    statement is to make sure that you help seniors, and that is
    what we want to do, too. We want to help seniors and make sure
    that they can get the best health insurance coverage they can
    get so they can have the best retirement that we know they all
    deserve as they worked so hard during their lives.
        But I sort of became very concerned back in 2007 when the
    first cut was mentioned to Medicare Advantage. It was a $200
    million cut associated with a SCHIP vote. I was very puzzled,
    to be honest with you, sir, as to why AARP would support a $200
    million cut to Medicare Advantage. Eventually what happened,
    the Senate didn't support that cut and the cut wasn't made, and
    SCHIP found other ways to support their financial needs.
        And then along came the health care bill and a $523 billion
    cut to Medicare was announced as one of the mechanisms to pay
    for the health care bill. Close to $200 billion cuts again to
    Medicare Advantage were mentioned as part of the solution to
    finding finances to fund the health care bill.
        So again I was puzzled. So myself and Mr. Herger and Ginny
    Brown-Waite began to generate some letters and ask some
    questions. Again to be honest with everyone in the room and
    people watching today, we did not get forthright answers. We
    were looking for some very simple answers to some very simple
    questions as to where money is going, and why it is going and
    why AARP supported that huge of a cut, a half a trillion
    dollars to Medicare. We just wanted to know on behalf of the
    seniors what the truth was. And we couldn't get it.
        So now we find ourselves today, after 18 months of
    interviews and exchanging letters, and here we are today at
    this hearing. I wish we could have been more forthright, you
    could have more forthright with your answers. Hopefully today
    you will be, and we will be able to get to the bottom of this
    and make sure together that our seniors are cared for properly
    and that they enjoy the retirement that they deserve.
        So I appreciate your presence here today and look forward
    to asking you some questions and getting some straight answers.
    Thank you.
        Chairman HERGER. I thank Mr. Reichert and I thank you for
    your dedication for being involved in this process.
        Before recognizing our Ranking Member Stark for the
    purposes of an opening statement, I ask unanimous consent that
    all members' written statements be included in the record.
    Without objection, so ordered.
        I now recognize Ranking Member Stark for his opening
    statement.
        Mr. STARK. Chairmen Herger and Boustany, I want to thank
    you both for holding this hearing. There are questions to ask
    of AARP; of course, we could ask those same questions of the
    Chamber of Commerce, which outranks AARP as the top spending on
    lobbying over the last 12 years, spending three-quarters of a
    trillion dollars lobbying over that period. We could ask the
    questions of American Crossroads, which was founded by Karl
    Rove and spent millions with its sister organization trying to
    defeat Democratic candidates in the last election.
        But the Republicans do not seem to want to ask those
    questions today, and it is easy to understand why: those groups
    opposed the Affordable Care Act and AARP supported it. So this
    amounts to nothing more than a political witch hunt to punish
    an organization that spoke out in favor of health care reform.
    Any organization that would stand in the way of the goal to
    privatize Social Security, end Medicare, and turn senior
    citizens over to the mercy of private health insurance
    companies would be suspect.
        Now, I have to admit that in the past, and even today, I
    have raised questions about AARP. It is true that in addition
    to the work that they do advocating for us elderly, they make a
    tremendous amount of money off businesses that they market to
    us. And it is no surprise to American seniors that their
    products make them probably the biggest player I think in
    Medigap, Medicare Advantage, Part D drug plans, and it is
    obvious to us, when you are shopping the market, that their
    plans are well priced and have good features.
        So it is not exactly that they are hiding under a veil, as
    the Republicans would suggest. Many AARP members have looked
    forward to joining for the discounts and other deals that they
    get.
        So they have investigated the AARP for a year. In that
    time, all that the Republicans have found is publicly available
    information. Here it is. This is all publicly available. You
    don't have to research anything. It is all publicly available.
    I must admit, I have not read through it, but it is large and
    heavy. It is a complex organization, all of which is legal. In
    fact, the information in here indicates there is nothing
    illegal.
        I must admit that when we had Holtz-Eakin here, the
    President of the American Action Forum, he wouldn't answer any
    of our questions. He said he didn't have to and he wasn't about
    to, and he wouldn't explain who was funding his organization.
    So while he refused to disclose the information, AARP at least
    has been up front. It is transparent.
        It seems to me and everyone sitting here today, rather than
    American Action Network or 60 Plus or American Crossroads or
    the Chamber of Commerce, we are here to discredit AARP in the
    minds of seniors. They know, my colleagues across the aisle,
    know that us seniors trust AARP and that is why the Republicans
    lauded AARP's endorsement of the Republican Medicare
    prescription drug bill in 2003, which I thought was wrong and I
    thought it was a bad thing for AARP to do, but the Republicans
    loved it.
        Now, 8 years later, they are trying to break the trust that
    American seniors have in AARP. Before they announce a budget
    that will devastate Medicare, Social Security, Medicaid, the
    Republican plan is to privatize Social Security, block grant
    Medicaid, end Medicare, they would like to kind of silence
    AARP, and that is why we are here today.
        We should see this for what it is: a waste of government
    time and abuse of government resources and a vindictive attempt
    to settle a political score and silence a voice that represents
    seniors.
        I yield back the balance of my time, and I look forward to
    hearing the testimony of witnesses.
        Chairman HERGER. I thank the ranking member from
    California, Mr. Stark.
        I now recognize Dr. Boustany, chairman of the Committee on
    Oversight, for an opening statement.
        Chairman BOUSTANY. As Chairman Herger said in his opening
    statement, AARP was created with the praiseworthy and noble
    goal of promoting independence, dignity and enhancing the
    quality of life for older Americans. As a physician before I
    came to Congress, and now as a Member of Congress, I have
    interacted with many volunteers in my home State of Louisiana
    who have done excellent work. Founded with this goal, it was
    incorporated under section 501(c)(4) of the Internal Revenue
    Code. This meant that in return for promoting social welfare
    and the common good, it would enjoy exemption from Federal
    income taxes.
        Today, more than 50 years after its founding as a small
    nonprofit helping the retired, AARP has changed into what
    appears to be an insurance and advertising powerhouse.
    According to the most recent data we have, AARP, Incorporated
    and its for-profit organizations annually process billions of
    dollars in insurance premiums, and earned nearly $700 million
    in insurance revenues and over $100 million in advertising
    revenues.
        Only a fifth of its revenue come from membership dues and
    contributions. Since 2002, AARP's revenue from membership dues
    has only increased modestly. Over that same period, however, by
    partnering with other companies to sell insurance, AARP has
    experienced gains in its royalty income that any private sector
    business would envy. Its revenues have nearly tripled, growing
    from $240 million to $657 million in 2009.
        Yet as AARP, Incorporated has grown by leaps and bounds,
    its funding for charitable work has nearly flat-lined.
    Contributions to the AARP Foundation between 2002 and 2009 grew
    by only 11 percent, or about $3.1 million. And funding of legal
    counsel for the elderly actually decreased by about 9 percent.
    The parts of AARP that fulfill its original purpose seem not to
    be sharing in the bounty that has come to AARP from its
    insurance-related business activities.
        Another concern regarding AARP is whether they provide
    excessive compensation to executives, which might suggest that
    the organization exists more for the enrichment of its officers
    and employees and less for the public good. In the case of
    AARP, executive compensation and benefits often far exceed what
    one might think appropriate for a tax-exempt organization. The
    website Charity Navigator compares the compensation of CEOs at
    charities and nonprofits with expenditures exceeding $500
    million. And looking at these numbers, we see that compensation
    for AARP's top executive is a consistent outlier, reaching as
    high as $1.6 million in 2009.
        In addition, AARP has maintained travel policies that
    exceed what are considered ``best practice'' recommendations
    developed by an independent oversight group which AARP's then-
    CEO was involved in.
        The differences in revenue generated and money spent
    ``promoting social welfare and the common good'' suggest that
    AARP may have strayed from its original mission and brings into
    question whether it is appropriate for it to continue to
    operate as a 501(c)(4) tax-exempt organization. This is
    primarily a question for the IRS, and we will be asking them to
    conduct a review.
        Let me end by saying that as chairman of the Ways and Means
    Subcommittee on Oversight, I take this committee's
    responsibilities on oversight very, very seriously and I intend
    to take a closer look at the IRS's administration of the tax-
    exempt sector and whether the IRS is adequately overseeing the
    practices of tax-exempt organizations.
        I yield back the balance of my time.
        Chairman HERGER. Thank you, Mr. Boustany. I now recognize
    Representative John Lewis, ranking member of the Subcommittee
    on Oversight, for the purposes of making an opening statement.
        Mr. LEWIS. Thank you, Mr. Chairman, for holding a hearing
    on tax-exempt organizations. However, I do not think we should
    single out just one organization. While I agree that
    organizations that enjoy a special tax status should justify
    the reasons for their exemption, I know there are about 140,000
    other organizations that share the same tax status.
        Mr. Chairman, while it is our duty to provide oversight of
    the nonprofit sector, I am saddened that you have chosen to
    fulfill your duty in the manner displayed today. You and I both
    know that this hearing is politically motivated and driven by
    AARP's support for the Affordable Care Act.
        Your report admits that all of the information contained in
    it came from publicly available documents, filed in accordance
    with the law. There is nothing new here today, nothing that is
    not already public, nothing that sets AARP apart, no unveiling
    that I can see.
        I am mindful that the majority wants to cut Social
    Security. They want to cut Medicare. They want to cut programs
    that help the poor. I can only surmise that the true intent of
    this hearing is to harm the reputation of AARP or to silence
    their voice as we move closer to this debate.
        If there was a plan to provide real oversight today, we
    will have before us other organizations who share the same tax
    status as AARP, like 60 Plus. We would have more organizations
    like Tea Party Patriots, American Crossroads GPS, and American
    Action Network. They all share the same tax status as AARP and
    played a major role in the elections.
        If there was a real plan today, we would have before us a
    $2.2 billion a year racetrack and casino operating in Iowa
    under the same tax-exempt status as AARP. I find this unreal.
    It is unbelievable. If oversight were the true goal, we would
    look at the compensation paid by other tax-exempt
    organizations, including those that opposed health care reform,
    like the Chamber of Commerce, AHIP, AND NFIB. All pay their
    executives well, and more than AARP.
        Based on all of this, I believe that there is no plan for
    oversight today. We have before us a single witness, a biased
    report, and the use of committee resources to settle a score.
    This is nothing other than a political witch hunt. The Ways and
    Means Committee is better than this.
        I ask my colleagues: Who is next? Who else is on your list?
    My college? Your church? This is a dangerous game to play.
        In closing, I am pleased to have before us today a
    nationally recognized expert in the law of tax-exempt
    organizations professor, Professor Frances Hill. She wrote one
    of the leading treatises in this area, and I look forward to
    her testimony.
        I yield back the balance of my time.
        Chairman HERGER. Thank you, Mr. Lewis.
        I would now like to turn to the subcommittee's first panel.
    Today we are joined by Barry Rand, Chief Executive Officer of
    AARP, who is accompanied by Lee Hammond, President AARP Board
    of Directors. Mr. Rand, thank you for agreeing to testify
    today. You will have 5 minutes to present your testimony. Your
    entire written statement will be made part of the record.
        You are now recognized for 5 minutes.

      STATEMENT OF A. BARRY RAND, CHIEF EXECUTIVE OFFICER, AARP,
     WASHINGTON, D.C.; ACCOMPANIED BY LEE HAMMOND, PRESIDENT, AARP
                           BOARD OF TRUSTEES

        Mr. RAND. Thank you, Mr. Chairman. Good morning. I am Barry
    Rand, CEO of AARP. And joining me this morning is Lee Hammond,
    President of AARP and a member of the AARP Board of Directors.
    Lee, like all 22 members of our board, is an unpaid volunteer.
        AARP is proud of our record. Throughout our more than 50
    years of service, we have worked tirelessly to promote
    nonpartisan policy solutions, to improve the marketplace, to
    enhance the public good, especially for those 50 and older, and
    we will continue to do so in the future.
        We are a strictly nonpartisan organization. We do our work
    in a very public way. Since its founding, AARP has made
    information about its finances, mission, and governance
    available to the public. We post on our Web site our annual
    reports, financial statements, IRS Form 990 tax returns, and
    detailed breakdowns of our revenues and expenditures.
        This is why we are surprised and disappointed both by the
    title and substance of the report a few members released this
    week: ``Behind the Veil: The AARP America Doesn't Know.'' There
    is no veil. Quite frankly, we disagree with each of the
    conclusions drawn in this one-sided report.
        First, we reject the allegation that our public policy
    positions are influenced by our revenues. Our policy positions
    are set by our all-volunteer board of directors based on the
    needs of the 50-plus population. They are determined totally
    independent from revenue considerations. We have long
    maintained that we would forgo revenue in exchange for lifetime
    health and financial security for all older Americans. The
    revenues we earn from royalties allow us to keep membership
    dues low, currently $16 a year, while providing outstanding
    benefits to members and to all Americans age 50 and older.
        We also reject the conclusion that we are not good stewards
    of our nonprofit status. The revenue that AARP receives from
    lending its name to products and services goes directly to
    fulfilling our mission and serving people 50-plus.
        Our mission includes three major areas. We work to make
    sure that people have access to affordable, quality health
    care. We work to make sure that people have the opportunity to
    achieve lifelong financial security, and we help and empower
    people 50-plus to live their best lives. These are the
    principles AARP was founded upon.
        Dr. Ethel Percy Andrus, a retired educator from California,
    was appalled when she discovered a retired teacher living in an
    old chicken coop, so she began a campaign to get affordable
    group medical insurance for retired teachers, creating the
    first group health insurance plan for people 65 and older in
    the country, a decade before Medicare.
        In 1958, she created AARP for seniors across the country
    who needed health insurance for themselves. Through AARP, Dr.
    Andrus also envisioned a better life for seniors that included
    health and economic security and opportunities to remain active
    and productive members of society. When we look at what Dr.
    Andrus did, it is truly remarkable. She came up with a
    creative, marketplace solution to what was then considered to
    be an unsolvable problem: providing access to health care for
    seniors. She changed the market by bringing seniors together
    who shared those needs. We have followed Dr. Andrus' lead ever
    since.
        Lee, our other volunteer leaders, and our dedicated staff
    are the guardians of that legacy today. We are leading efforts
    to improve life for all generations by working to provide
    access to quality, affordable health care, including lower
    prescription drug costs; improve and protect financial
    security, including Social Security; fighting age
    discrimination; and we advocate for consumers. For example,
    AARP has supported bipartisan legislation, including the
    Lifetime Income Disclosure Act, which will provide consumers
    with better information about their 401(k) plans.
        We are also proud to endorse strengthening the Medicare
    Anti-Fraud Act. This bill, sponsored by the chair and the
    ranking member of the Health Subcommittee, empowers the
    government to reduce Medicare fraud.
        AARP also provides direct assistance to Americans. For
    example, as we sit here today, more than 30,000 AARP tax aide
    volunteers are helping 2.6 million taxpayers prepare their
    taxes. In 2010, 193,000 people with low incomes received a
    total of $233 million in earned income tax credits. Last year,
    AARP volunteers helped more than 526,000 people stay safe on
    the roads through our driver safety program. Also in 2010, our
    advocacy efforts helped consumers save more than $3 billion in
    lower utility costs.
        Last year, more than half a million people visited our
    ``Create the Good'' Web site, connecting with more than 260,000
    volunteer opportunities in their communities.
        Today, AARP and the AARP Foundation, in partnership with
    NASCAR's Jeff Gordon and Hendrick Motorsports, are leading the
    ``Drive to End Hunger,'' an effort to help 6 million American
    seniors and another 6 million in their families who face the
    horror of going hungry every day.
        That is AARP, working to make sure that the American dream
    lives on for all generations.
        Thank you.
        [The prepared statement of Mr. Rand follows:]

        Chairman HERGER. Mr. Rand, I thank you for your testimony.
        I would like to call to your attention to the monitors and
    the chart detailing AARP's sources of revenue. According to
    AARP's consolidated financial statement, AARP's royalty
    revenue, which comes primarily from insurance companies, was
    $240 million in 2002 and grew to $657 million in 2009, an
    increase of nearly 200 percent. During this same period AARP's
    revenue from membership dues, advertising and Federal and other
    grants, have remained relatively flat. It is safe to say that
    AARP could not operate or function as it does today without the
    money it makes from its insurance business, which certainly
    raises suspicion about where AARP's motives lie.
        If AARP did not have the nearly one-quarter of a billion
    dollars in royalty payments coming in, most of which are from
    insurance companies, what sort of changes would AARP need to
    make?
        Mr. RAND. Quite frankly, AARP is very proud of the fact
    that its membership dues are kept low. We work at keeping them
    low. In fact, the directive from the board is we want to keep
    membership dues low. We don't expect to extract incremental
    dollars from our membership. We invest in it. So we are proud
    of that particular fact.
        Now, royalties, royalties from health insurance companies,
    royalties from financial products, royalties from other
    products, life-style products, we believe that part of the
    solution to meet the unmet needs of the 50-plus population----
        Chairman HERGER. Mr. Rand, if you could answer my question.
    If you did not have these huge profits from the insurance
    companies, what would you do? What would that do to you?
        Mr. RAND. It would decrease our ability to serve 100,000
    50-plus and 37 million members. All of our revenue, all of our
    revenue, goes toward our mission.
        Chairman HERGER. So in other words, this is very important,
    the revenues you are bringing in from the profits that are
    made, the royalties that are made from your insurance
    companies; is that not correct?
        Mr. RAND. It is very important to our members and it is
    very important to the 100,000 50-plus.
        Chairman HERGER. So, therefore, you have a great interest
    in those revenues, those royalties being high, as we have seen
    the huge increases that have taken place in a relatively short
    period of time?
        Mr. RAND. As you know, royalties are tax exempt. But let me
    tell you what we do with the money.
        Chairman HERGER. Just answer my question. You have a great
    interest in that those royalties be high because your dues
    would be higher if they weren't; is that correct?
        Mr. RAND. Would you like me to tell you where our interests
    lie?
        Chairman HERGER. Just yes or no. Is that correct?
        Mr. RAND. Obviously, it would----
        Chairman HERGER. Answer the question, please.
        Mr. RAND. The answer is we have an interest in meeting the
    unmet wants and needs of our population. That is what our
    interest is. This is not something that we devise. All of these
    insurance products come from our members and the 50-plus
    population who say we have these needs. They give us their
    needs and wants, and if they are in the insurance area, we
    convey those to potential providers of insurance. That is what
    we do.
        Chairman HERGER. I understand. Again, I would appreciate if
    you keep to answering my question, if you would. I thank you
    for that.
        You stated in your testimony under the Democrat health care
    overhaul, that the AARP's branded insurance plans for 50 to 64-
    year-olds will become obsolete and AARP will no longer receive
    revenues from those plans.
        Can we take from that statement that AARP will not endorse
    or sell insurance in the government-run exchanges and that AARP
    will not accept any royalty or commission payments or licensing
    fees from any insurance plan operating in the exchange? And
    will you make that commitment today?
        Mr. RAND. We don't sell insurance, Mr. Chairman.
        Chairman HERGER. You do receive royalties which would rank
    you as the sixth largest health insurance company in the United
    States; is that not correct?
        Mr. RAND. The answer is that we are not an insurance
    company. We do not sell insurance. We don't underwrite any
    insurance.
        Chairman HERGER. Do you not receive the sixth highest
    royalties of any insurance company in the United States?
        Mr. RAND. Excuse me. Could you just repeat it?
        Chairman HERGER. Do you not, AARP, does not AARP in
    royalties receive the highest, the sixth highest profits of any
    health insurance company in the United States? Is that not a
    correct statement?
        Mr. RAND. It is not correct. We don't receive profits, sir.
        Chairman HERGER. Royalties.
        Mr. RAND. I don't know what the----
        Chairman HERGER. You receive royalties that would rank you,
    and again this is public information, that would rank you as
    the sixth largest for-profit, were you a for-profit, which the
    IRS does not rank you as, and that is one of the purposes of
    this hearing, would rank you as if you were an insurance
    company. Well, anyway your public information would indicate
    that.
        Mr. RAND. Yes.
        Chairman HERGER. Finally, I would like to highlight the
    recent comment from an AARP spokesman that, quote, ``AARP is
    committed to transparency, and the hearing will provide us yet
    another opportunity to answer any questions.''
        I found this quote somewhat refreshing given AARP's
    repeated refusal for 18 months to provide members of this
    committee financial documents relating to the AARP Insurance
    Plan, AARP Services, and details about AARP's Medicare
    insurance contracts. Given your new commitment to transparency,
    I have a few questions I would like you to answer or to commit
    to answering on the record.
        In 2007, AARP retained 4 percent of every Medigap insurance
    premium it received. In 2009, AARP retained 4.95 percent of
    premiums paid for every AARP Medigap policy. Could you tell us
    how you decided on 4.95 percent and what went into that
    conclusion? What percentage of AARP's Medigap premiums will
    AARP keep in each year from 2011 until the current contract
    expires in 2017?
        Mr. RAND. May I address your premise?
        Chairman HERGER. I would like you to address my question.
        Mr. RAND. That is what I think I am trying to do.
        Chairman HERGER. Premise and question are two different
    things. If you can address my question.
        What went into your decision for AARP to increase its
    royalties from 4 percent to 4.95 percent, first of all? And
    what percentage do you anticipate that AARP will keep from each
    year from 2011 to 2017? So if you could address my question,
    please.
        Mr. RAND. Number one, the royalties have nothing to do with
    the premiums of the beneficiaries. Nothing to do with the
    premiums.
        The premiums----
        Chairman HERGER. That is not my question. I asked you what
    went into your decision that it would be 4 percent and what
    went into your decision to increase it from 4 to 4.95? That is
    my first question.
        Mr. RAND. That was simply a renegotiation between United
    and AARP.
        Chairman HERGER. Could you tell us what percentage AARP
    Medigap premiums, what you will keep in each of the years, the
    year we are in, 2011 through 2017, which is what your contract
    runs for? Will it go up again? Will it remain at 4.95?
        Mr. RAND. I can't answer the future. We have not talked
    about that.
        Chairman HERGER. Okay. How much money did AARP earn on
    investing seniors' insurance premium money before kicking a
    portion of the premiums back to United in 2008, 2009, and 2010?
        Mr. RAND. The premiums from the beneficiaries since 1958
    have gone into a trust, a legal trust. It has been the
    collecting portion of these checks and beneficiary----
        Chairman HERGER. Again, if you can ask my question. That is
    public information that you are stating. We all know that. What
    we don't know and what you would not answer when we requested
    from you and what my question is: What portion of the premiums
    did you give back to United, money before kicking in a portion?
        Mr. RAND. All of the money that we took----
        Chairman HERGER. How much did you earn in investment before
    giving it back? That is my question which is not public record.
        Mr. RAND. Do you mind if I answer it in two parts, sir?
        Chairman HERGER. If you answer it, yes.
        Mr. RAND. The first part, any interest that we have goes
    back to our mission which means it goes back to the 50-plus----
        Chairman HERGER. That is not answering my question. You
    have stated that already. Could you be precise in answering my
    question which you are avoiding and which you would not answer
    for 18 months?
        Mr. BECERRA. Mr. Chairman, I am not certain what is going
    on here, but to some degree the witness is entitled to an
    opportunity to try to respond. If the chairman or any member
    does not believe that is responsive, and certainly we are
    entitled, as members, to try to extract as best an answer as we
    can. But at this stage I think you are preventing the witness
    from responding.
        Chairman HERGER. The gentleman has not been recognized.
        Let me just say that I will take that as you refuse to
    answer my question.
        Mr. RAND. No, I am. No.
        Chairman HERGER. Either answer my question or we will move
    on to the next one because you are not answering the questions
    I am asking you.
        Mr. RAND. All of the money that we have that comes out of
    the trust in interest goes to our mission. None of the money is
    taken out of any of the premiums----
        Chairman HERGER. Mr. Rand, let me say for the third or
    fourth time, that is not the question I asked. I asked what is
    that amount. I will take that to be as you are refusing to
    answer my question, and I will move on.
        Mr. RAND. Now that I understand the specificity of your
    question, over the years the interest earned from the trust,
    which is AARP's trust, is--would vary anywhere from $60 million
    to $90 million depending on the years.
        Chairman HERGER. Thank you. I would like you to answer that
    maybe in writing if you don't have that to our committee.
        How much does AARP receive annually for the years of use of
    AARP's brand for AARP Medicare Advantage insurance plans and
    AARP Medicare prescription drug insurance plans each year over
    the course of the current contract?
        Mr. RAND. I can give you a cumulative answer, if that will
    suffice, because I don't have it by the individual insurance
    products. It is roughly $420 million, $430 million that we get
    in royalties from United Health Care from their ability to use
    our brand on their products.
        Chairman HERGER. I believe that is already publicly known.
    Could I request you to respond in writing to that?
        Mr. RAND. We can respond in writing, yes.
        Chairman HERGER. With the answer?
        Mr. RAND. Yes.
        Chairman HERGER. I thank you.
        [The information follows: [The Honorable Mr. Herger, The
    Honorable Mr. Boustany, and The Honorable Mr. Reichert-Letter
    to AARP]

        I now recognize the ranking member, Mr. Stark, for 5
    minutes.
        Mr. STARK. The report from my colleagues across the aisle
    raises some objections to the AARP sponsoring NASCAR driver
    Jeff Gordon. This raises questions, according to their report,
    about whether scarce taxpayer dollars are being used to sponsor
    a NASCAR team. You do sponsor a NASCAR team?
        Mr. RAND. The answer is yes. We sponsor what we call the
    Drive to End Hunger car.
        Mr. STARK. I guess if it is bad for AARP to do that with
    taxpayers dollars, it is okay for the Pentagon to do it?
        I would like to insert in the record the rollcall vote of
    February 18 of this year, an amendment offered by Ms. McCollum
    of Minnesota that would eliminate $7 million in funding used by
    the Department of Defense to sponsor a NASCAR vehicle. I would
    also note that my colleagues, Mr. Herger, Mr. Boustany, and
    most of the Republicans on this committee, voted against that
    amendment. So if you did vote with us, the four who did in
    eliminating this funding, Mr. Tiberi, Mr. Mr. Ryan, Mr.
    Reichert, and Ms. Jenkins, thank you. But it seems to me there
    is a difference here that it is okay to spend taxpayer funds on
    NASCAR by the Department of Defense, maybe it helps them to
    learn how to fly those airplanes, or whatever they are doing,
    but then to insinuate that you all, AARP, was doing something
    sinister, that just doesn't seem quite right to me. And I
    wonder, Mr. Rand, can you explain why AARP makes this
    investment in NASCAR and why you think it is valuable?
        [The information follows The Honorable Mr. Stark,
    Submission 1, Submission 2, Submission 3:]

        Mr. RAND. Well, number one, we don't make the investment in
    NASCAR, we are making the investment in a coalition of both
    awareness and partners to end what is an insidious issue in
    America, which is 51 million people who suffer from hunger, who
    go to bed every night struggling to figure out how to get their
    next meal.
        Mr. STARK. So you make money?
        Mr. RAND. We don't make any money on this.
        Mr. STARK. There is revenue that comes out of this NASCAR
    thing?
        Mr. RAND. No, we take our revenue and invest in this issue.
        Mr. STARK. Which is to help?
        Mr. RAND. End hunger, bring attention to hunger, have
    partners to help us with hunger, to figure out how we can have
    a national network that helps with the infrastructure, access
    to food, delivery of food, awareness of the issue.
        We believe that we have over 6 million seniors who suffer.
    We have another 6 million that includes their family, that is
    12 million.
        Mr. STARK. Thank you. Now, can you explain what the
    Department of Defense does with the money they make on their
    NASCAR involvement?
        Mr. RAND. I can't, sir.
        Mr. STARK. Do you suppose they bomb Yemen? Do you have any
    ideas what they might do with it?
        Mr. RAND. No, sir.
        Mr. STARK. I don't either. It seems to me if it is all
    right for our people in uniform, it ought to be all right for
    us old folks who haven't worn the uniform for 40 years. Does
    that make sense to you?
        Mr. RAND. It makes sense to me.
        Mr. STARK. All right.
        Thank you. Thank you, Mr. Chairman. We have a new chairman.
    Thank you. I yield back the balance of my time.
        Chairman BOUSTANY. [Presiding.] Thank you, Mr. Stark.
        Mr. Rand, I want to put a chart up, and it is chart number
    7. If we can put the chart up on the screen for the viewing
    audience. I would like to call your attention to chart 7
    because to maintain tax-exempt status an organization must be
    operated exclusively for the promotion of social welfare and be
    primarily engaged in promoting the common good. This chart is
    derived from your consolidated financial statements. The red
    line shows royalty revenue. It shows royalty revenue, including
    payments from insurance companies with remarkable growth of a
    200 percent increase from the year 2002 to 2009. The last
    figure in 2009 was $657 million. Down at the bottom are dollars
    transferred from AARP, Incorporated, to AARP's legal counsel
    which actually shows a decrease of $300,000 over that time
    period. And dollars in the blue would be dollars transferred
    from AARP, Incorporated, to the AARP Foundation, which was $3.1
    million.
        So in looking at this, the for-profit entities which
    brought in these royalty revenues in your charitable mission,
    the growth has not kept pace, and so this calls into question
    in my mind are we really meeting that obligation as a 501(c)(4)
    with your charitable contributions? How does that comport with
    AARP's tax-exempt status, sir?
        Mr. RAND. All of our money does go to our mission. There
    may be a particular program that has not kept pace with
    investment, but I will tell you that with----
        Chairman BOUSTANY. When you say mission, are you referring
    to----
        Mr. RAND. Our social mission.
        Chairman BOUSTANY. There are at least $414 million on the
    table here if you just do some simple math. I am just wanting
    an explanation of the discrepancy here. It seems to me that
    those bottom lines would not be flat or showing a decrease over
    the time period.
        Mr. HAMMOND. Mr. Chairman, may I answer with some
    information here?
        Chairman BOUSTANY. Yes, sir.
        Mr. HAMMOND. I think part of the problem comes in looking
    at the difference between a 501(c)(4) and 501(c)(3).
        Chairman BOUSTANY. I understand that.
        Mr. HAMMOND. I know you understand it, but the definition
    and requirements for a 501(c)(4) are considerably different
    than for a 501(c)(3).
        Chairman BOUSTANY. I understand, and am going to get to
    that in a moment.
        Let's move on to something else. I want to follow up on
    part of the inquiries that Mr. Herger was working on. In
    looking at the Medigap policies, I understand that you have
    licensing agreements with insurance companies; is that correct,
    sir?
        Mr. RAND. We have an arrangement where we have our brand
    that is lent to them.
        Chairman BOUSTANY. This is a licensing agreement?
        Mr. RAND. You can call it a licensing agreement. We call it
    a royalty.
        Chairman BOUSTANY. Okay. Well, I am going to get to the
    definition of royalty in a moment.
        Chairman BOUSTANY. Under the immediate cap arrangement only
    dues-paying members, AARP dues-paying members, are allowed to
    participate in these Medigap policies; is that correct, sir?
        Mr. HAMMOND. Sir, again, if I could.
        Chairman BOUSTANY. Mr. Rand runs the organization. Mr.
    Rand, can you answer that question?
        But is it only dues-paying members that are allowed to
    participate in the AARP Medigap arrangement with the insurance
    companies?
        Mr. RAND. I believe we have some products that you don't
    have to be a----
        Chairman BOUSTANY. No, no. I am talking specifically about
    Medigap.
        Mr. RAND. When you start out, the answer is yes.
        Chairman BOUSTANY. Okay.
        Mr. RAND. Some leave the program, and they stay with the
    insurance, and we are happy they stay with the insurance.
        Chairman BOUSTANY. Okay, okay. Fair enough, fair enough.
        And you receive in this arrangement--at least based on the
    information we have gathered from public records and so forth
    and your consolidated statement--you receive the premiums that
    are collected from these beneficiaries in the Medigap policies;
    is that correct, sir? You collect the premiums.
        Mr. RAND. They are collected in the trust fund.
        Chairman BOUSTANY. Right, the grantor trust.
        Mr. RAND. That is correct.
        Chairman BOUSTANY. Which is part of AARP?
        Mr. RAND. That is correct.
        Chairman BOUSTANY. Right.
        Mr. RAND. Since 1958.
        Chairman BOUSTANY. That is right. And you have retained
    4.95 percent of those premiums as royalty?
        Mr. RAND. No, sir, that is incorrect. We don't retain any
    of the premiums. Those premium dollars are written to the
    specific insurer, United or any of the other insurers.
        Chairman BOUSTANY. No, I understand they are written to the
    insurer, but you have an arrangement whereby you retain a
    royalty.
        Mr. RAND. No, sir.
        Chairman BOUSTANY. What is this 4.95 percent?
        Mr. RAND. It does not come out of the premiums. The
    premiums go into the trust fund, sir.
        Chairman BOUSTANY. Okay.
        Mr. RAND. They are then matched.
        Chairman BOUSTANY. So is this a separate royalty payment by
    the insurance company?
        Mr. RAND. No, sir.
        Chairman BOUSTANY. Where does the money come from?
        Mr. RAND. If I could just complete one statement----
        Chairman BOUSTANY. Go ahead, sir.
        Mr. RAND. Perhaps I could be clearer.
        Chairman BOUSTANY. Go ahead, sir.
        Mr. RAND. The trust fund is a collection that the
    beneficiaries send their checks. There are 2- to 2.5 million
    checks and wires that come in. They get collected, and they are
    given to the appropriate insurer, whether it is United or Aetna
    or Genworth. That is part of the administration that the trust
    has.
        Chairman BOUSTANY. Okay. So this is an administrative fee,
    you are saying? Because I have a document here from Rhode
    Island, the State of Rhode Island, that shows total member
    contributions, lives covered, it breaks it all down. And it
    says, royalty to AARP, percent of member contribution, 4.95
    percent.
        Mr. RAND. That is the royalty, sir.
        Chairman BOUSTANY. Well, that is what I asked you in the
    first place.
        Mr. RAND. I know, but royalty has nothing to do--royalty
    has nothing to do with the trust fund. The trust fund just
    takes the beneficiary's payment to United or Genworth or any
    other insurance provider, collects the dollars, and transfers
    it to the appropriate insurers. That is all it does.
        Chairman BOUSTANY. So the 4.95 percent is not going to----
        Mr. RAND. The royalty fee associated with our contract or a
    contract that talks about we are going to lend you our AARP
    logo if you do certain things associated with improving
    insurance products to our members and people 50-plus.
        Chairman BOUSTANY. So does the 4.95 percent go to the
    grantor trust, does it go to AARP, Inc.?
        Mr. RAND. It goes to us in revenue.
        Chairman BOUSTANY. I know, but what entity?
        Mr. RAND. AARP.
        Chairman BOUSTANY. AARP. Okay. Well, let us leave that for
    the moment.
        Royalty income, which is excluded from unrelated business
    income under section 512(b) of the Tax Code, has often raised a
    number of questions, and there has been litigation. And while
    royalty income that is excluded under UBIT--under the code is
    an issue that is difficult, you know, a lot of times it relates
    to intangible property, it is my understanding that, putting
    aside the 4.95 percent issue, which you classified as royalty
    earlier, you also retain these premiums for an unspecified
    period of time. I am not certain what that period of time is.
    Can you tell us how long AARP or an entity of AARP holds on to
    those collected premiums in Medigap?
        Mr. RAND. There are two processes. The first process is the
    collection process. There may be 2- to 2.5 million, either
    electronic--6 percent is electronic; the rest is mail. Those
    are sorted through for the various accounts, i.e., United;
    i.e., Genworth. So that is an administrative process.
        That administrative process can take anywhere from a week
    to 2 weeks or 3 weeks depending on how these checks come in.
    For that period of time, as we are amalgamating the checks for
    payment, that trust, financial prudence, is also in an
    interest-bearing account.
        Chairman BOUSTANY. Are there other investments besides a
    just simple interest-bearing account?
        Mr. RAND. As the money comes in, it is in an interest-
    bearing account. There is no other money in there. Interest-
    bearing account.
        Chairman BOUSTANY. Okay.
        Mr. RAND. For that week or 2 weeks, or 3 weeks, we earn a
    small interest, as any interest-bearing account, as your own
    checking account that you may have which is interest bearing.
        Chairman BOUSTANY. I understand.
        Mr. RAND. That is one issue, and I think that is the one
    that you are trying to get to. That interest has nothing to do
    with the insurance companies. It does not affect any of the
    payments associated with the beneficiaries.
        Chairman BOUSTANY. And you pay tax on that interest?
        Mr. RAND. I believe we do, but I don't know.
        Chairman BOUSTANY. Okay.
        Mr. RAND. I mean, I will find out for you.
        Chairman BOUSTANY. Yes. If you would get us the answer on
    that.
        Mr. RAND. I will find out for you, and we will get you that
    information.
        Chairman BOUSTANY. Okay. And if you would get us some idea
    of how much you earn with that, I mean, what kinds of interest
    earnings do you get on that and the tax paid on it, that would
    be helpful.
        Mr. RAND. We will give you all that information, sir.
        Chairman BOUSTANY. Thank you, sir.
        Chairman BOUSTANY. Now, you mentioned there is another
    aspect to this. Well, let me back up a moment. This is all set
    by contractual arrangement?
        Mr. RAND. The trust was set by a contractual arrangement in
    1958.
        Chairman BOUSTANY. No, no, no, but I understand that.
        But you have a separate contract with United, for instance,
    or Genworth for the handling of these premium dollars which
    specifies how long you might hold on to it?
        Mr. RAND. No.
        Chairman BOUSTANY. There are no contracts?
        Mr. RAND. Well, we have a contract to do the administration
    for them.
        Chairman BOUSTANY. Can you provide us with those contracts,
    provide the committee?
        Mr. RAND. Yes, we can.
        Chairman BOUSTANY. Thank you, sir.
        [The information follows: The Honorable Mr. Herger, The
    Honorable Mr. Boustany, and The Honorable Mr. Reichert-Letter
    to AARP]

        Chairman BOUSTANY. You said earlier the interest goes back
    to the mission. That was kind of a broad statement. I am just
    following up on a quote you gave in questioning to Mr. Herger,
    and that the royalties have nothing to do with the premiums.
    Can you elaborate more on that?
        Mr. RAND. Premiums are what the insurance companies charge
    the beneficiaries.
        Chairman BOUSTANY. Right.
        Mr. RAND. Separate issue. We have nothing to do with that.
        Royalties come from an agreement when we go through a
    process that says who can meet the wants and needs of our
    membership and 50-plus populations. We understand clearly what
    the unmet needs are. We take those unmet needs, and during the
    process we invite, in this case, insurance companies in and say
    who can do the best job in changing the marketplace to meet the
    unmet needs of our seniors. Who can have the quality that our
    seniors expect?
        Chairman BOUSTANY. Well, I understand that.
        Mr. RAND. We then----
        Chairman BOUSTANY. Okay, go ahead.
        Mr. RAND. We then select. When we select, we then give them
    permission to use our brand, the AARP brand. For that
    permission to use our brand, we have royalties and payment for
    that.
        Chairman BOUSTANY. Okay. Now, does AARP Services have any
    role whatsoever in setting the premium rates?
        Mr. RAND. The answer is no.
        Chairman BOUSTANY. Okay. Thank you. That is all I have.
        Chairman HERGER. Thank you.
        The ranking member of the Oversight Committee Mr. Lewis is
    recognized for 5 minutes.
        Mr. LEWIS. Mr. Rand and Mr. Hammond, I want to thank you
    for being here. I want to thank you for your great service to
    the Nation and for all of your great and good work.
        The Republican report states that AARP charitable
    contributions only increased by 11 percent from 2004 to 2008.
    Now, AARP is a social welfare organization. American
    Crossroads-GPS, is an American social welfare organization. The
    Tea Party Patriots is a social welfare organization. Both want
    to repeal health care reform. I am not aware of any charitable
    activity or contribution by either of these organizations.
        Mr. Hammond, are you aware of any requirement of a social
    welfare organization engaged in charitable activities? Could
    you please describe for the committee a few of the charitable
    efforts of the AARP?
        Mr. HAMMOND. Thank you for the opportunity, Mr. Lewis. That
    is one of the things I was trying to talk with Chairman
    Boustany about.
        A (c)(4) social impact organization is simply that. We have
    established a charitable arm to (c)(3) to deal with vulnerable
    populations who are in need of assistance in the very essence
    of their lives to try and stay together.
        The (c)(4) is working on a broader basis on our social
    mission. We are looking to help people in need, and certainly
    we do, but we help them in different ways. We helped 53,000 job
    seekers through our 2010 job fairs. We are helping with the
    drive to end hunger, which we are financing. Folks say, well,
    why don't you just throw that money at hunger? Why don't you
    just help feed people with that money?
        Well, that would be fine, and it would feed a lot of
    people, but the focus isn't that. The focus is on defeating
    hunger in this country, and putting the spotlight on hunger,
    and making people understand just exactly what a big problem it
    is.
        We have been raising money for relief in Haiti. We are
    raising money for relief in Japan. As Mr. Rand stated earlier,
    we have, through our advocacy efforts, saved utility customers
    about $3 billion in 2010 by opposing unjustified rate
    increases.
        We have represented tens the of thousands of people at no
    fee in cases where age discrimination is involved.
        We have supported efforts through our advocacy, which is
    another perfectly legal part of the (c)(4), to do the kinds of
    things that our people say need having done.
        We are looking at 100 million Americans who are age 50-
    plus, about 37 million, plus or minus, are members, but we are
    not doing it just for our members, we are doing it for
    everyone.
        Mr. LEWIS. Thank you, Mr. Hammond.
        Mr. Rand, do you want to respond?
        Mr. RAND. Well, if I were to add some clarity, this is what
    I was trying to explain when we were asking the questions about
    where do our dollars go in terms of a social good organization.
        Roughly 25 percent of our revenue--25 percent, excuse me,
    of our expenditures go to community benefits such as tax aid
    and driver safety, other programs of that ilk, 25 percent of
    our expenditures; member services, 240 million, about 24
    percent; advocacy and research, 10 percent; communications
    operations, 8 percent, and that is really focused on education
    with our great magazines. Those are some examples on a higher
    percentage basis well beyond the two programs that there seems
    to be a chart that says they went down, but this tells you in a
    broad sense that the vast, vast majority, all of our money,
    really goes to our social welfare mission.
        Mr. LEWIS. Thank you.
        Mr. Rand and Mr. Hammond, I find it sort of strange and out
    of the ordinary that if our Republican colleagues of mine are
    attacking AARP today as retribution for your organization's
    support for health reform, they were more than happy, as Mr.
    Stark suggested, to stand with you when they created the
    Medicare drug benefit.
        I want to ask unanimous consent to insert into the record a
    list of the quotes from my Republican colleagues when MMA was
    passed. Mr. Rand, I don't believe that you were at AARP at that
    time, but, Mr. Hammond----
        Chairman HERGER. Without objection, that would do.
        Chairman HERGER. The gentleman's time has expired.
        Mr. LEWIS. Well, Mr. Chairman, I think you took much more
    than 5 minutes. I know you have leeway. You were asking
    questions when I went over to vote, and when I came back, you
    were still asking questions. You took at least 15 minutes.
        Chairman HERGER. Well, the gentleman's time has expired.
        The gentleman from Texas Mr. Johnson is recognized for 5
    minutes.
        Mr. JOHNSON. Thank you, Mr. Chairman.
        Thank you all for being here.
        The health care bill cuts Medicare Advantage by $206
    billion, and those cuts are going to result in millions of
    seniors no longer selecting Medicare Advantage coverage either
    because those plans will no longer be available to some
    seniors, or because they will become too expensive and offer
    fewer benefits.
        I want to know if you were aware of these cuts when AARP
    endorsed that legislation?
        Mr. HAMMOND. Mr. Johnson, if I might answer?
        Mr. JOHNSON. Sure.
        Mr. HAMMOND. Yes, we were certainly aware of those cuts.
    That has been AARP's position since Medicare Advantage was
    first instituted. We do not believe that excess payments should
    go to programs that are paid for by the other 75 percent of the
    taxpayers who are involved in regular Medicare. That has been
    our position and our public policy for at least 10 years.
        Mr. JOHNSON. So you don't believe that people ought to be
    able to choose their own health care programs?
        Mr. HAMMOND. We absolutely believe they ought to be able to
    choose their own health care programs. We don't believe they
    ought to be subsidized into programs.
        Mr. JOHNSON. Okay. The for-profit AARP's insurance plan
    collects Medigap premiums, invests seniors' premium money,
    earns interest on it, and then keeps almost 5 percent of the
    premium amount and the interest earned off the float. The rest
    of the premium is then sent to UnitedHealth Group.
        AARP, Inc., the 501(c)(4), receives royalty payments
    directly from UnitedHealth Group for AARP's Medicare Advantage
    and Medicare prescription drug plans.
        Why does AARP handle insurance profits differently
    depending on whether its Medicare Advantage or Medigap? Do you
    want to answer that, too?
        Mr. HAMMOND. I will give it a shot, and then Mr. Rand can
    fill in with anything he has to say.
        Number one, Medicare Advantage is a program that is
    sponsored under Medicare, not through private insurance, and it
    follows all the government regulations. Therefore, the way that
    that royalty payment is done is under Federal regulation.
        Mr. JOHNSON. Okay. So, you didn't really tell me about
    Medigap, though.
        Mr. HAMMOND. And Medigap, I think--first of all, I would
    like to make a slight correction in what you indicated.
        All of the premiums for those issues go into the insurance
    trust, the grantor trust that Chairman Boustany was talking
    about. That is a legal entity that was set up in 1958 to
    receive those and to hold the group policy and to receive the
    premiums, hold the premiums, invest that. And, yes, we do
    receive interest income for that float, which is perfectly
    legal. We do take royalty payments from that money that comes
    in, and then, as requested by the insurance companies to cover
    their products, we return the balance of that money to them.
        Mr. JOHNSON. Does AARP receive more in royalty payments for
    AARP-branded Medigap than Medicare Advantage plans?
        Mr. HAMMOND. I am sorry, sir, would you repeat that?
        Mr. JOHNSON. Do you get more from Medigap than you do
    Medicare Advantage plans that you all have started?
        Mr. HAMMOND. I am assuming you are talking about royalties,
    sir?
        Mr. JOHNSON. Yes.
        Mr. HAMMOND. Yes, we do.
        Mr. JOHNSON. You do.
        Mr. HAMMOND. Yes.
        Mr. JOHNSON. And according to Medicare's chief actuary and
    United States--UnitedHealth Care executives, the Medicare
    Advantage cuts will increase enrollment in Medigap plans as
    seniors look to have supplemental coverage. And the more people
    that enroll in AARP Medigap, the more money AARP receives,
    according to what I am given. As a result, AARP could easily
    see a windfall in excess of $1 billion as a result of the
    health care law.
        How do you explain that to the seniors you are supposedly
    advocating for? And, you know, it looks like you are raking in
    the cash while they are losing benefits and paying more for
    coverage.
        Mr. HAMMOND. May I make one comment, sir, before Mr. Rand
    answers that question?
        Mr. JOHNSON. Sure.
        Mr. HAMMOND. One of the priorities that we set was that no
    traditional benefits under Medicare would be lost. In fact,
    Medicare would be strengthened. So I just want to make that
    clear in terms of benefit cuts.
        Chairman HERGER. The gentleman's time has expired.
        Mr. JOHNSON. My time has expired, thank you, Mr. Chairman.
        Chairman HERGER. The gentleman from Washington Mr.
    McDermott, Dr. McDermott, is recognized for 5 minutes.
        Mr. MCDERMOTT. I think you gentlemen understand what you
    are being made part of today. It is a reenactment of a play by
    Arthur Miller called ``The Crucible.'' It was a play about
    witches in Salem, and the evidence had to be found that these
    women were all controlled by the devil.
        Your sin, as you may know, is that you backed the
    Affordable Care Act. Now, I am sure that the chairman has a
    long list of other groups that are going to be brought in here,
    and I am sure that the pharmaceutical industry will be brought
    in here because they got a deal that we can't negotiate
    pharmaceutical prices or prohibited--Mrs. Sebelius is
    prohibited, Secretary Sebelius is prohibited from negotiating
    better prices for seniors.
        The pharmaceutical industry, I think they must have caught,
    you know, a pretty good deal on that. That was put in, you
    remember, back when they put in the drug benefit a few years
    ago, and they said that they couldn't negotiate better prices
    for seniors. You could do it for veterans, save quite a bit for
    them, maybe 40, 50, 60 percent, but you couldn't do it for
    seniors. So the pharmaceutical industry caught quite a benefit
    in there, and they supported it.
        I am sure we are going to have them in here to go over
    their finances, and how their money is spent, and where they
    get it, and how they use it for lobbying up here, and how they
    get tax deductions.
        And then we will probably have the medical device people up
    here. I keep getting those things The SCOOTER Store saying, are
    you having any trouble moving around? Well, just come on in,
    and we will get you a scooter, and it will be paid for by
    Medicare. And, by goodness, and they got a little old deal in
    this bill that went out of here, the Affordable Care Act, and
    down the list we are going to go.
        Now, the question really is are we going to go after every
    organization that is a 501(c)(3) and a 501(c)(4)? And if we are
    going to start that, well, then we are going to have churches
    in here. There ought to be some churches we look carefully at.
    I mean, this is an oversight committee, and we really ought to
    be going after them.
        And the question that comes to my mind in listening to all
    this is how did you make the decision to back the Affordable
    Care Act? I don't think you just got up one morning and said,
    let us back this thing. Tell us about the process that you went
    through, because I want to understand why you committed this
    sin. I think if you would confess your sin, maybe we could end
    this hearing and you could go home. But if you won't confess as
    to how you came to this terrible decision, I would like to hear
    you talk about it.
        Mr. RAND. Thank you very much for the opportunity to talk
    about it.
        First of all, as many of you all know, this is a vital part
    of our mission to have affordable, accessible health care for
    all Americans. It is health security. This has been our mission
    for over 50 years, over 50 years.
        When we talked to our members, they asked us what it was
    they needed the most. We took down a list of what they said
    they needed. One was no preexisting condition, because they
    couldn't get insurance, and yet they were still getting sick,
    and it was their leading cause of bankruptcy and loss of homes.
    And so we advocated for no preexisting conditions. And, in
    fact, there were many portions of the insurance industry who
    were pushing against it.
        Age rating. They say, we are getting older, and we are
    paying 10, sometimes more, depending on the State, than a young
    person as we have less out-of-pocket to pay. We don't want age
    discrimination to continue. And so we advocated for taking the
    10X that they were paying, and the bill has the maximum of 3X.
        Then the baby boomers said, we don't have enough money to
    send our kids to college and at the same time try to figure out
    how to pay for their separate insurance, so we would love to be
    able to have them on our insurance policy so we can do both so
    we can help give them the American dream.
        Closing the donut hole.
        Chairman HERGER. The gentleman's time has time. If you
    could close up quickly, please.
        Mr. RAND. The donut hole, because it was 30 percent of the
    out-of-pocket cost for seniors. We closed the donut hole
    completely.
        Home and community care options for those people who don't
    want to go to nursing homes, and preferred----
        Chairman HERGER. The gentleman's time has expired.
        Mr. RAND. Thank you, sir.
        Chairman HERGER. I recognize the gentleman from Washington
    Mr. Reichert for 5 minutes.
        Mr. REICHERT. Thank you, Mr. Chairman.
        Again, thank you, Mr. Hammond, Mr. Rand, for being here
    this morning.
        First of all, all of those conditions that you have just
    listed, I think most members on this panel, Democrats and
    Republicans, would agree with. I do. So I think we are on the
    same page with a lot of these things.
        And I do take issue with some of the comments made as far
    as this being a political witch hunt. We can demonize this,
    but, you know, really what it boiled down to is a
    Representative in Florida who represents a lot of seniors, who
    had some questions, Ginnie Brown-Waite; the chairman of the
    health committee who had some questions, and it is his
    responsibility to have those questions answered. And then as
    far as my part in this, I am just an old cop.
        And so I hope you can understand--do you really know and
    understand why you are here today? I mean, we are just wanting
    to find the answers. And so I just want to go through a couple
    of things.
        First of all, look, we exchanged some letters, and the
    responses we got back were minimal in response to the questions
    that we asked. And the fact this transparency issue was
    referred to earlier by the chairman where one of the comments
    made is no public or confidential propriety or information--
    some information is nonpublic or confidential and proprietary
    to only AARP and its member benefit providers.
        There is a transparency issue. After the letters were sent,
    and the responses were really not adequate, we then had a face-
    to-face meeting with your CFO, then-CFO Tom Nelson. Tom Nelson
    and others could not answer the questions that I posed to them.
    They couldn't answer the question of what happens to the one
    out of four seniors who will lose Medicare Advantage. What
    happens to those?
        You have actuarial scientists working in your organization,
    I assume; is that correct? Just yes or no, because my time is
    limited.
        Mr. RAND. Yes.
        Mr. REICHERT. I would assume.
        Mr. RAND. Excuse me, I don't believe we have actuarial,
    because we are not in the insurance business. So I don't----
        Mr. REICHERT. You must have actuaries who can map out your
    future for you, right? I mean, you are a large organization.
    You have to have actuaries. I would think that your actuaries--
    --
        Mr. RAND. If we do, I will give you the answer.
        Mr. REICHERT. Yes. Thank you.
        The actuaries have to look out forward and say, you know,
    we can predict what is going to happen to these one out of
    every four seniors, how much insurance they may lose, what it
    is going to cost, what its benefits are for AARP or not, what
    United Way--you know, what the impact and effect will be.
        But we finally had to end up calling in help from the IRS.
    So this report, as people referred to it as a Republican
    report, is a report that was formed with the help of an IRS
    personnel who assisted our staff in going through this
    information. This isn't made?up information; this is accurate,
    statistical information gathered through a very serious
    analysis of the monies that you are making in revenue versus
    the monies that you are distributing in your 501(c)(3).
        Now, look, one of the answers that Tom Nelson gave me is
    that, you know, this whole thing is to protect the greater
    good, which kind of goes to one of your mission statements,
    enhance the public good. But what about protecting the American
    seniors? You know, when you talk about Medicare Advantage, and
    we don't want others shouldering the burden of paying these
    additional premiums to allow others to have insurance, the
    whole health care bill is built on that; am I not correct? Yes
    or no, please. The whole health care bill is built on others
    for helping to provide for others; is that not true? So why
    would you be against Medicare----
        Mr. RAND. The answer is yes. There are many elements that
    are there.
        Mr. REICHERT. Thank you.
        So why would you be against another program that really is
    helping seniors and others are shouldering the burden? That
    doesn't make any sense to me.
        The fact that you support these cuts, it is amazing to me.
        Mr. RAND. Can I----
        Mr. REICHERT. Protecting AARP's dues members, aren't you
    concerned about that? AARP, you are not suggesting, I hope,
    that the half trillion dollars in Medicare cuts that will
    jeopardize seniors' access to health care is good for seniors,
    are you?
        Mr. RAND. No. And I am at your ready when you would like
    for me to respond.
        Mr. REICHERT. You keep records, I mean, meticulous records,
    right?
        I would just like to say, sir, if you could provide me with
    the list of times that you visited the White House, I would be
    interested in that.
        [The information follows: The Honorable Mr. Herger, The
    Honorable Mr. Boustany, and The Honorable Mr. Reichert-Letter
    to AARP]

        Mr. REICHERT. Thank you, Mr. Chairman.
        Chairman HERGER. The gentleman's time has expired.
        The gentleman from California Mr. Thompson is recognized
    for 5 minutes.
        Mr. THOMPSON. Thank you, Mr. Chairman.
        I just want to state for the record that I believe it is
    totally appropriate that we look at tax status. I think it is a
    very, very important thing to do. And this committee certainly
    has the jurisdiction and responsibility to review this issue. I
    think our taking it on is very appropriate.
        Also, however, I want to state that that review, I believe,
    must be fair and impartial, and it should not be done to carry
    out some sort of political vendetta.
        After AARP supported the Medicare Part D measure, and that
    was support that, I might add, was touted by then-President
    Bush, Speaker Hastert, Chairman Thomas of this committee,
    Chairman Tauzin of the other committee with jurisdiction,
    AARP's financial interest, I think, was probably more clear
    then than it is after their support of the health care measure.
    And there was no question as to whether or not their tax status
    should be looked at. There was no oversight of AARP at that
    particular time. And I just find it curious that we are looking
    at it at this particular time.
        And I think we have to ask the question is this political
    payback, or will this committee be reviewing the tax status of
    other nonprofit organizations that get involved in the
    political process, such as 60 Plus, the Republican-leaning
    group that claims that it is the alternative, the conservative
    alternative, to the AARP?
        I am a little mystified as to why they are not here; or
    American Crossroads or the Tea Party Patriots, for that matter;
    or churches that may take political positions; or even
    corporations, multibillion-dollar corporations who show
    multibillion dollars of profits, and then we read in the papers
    they don't pay one single dime of corporate taxes.
        I think it is a very slippery slope where we are going down
    today, and I just want to make sure that everybody recognizes
    that. And I would like to see this committee get back on its
    regular order, as a course of business.
        I wanted to give Mr. Rand an opportunity to finish his
    comments. Mr. McDermott had asked a question, and I don't think
    he had a chance to finish his. Will he be coming back?
        Mr. HAMMOND. He will be coming back. If you would like to
    phrase the question, if it is appropriate with the chairman,
    that I will be glad to try and give you an answer.
        Mr. THOMPSON. Why don't you go ahead and finish up where he
    had left off.
        Mr. McDermott, do you want to rephrase?
        Mr. MCDERMOTT. Yes. My question really was the process by
    which you arrived at the decision to back the Affordable Care
    Act. And he was describing the things that the members had
    talked about and wanted, but never got to how that decision was
    made.
        Mr. HAMMOND. That decision was made by the board after what
    seemed like torturous hours of discussion. And I think as Mr.
    Rand stated, the decision was made based on the principles that
    we wanted to see included in any health care reform act. These
    are the principles, the things that our members told us they
    wanted to see in the act, and, as Mr. Reichert indicated, they
    are things that almost all Members of the Committee agreed
    with.
        We would love to have seen that done on a bipartisan basis,
    because that is the way we try and operate, but we felt that we
    had to support that act because of those principles and the
    benefits that it would give to seniors.
        Mr. THOMPSON. Mr. Lewis, you were kind of abruptly cut off
    during your questioning. Would you like to take the remainder
    of my time to finish asking your question?
        Mr. LEWIS. I appreciate it. But I think you made the point
    that I had planned to make.
        Mr. THOMPSON. Thank you. I yield back.
        Chairman HERGER. The gentleman yields back.
        I request unanimous consent that the investigative report
    ``Behind the Veil: The AARP America Doesn't Know'' be entered
    into the record. Without objection----
        Mr. BECERRA. Reserving the right to object. Reserving the
    right to object.
        Chairman HERGER. The right to object has been recognized.
        Mr. RANGEL. Reserving the right to object--I haven't
    objected because there is just some question as to whether this
    is an official document, who prepared it, is it a political
    document, is it a Ways and Means document, is it a
    congressional document?
        I see your name on it and, of course, my colleague Mr.
    Reichert, but I have been waiting to see where this came from.
    And so if you put it in the record, how would you identify it
    as to what we would look forward to in reading it? If you could
    help me, I am certainly anxious to withdraw any objection at
    all.
        Who paid for it? Where did it come from? Is it a campaign
    document? Did it come from the Republican Congressional
    Campaign Committee, or is it a Ways and Means document without
    a seal? God knows, I know what seals mean.
        Chairman HERGER. The gentleman, I might mention that the
    whole purpose, the object of this hearing is on this report.
    The committees, on a regular basis, submit and are accepted by
    unanimous consent documents that are not involved with this
    hearing.
        If the gentleman doesn't remove his objection, we will call
    for a vote.
        Mr. RANGEL. No--I am going to remove--there is one
    question: Who paid for this report? Where did it come from? Why
    is there no identification? Is it a Federal report? That is all
    I am asking. I don't want a roll-call vote, I am ready to roll
    over and accept it.
        But I just want to know why there only two Members' names
    on it, and why is the source of this information not put on the
    cover, so when I do read it fully, I would know who paid to
    have this done. If the government paid for it, I would think--
    --
        Chairman HERGER. Again, the gentleman--it has on the report
    who has asked for it, so my name and Congressman Reichert's
    name are on it. So it is indicated here.
        Again, if the gentleman--would the gentleman like a vote?
        Mr. RANGEL. I want to withdraw my objection. All I am
    asking for is who paid for the report and where did it come
    from. I don't want to make a big issue out of this. Did you and
    your colleague pay for this?
        Chairman HERGER. I appreciate. I think if the gentleman
    looks at the report, I think it is obvious where----
        Mr. RANGEL. It is not obvious, and you can direct my
    attention to what I am missing.
        Chairman BOUSTANY. Would the chairman yield to me for a
    minute?
        Chairman HERGER. I yield to the gentleman.
        Chairman BOUSTANY. It is my recollection that Mr. Stark
    issued a similar report in the context----
        Mr. RANGEL. He may have been wrong in doing that. You know
    Stark. You know him, and I know him, and I would never use
    Stark----
        Chairman BOUSTANY. But since you are admitting that----
        Mr. RANGEL. I wouldn't want to use Stark as to what this
    committee should be doing.
        Chairman BOUSTANY. But to my friend from New York, the
    report was prepared by two Members of the Committee.
        Mr. RANGEL. You two did it. That is all I want to know. You
    did it, you paid for it, and so that answers my question. I
    remove any objection.
        Mr. BECERRA. Reserving the right to object.
        Chairman HERGER. The right to object has been reserved.
        Mr. BECERRA. Mr. Chairman, I am not interested in rolling
    over. I would like to know, are we saying this was a report
    that was produced by just two particular members of this
    committee? And if it was produced by just two particular
    members, I am interested in understanding, is this a committee-
    generated report, and, if so, at what point was it shared with
    the other Members of the Committee?
        Chairman HERGER. Again, it is on the report, as was
    mentioned to the gentleman from New York. There were actually
    three Members; former Congresswoman Ginnie Brown-Waite was also
    involved. Again, I think it is very clear.
        Mr. BECERRA. So were committee resources used to generate
    this report, or was this done through Members' own member
    account monies or through some private account monies?
        Chairman HERGER. This has been done through the same
    account, through committees, through our Member's account, as
    would be done if you had asked, the gentleman from California
    had asked for a report or anyone else.
        Mr. BECERRA. Of the committee or of my staff? I am trying
    to determine whether this is a committee----
        Chairman HERGER. Would the gentleman like a vote, or would
    the gentleman remove his----
        Mr. BECERRA. I am reserving the right to object. I am
    hoping to get responses to the question, because the report
    doesn't identify, other than by saying investigative report
    prepared by Reps Wally Herger and Dave Reichert.
        Does that mean that this was prepared, Mr. Chairman, by you
    as a Member and Mr. Reichert as a Member, or as you as chairman
    using the resources of the Ways and Means Committee?
        Chairman HERGER. Okay. We need to move on. Is the gentleman
    objecting or not objecting? I think we have discussed it.
        Mr. BECERRA. I do object.
        Chairman HERGER. Would the gentleman like a vote?
        Mr. PASCRELL. Reserve the right to object. Am I recognized?
        Chairman HERGER. The gentleman is recognized.
        Mr. PASCRELL. Thank you. Thank you.
        There is no date on this report either. And if we were
    supposed to consume it so that we could respond and ask
    questions today, we certainly were not given much time.
        Are you telling us, Mr. Chairman, and a very simple
    question, this is like any other report that this committee
    asks for, and the people who worked on it were paid their usual
    salaries, nothing more, nothing less? There was no external
    force used to put this together?
        Chairman HERGER. The gentleman--we need to move on with
    this hearing.
        Mr. PASCRELL. No. We don't need to move on unless we get an
    answer.
        Chairman HERGER. Then why don't we have a vote.
        Mr. PASCRELL. We are not moving on until we get an answer.
    It is a fair question. What the heck is so complicated about--
    --
        Chairman HERGER. Okay. I remove my unanimous consent.
        Mr. PASCRELL. Good.
        Chairman HERGER. I remove my unanimous consent.
        Mr. KIND. Mr. Chairman. Reserving the right to object, Mr.
    Chairman.
        Chairman HERGER. I have removed my unanimous consent
    request, and we are going to move on.
        Mr. KIND. Mr. Chairman, could I just ask a simple question?
    We don't want to make a big deal out of this. Who prepared the
    report?
        Chairman HERGER. The gentleman is not recognized.
        Mr. KIND. If your staff prepared the report, just say so,
    so we have an understanding. But we are not clear who prepared
    the report, and that is all we are asking today.
        Chairman HERGER. Okay. The gentleman from Illinois Mr.
    Roskam is recognized for 5 minutes.
        Mr. ROSKAM. Well, Mr. Rand, back to you in the booth. A
    couple of questions. Earlier in your testimony, in your written
    testimony, on the first page down at the bottom, you said an
    interesting thing. Let me just read two sentences of your
    testimony, and let me just make a couple of inquiries in light
    of some of your responses to Mr. McDermott and Mr. Lewis. You
    said, we have long maintained that we would forego revenue in
    exchange for lifetime health and financial security for all
    older Americans. As an example of this, it is very unlikely
    under the Affordable Care Act the AARP-branded insurance plans
    for 50- to 64-year-olds will become obsolete and we will no
    longer receive revenue from those plans.
        Is it your intention to forego future revenues or royalties
    or sources of income as the Affordable Care Act rolls in, and
    are you committing today that you are not going to be earning
    any of those revenues or royalties or sources of incomes from
    areas that are in the exchange?
        Mr. RAND. We really haven't had a conversation. We really
    haven't had a conversation about the exchange and a strategy
    about the exchange.
        Mr. ROSKAM. But that is what you are implying in these two
    sentences, aren't you?
        Mr. RAND. No, I am not.
        Mr. ROSKAM. Okay. But when you say that we would forego
    revenues if this happened, and as an example of that, we are
    foregoing revenues, that is a reasonable implication of those
    two sentences together, isn't it?
        Mr. RAND. If it is reasonable for you, I would not say no.
    It is not the intent. You are putting two sentences together,
    and perhaps it was my lack of clarity.
        Mr. ROSKAM. No, you put two sentences together.
        Mr. RAND. That is right.
        Mr. ROSKAM. And I have read them together in context; isn't
    that right?
        Mr. RAND. Would you like me to clarify them for you?
        Mr. ROSKAM. Yes, but let me put it in this context.
        Mr. RAND. Yes, sir.
        Mr. ROSKAM. You gave earlier a description of some of the
    elements of the Affordable Care Act.
        Mr. RAND. Yes, sir.
        Mr. ROSKAM. And I understand those. I made a note, no
    preexisting conditions. You referenced the age rating changing
    from 10X to 3X, the baby boomers keeping children on their
    coverage, closing the donut hole, home community care options,
    and there were other things that you got cut off based on time
    that were attractive to you.
        Mr. RAND. Yes.
        Mr. ROSKAM. What are the weaknesses of the Affordable Care
    Act that compel you to keep an option open that would suggest
    if the Affordable Care Act isn't successful, that you may have
    to continue in the revenue royalty or income element of this in
    order to preserve your mission? What are the weaknesses of the
    Affordable Care Act that compel you to keep the option open?
        Mr. RAND. Let me explain the intent of my statement. We
    have long been accused by some elements of being in this for
    money, for revenue.
        Mr. ROSKAM. Hold that thought. I want to come back to it.
    Let me just highlight some of the folks that have accused you
    of that, because it is interesting. Our panel members really
    don't disappoint, do we?
        The gentleman from California Mr. Stark said that you -
    ``AARP members know that they are being sold out by an
    organization'', i.e., you, ``from past conduct, not your action
    in the Affordable Care Act.''
        The gentleman from New York Mr. Rangel said that ``AARP has
    forgotten where they come from, because once you get into the
    business of making money with the devil, you forget your
    mission.''
        And the former Speaker Ms. Pelosi said--she complained that
    ``you were in the pocket of Republicans at that time and
    suggested that you had a financial conflict of interest.''
        So your point is you have received a lot of criticism from
    a lot of circles. Now, go ahead.
        Mr. RAND. That was not my point. That was your point.
        The issue at stake here is that our mission started in the
    1950s. I was 14 years old when the mission was stated, and that
    mission is that every American should have access to affordable
    health care and, therefore, health care security for life.
        The question becomes, one of many, one is affordable. Right
    now we are having conversations about Medicare as if Medicare
    is the problem. Medicare is a recipient of the expenses of many
    industries.
        Mr. ROSKAM. Look, I understand that. So the question is----
        Mr. RAND. Affordability, sir, I think is the answer.
        Mr. ROSKAM. And the Affordable Care Act doesn't satisfy you
    that it is going to maintain affordability, and, therefore, you
    need to keep the option open to sell and be involved in these
    products in the future. Is that really it?
        Mr. HAMMOND. May I help with that?
        Chairman HERGER. The gentleman's time has expired.
        The gentleman from New Jersey Mr. Pascrell is recognized
    for 5 minutes.
        Mr. PASCRELL. Thank you, Mr. Chairman.
        Mr. Rand, you are a tax-exempt, private corporation.
        Mr. RAND. Private association, yes, sir.
        Mr. PASCRELL. Mr. Chairman, I have a couple of questions
    for you, Mr. Chairman.
        I would like to know whether or not we think or you think
    that there are specific laws that have been broken here with
    regard to this tax-exempt organization? Is that one of the
    reasons or the reason why we are having this hearing?
        Chairman HERGER. That is an improper parliamentary inquiry.
        Mr. PASCRELL. Oh, it is.
        My second question to you is this: What laws do you think
    have been broken, since we look at policy? We are not looking
    at corporate policy here, we are looking at national policy.
    That is our responsibility.
        Chairman HERGER. I thank the gentleman. Again, that was
    outlined in the report that we have. That is why we are
    requesting the IRS to look into this and let them decide
    whether or not they properly should be paying taxes on the
    large amounts of money that they seem to be benefiting from,
    legislation that was passed.
        Chairman BOUSTANY. Mr. Chairman, if you would indulge me
    for a moment.
        Mr. PASCRELL. I will.
        Chairman BOUSTANY. As chairman of the Oversight Committee,
    I think there are legitimate questions that call into question
    whether there is a violation of for-profit or nonprofit status,
    and I think there are legitimate questions about what is
    taxable income versus nontaxable income.
        Mr. PASCRELL. May I have my time back, please?
        Chairman BOUSTANY. Yes.
        Mr. PASCRELL. May I have my time back?
        Chairman BOUSTANY. Yes.
        Mr. PASCRELL. Thank you.
        Look, we are here to make national policy. We are certainly
    not here--none of us are saying this, I hope--to make AARP
    policy.
        If the majority actually looked at the broader question
    here that we are supposedly discussing today on taxes, and
    section 501(c)(4), as a very specific part of the code, as you
    know, I think they would find it interesting that the sixth
    largest social welfare organization that has a 501(c)(4)
    classification is a tax-exempt racetrack and casino which
    operates in Iowa, and it pulls in $2.2 billion a year.
        Can you blame us for asking questions about why now? It is
    hard for me. It is really hard for me, and I am sure you will
    help me understand why a racetrack and a casino is more
    deserving of this classification than AARP--because that is
    what you are getting at. You are questioning the classification
    of AARP. You didn't do it 8 years ago, but you do it now.
        This classification of the AARP, it is very clear here, the
    majority believes the AARP is worth investigating more so than
    this racetrack. I find that hard to accept.
        I know for a fact that the AARP does great work. I have
    disagreed with some of your philosophies. So what?
        Mr. Rand, can you share with us how AARP directly helps
    Americans in all the districts of the country?
        Mr. RAND. Yes, I will. Let me just give you some snippets
    in the job category. We have helped 53 million job seekers
    through 2010 with career--53,000. Again, we talked about a
    drive to end hunger. With tax aid we have helped 2.6 million
    file free tax returns. Support of schools, provided more than
    20,000 youths with supplies in 43 States. The Walgreens bus, we
    have a tour that we completed, 2 million free health
    screenings, 359,000 people participated. AARP litigation
    represents tens of thousands of people at no fee in over 160
    cases in 2010 alone. Again, we save utility costs in over 18
    States, saved $3 billion for the consumers in those States. We
    have defended and expanded services for home and community-
    based care.
        Mr. PASCRELL. Thank you, Mr. Rand, and you could go on and
    on, and I am sure our great chairman would agree with all of
    those activities in the field. He would not want to end any of
    those activities----
        Chairman HERGER. The gentleman's time has expired.
        Mr. PASCRELL [continuing]. Because those are helpful to the
    citizens which he represents and which I represent.
        Thank you, Mr. Chairman, for your cooperation.
        Chairman HERGER. I thank you.
        At this time I request unanimous consent to enroll into the
    record a letter from AARP from the chief operating officer Tom
    Nelson, which states that less than $31 million out of the $650
    million in AARP insurance revenue went to the AARP Foundation
    in 2008.
        Mr. BECERRA. Mr. Chairman, reserving the right to object.
    Has that document been provided to the members of this
    committee?
        Chairman HERGER. This is a letter that is posted on the
    AARP Website.
        Mr. BECERRA. I understand that, and I certainly have no
    reason to disbelieve the chairman in what he is saying the
    letter depicts. None of us have seen this, and you are asking
    for it to be part of the official record of this hearing. And
    typically what happens is the chairman will make available to
    every Member any document that is going to be made part of the
    record. And like this report was never provided to Members
    before it was given to the media. I just would want to make
    sure that Members are provided with the information that will
    be part of this record.
        Chairman HERGER. I might mention that the minority has
    entered already two letters for unanimous consent that have
    been entered that have not been distributed.
        Mr. BECERRA. That is fine, Mr. Chairman. We appreciate,
    then, the indulgence of the Members who did not object. It is
    just that this hearing is proceeding in irregular fashion when
    it comes to this particular report, and so I am just interested
    in making sure I know what is being put into the record as part
    of this hearing.
        I am responsible to my constituents and anyone in America
    for what this committee does, and I don't want anyone to
    believe that I was engaged in any form of witch hunt. And so I
    am interested in knowing just what is going to be part of the
    record in this particular hearing. I reserve the right to
    object.
        Chairman HERGER. We can distribute that. Is the gentleman
    continuing to object?
        Mr. BECERRA. Unless I can see that document that the
    chairman is saying he wishes to submit into the record, I will
    continue to reserve the right to object.
        Chairman HERGER. The gentleman continues to reserve his
    right to object.
        Mr. BECERRA. Mr. Chairman, I have now been handed what I
    think is--yes. If I could just take a moment to take a look at
    the letter, Mr. Chairman, I would probably remove my
    reservation.
        Chairman HERGER. The gentleman removes his reservation.
        Mr. BECERRA. If I could just take a moment to review the
    document.
        I will remove the reservation.
        Chairman HERGER. The gentleman's objection has been
    removed. So, without objection, the letter will be submitted
    for the record.
        Chairman HERGER. Now the gentleman from Georgia, Dr. Price,
    will be recognized for 5 minutes.
        Mr. PRICE. Thank you, Mr. Chairman, and I want to commend
    the authors of this report, because I think it brings into
    question what Mr. Pascrell talked about is a legitimate
    question as to whether or not the tax-exempt status of AARP is
    warranted, and I think that is a legitimate question.
        I want to open by simply saying that there are a lot of
    folks in my district who are members of AARP, and a lot of
    folks who volunteer a lot of time and put their heart and soul
    into efforts to try to help seniors in our community, and I
    want to thank them for the work that they do. And I think that
    they are interested in making certain that the organization
    that they give so much volunteer time to is functioning and
    appropriate in a legal manner.
        I do want to follow up on--very briefly on the issue of the
    support for the health care act, because I think that that is
    part and parcel of the objection of the other side.
        And there was such a huge disconnect between seniors in my
    district about their lack of support for the health care act
    and Medicare's--or AARP's support for it, and I think that is
    what caused folks to say--scratch their head and say, well,
    what is going on here? Is AARP really--do they really have my
    seniors' best interests in heart, or do they have other reasons
    to act the way they do?
        And you mentioned, Mr. Rand, a number of things that you
    felt were appropriate in the health care bill, and that is why
    you supported it, because it ended preexisting allegedly and
    the like there.
        There are some things that we believe happened in that
    health care bill that seniors adamantly oppose. So you don't
    believe that seniors support the rationing of care, do you?
        Mr. RAND. We don't support it, and I am sure seniors don't
    support it.
        Mr. PRICE. Exactly. And we believe that is in the bill, and
    so there is that inconsistency.
        You don't believe that seniors want it more difficult for
    them to find a physician to care for them, do you?
        Mr. RAND. They have been supportive of the doc fix. We have
    been supportive of the doc fix.
        Mr. PRICE. I get seniors all the time in my district who
    say, I can't find a Medicare doctor; I can't find a Medicare
    doctor because of the rules that have been put in place, and
    believe that that is going to increase. And I know that you
    don't support that.
        You don't support a decrease in innovation of the health
    care system, do you? Seniors don't, do they?
        Mr. RAND. I don't think anyone supports----
        Mr. PRICE. Exactly, the lack of innovation.
        Mr. PRICE. Exactly.
        Mr. RAND. I believe that there are some aspects of the
    legislation that is there to help innovation.
        Mr. PRICE. Absolutely, and there is a difference of
    opinion, isn't there? So there is a difference of opinion among
    seniors, just like there is a difference of opinion among the
    regular population out there, which, again, is why so many of
    us scratched our head and said, well, what is AARP doing? There
    is a huge difference of opinion.
        In fact, the majority of seniors right now believe that the
    bill will, in fact, decrease their ability to get the kind of
    care that they desire. So that is kind of why we say, what was
    going on?
        But I want to shift to this issue of tax-exempt status,
    because I think it is incredibly important. It is an
    appropriate question for this committee to ask, is it not,
    whether or not an entity as large as AARP out there is--is
    following the appropriate rules to maintain their tax-exempt
    status? Is that an appropriate function of this committee?
        Mr. RAND. I believe the committee has wide powers, and if
    you want to do that, then it is appropriate.
        Mr. PRICE. Great.
        And I have here a number of questions that I understand
    that members of the staff of the folks that put together this
    report were unable to get from the AARP in spite of the
    suggestion by AARP that they are open and transparent and they
    want to share all information. So I wondered if I might be able
    to ask you if you would be able to supply these things for the
    committee's availability: How many millions of dollars does
    AARP receive from its Medigap insurance business? That ought to
    be something relatively simple, shouldn't it?
        Mr. RAND. We will provide any of your asks that we can--
    that we have sole control over. There are some confidential
    contracts of which we can't make decisions about by ourselves.
        Mr. PRICE. And I appreciate that, and I look forward to
    seeing those. Things like the added benefits that AARP members
    received after the AARP insurance revenues increased
    significantly that members didn't receive in prior years, those
    kinds of things we ought to be able to get that information on;
    should we not?
        Mr. RAND. Well, we would need some clarification on that
    one. And if you can put that in writing so that we can clearly
    understand that particular request.
        Mr. PRICE. Well, and I appreciate that. What we will do is
    submit these questions to you in an effort to try to be
    transparent and open and to provide the public with the
    greatest amount of information. Look forward to those responses
    or why they can't be answered, and I thank you for coming
    today.
        Chairman HERGER. The gentleman's time has expired.
        The gentleman from New York Mr. Rangel is recognized for 5
    minutes.
        Mr. RANGEL. Thank you. Thank you, Mr. Chairman.
        I ask unanimous consent that this document called ``Behind
    the Veil: The AARP America Doesn't Know'' be placed into the
    record. I cherish the privileges that we have on----
        Mr. THOMPSON. I reserve the right to object.
        Chairman HERGER. The right to object has been recognized.
        Mr. THOMPSON. Mr. Chairman, the report that my colleague
    and friend Mr. Rangel is asking be put into the record, has
    this been peer reviewed by anyone, any organizations?
        Chairman HERGER. This is Mr. Rangel's request.
        Mr. THOMPSON. I understand; but it is your report. Has this
    been peer reviewed?
        Chairman HERGER. This report has been--we requested it. It
    has been prepared and it has been submitted.
        Mr. THOMPSON. But has it been peer reviewed? That is my
    only question.
        Chairman HERGER. Well, it is before all of you right now.
    Not any more than other reports are.
        Chairman BOUSTANY. Mr. Chairman, might I add that the
    report has 246 footnotes documenting thoroughly everything in
    the report. Two hundred forty-three.
        Mr. RANGEL. Mr. Chairman, there is a good reason why you
    two don't want us to know who prepared it and who paid for it
    and why it is not official. I just want to protect the
    privileges of Members of Congress not to be challenged when
    they want to put things into the record. I truly believe that
    we have a responsibility to protect that record and to know
    what we are, by unanimous consent, putting into the record.
        And so I am asking unanimous consent, notwithstanding the
    many unanswered questions, that it be placed into the record
    and then we can proceed to make certain that my motion is not
    abused by other people who just want to stop people from
    expressing themselves. So I ask that it be placed in the record
    by unanimous consent.
        Mr. THOMPSON. Mr. Chairman, I withdraw my right to reserve
    on Mr. Rangel's motion to place this unpeer-reviewed report
    into the record.
        Mr. BECERRA. Mr. Chairman, reserving the right to object.
        Mr. RANGEL. This is not taken out of my 5 minutes, I hope.
        Chairman HERGER. Your 5 minutes is ticking away, yes.
        Mr. RANGEL. This is a procedural matter. It has nothing to
    do with the time that I am allotted.
        Mr. BECERRA. Reserving the right to object, Mr. Chairman.
        Chairman HERGER. The gentleman reserves the right to
    object.
        Mr. BECERRA. Mr. Chairman, I will again raise the concern
    that I have that this report, this document, indicates that it
    is a report prepared by individual Representatives and----
        Chairman HERGER. Okay, this report, we are not subjecting
    it to the record now. There is objection. We want to move on
    with this hearing.
        Mr. BECERRA. Mr. Chairman, I am reserving the right to
    object. I believe I have an opportunity to explain my
    reservation to see if I can get the question I have answered,
    to see if I will remove my reservation.
        Chairman HERGER. The gentleman from Louisiana, Mr.
    Boustany.
        Mr. BECERRA. Mr. Chairman, I believe I have the floor. I
    have made a reservation to the unanimous consent request. The
    unanimous consent has not removed or withdrawn, and I have a
    reservation on that unanimous consent request.
        Chairman BOUSTANY. Would the gentleman yield? I will answer
    his question.
        Mr. BECERRA. I yield.
        Chairman BOUSTANY. This report was prepared by the two
    members listed on the cover.
        Mr. BECERRA. Mr. Chairman, does that mean that two members
    used their staff?
        Chairman BOUSTANY. Hill staff.
        Mr. BECERRA. Hill staff? No Ways and Means Committee staff?
        Chairman BOUSTANY. Hill staff were used, and IRS
    consultant.
        Mr. BECERRA. Mr. Chairman, and was it Ways and Means
    Committee staff that were used to prepare this report?
        Chairman BOUSTANY. And Chairman Levin approved it. Chairman
    Levin was in the loop, and he approved.
        Mr. BECERRA. The use of committee staff?
        Chairman BOUSTANY. Yes. And the IRS detailee.
        Does the gentleman withdraw?
        Mr. BECERRA. If the chairman is representing that Ways and
    Means Committee staff helped prepare this report and that the
    use of the committee staff was approved by then-Chairman Levin?
        Chairman BOUSTANY. Yes. Yes, that is the case.
        Mr. BECERRA. I am being told that that is not accurate.
        Chairman HERGER. That is accurate.
        Mr. BECERRA. My understanding is that Chairman Levin, when
    Mr. Levin was chairman, approved the detailee from the IRS.
        Chairman HERGER. The time of the gentleman from New York's
    time has expired.
        The gentlelady from Kansas is recognized.
        Mr. RANGEL. Parliamentary inquiry, Mr. Chairman.
        Ms. JENKINS. Thank you, Mr. Chairman.
        Chairman HERGER. The gentlelady from Kansas is recognized.
        Mr. RANGEL. I said parliamentary inquiry, Mr. Chairman.
    Let's get a book or something.
        Chairman HERGER. Parliamentary inquiry.
        Mr. RANGEL. Now, under what provision is the chair denying
    me an opportunity to question the witness? Now, I made a motion
    here that had nothing to do with asking the witnesses any
    questions. And if you are telling me now that because I made a
    procedural motion, that I, as a member of the committee----
        Chairman HERGER. If the gentleman will suspend. We will
    start over again with 5 minutes for the gentleman from New
    York.
        Mr. RANGEL. Thank you so much for your consideration.
        Now, Mr. Rand, since I don't know where this report came
    from, could you tell me where you think it came from?
        Mr. BECERRA. Mr. Chairman, parliamentary inquiry.
        Chairman HERGER. The gentleman is recognized for a
    parliamentary inquiry.
        Mr. RANGEL. I hope this doesn't come out of my 5 minutes.
        Chairman HERGER. The clock is stopped.
        Mr. BECERRA. Mr. Chairman, there was a unanimous consent
    request that was proffered by the gentleman from New York. As
    far as I know, that request has not been disposed of.
        Chairman HERGER. That is correct.
        Mr. BECERRA. I don't see how we can proceed forward with
    regular order until we dispose of this procedural request for
    unanimous consent. Therefore, Mr. Chairman, I would ask for
    regular order to be restored and observed, and let us dispose
    of this unanimous consent request.
        Chairman HERGER. Would the gentleman like a vote on that?
    Is there objection?
        Mr. BECERRA. My question had not been answered. Chairman
    Boustany tried to answer the question, but the information I am
    receiving on this side of the aisle is that Ranking Member
    Levin, when he was chairman of this committee, did not approve
    of committee staff being used to prepare this report, that he
    approved the use of a detailee from the IRS. So I am just
    trying to find out, Mr. Chairman, a very simple, get an answer
    to a very simple question: Was committee staff used to prepare
    this report?
        Chairman HERGER. The answer is yes. Our committee staff did
    work to prepare this report.
        Mr. BECERRA. Okay. And given that this report was never
    provided to members of this committee, or a report where
    committee staff helped prepare it----
        Chairman HERGER. It is not a committee report.
        Mr. BECERRA. But committee staff resources were used.
        Chairman HERGER. It is a member report.
        Mr. BECERRA. Mr. Chairman, you may call it a member report,
    but when committee resources are used, it is members of this
    committee who have an opportunity and a right to review these
    reports before they are submitted for broadcast and publication
    and use by the media, I would hope. Otherwise how are we to be
    prepared to question witnesses on a report that we are hearing
    rumor and speculation on from all over the place. So if the
    case is that this is a report that is being requested to be
    included in the record, and it was prepared by committee staff,
    unbeknownst to members of this committee, for it to be
    considered and submitted into the record as any kind of
    official document, I would object to that. If the chairman
    wishes to portray this report as a report by two individual
    members, who I believe may have misused committee resources,
    to----
        Chairman HERGER. That is what it is.
        Mr. BECERRA. Okay. So if it was two members of this
    committee who misused committee resources to prepare this
    report, on that basis I will remove my reservation.
        Chairman HERGER. Along with Ginny Brown-Waite.
        Mr. BECERRA. So those individual members used, without
    authorization, committee staff resources, with the approval I
    assume of the ranking Republican at the time, resources of this
    committee to prepare a report which members of this committee
    did not have an opportunity to review. With that understanding,
    I will remove my reservation and allow this report, which is
    not an official report and prepared under the normal course
    that this committee is accustomed to preparing reports, to be
    allowed into the record.
        Chairman HERGER. With the objection being removed, we again
    recognize the gentleman from New York.
        I have 4 minutes and 45 seconds.
        Mr. RANGEL. You never did say permission is granted to put
    it in the record.
        Chairman HERGER. That permission is granted.
        Mr. RANGEL. Okay. Now, Mr. Rand, did you have an
    opportunity to see this report, The AARP America Doesn't Know?
        Mr. RAND. I saw the report. Staff went through it, and that
    is the reason why I objected to the conclusions.
        Mr. RANGEL. Did anyone ask you questions in connection with
    the preparation of this report?
        Mr. RAND. From the committee?
        Mr. RANGEL. No, from the authors of the--I have no idea why
    the committee would be asking you questions. Did the author--do
    you know who prepared this other than what you have heard this
    morning? Do you know who prepared it?
        Mr. RAND. That was my understanding as you were going
    through the conversation and reiterated that there were two,
    three people.
        Mr. RANGEL. Did anyone represent the office of this
    committee?
        Mr. RAND. No.
        Mr. RANGE. Or make any inquiries of you?
        Mr. RAND. No. The answer is no.
        Mr. RANGEL. So as far as you know, this could have been
    prepared by a private, outside organization that would want to
    discredit your organization as relates to your position on the
    Affordable Care Act; is there anything that I am saying that is
    inconsistent with that?
        Mr. RAND. We really are not in a position to speculate on
    that.
        Mr. RANGEL. Well, let me try this. Is there anything in
    this report that would indicate that the United States Congress
    was involved in investigating this? Or, did anyone hold
    themselves out to be staff of the United States Congress in
    making this report?
        Mr. RAND. No. It simply went through the names that you
    have identified.
        Mr. RANGEL. So you saw two members' names, but they were
    not identified as being members of this committee? As a matter
    of fact, with the exception of the word ``reps,'' they were not
    identified as Members of the United States Congress; were they?
        Mr. RAND. The answer is no, not in the report. So we
    don't----
        Mr. RANGEL. Not in the report, and not in the cover of the
    report.
        Do you have counsel that is hired normally when accusations
    are being made against your organization? How could you
    possibly defend it if you don't even know who made them?
        Mr. RAND. We do have counsel in the normal procedure.
        Mr. RANGEL. Well, I hope you make some inquiries as to why
    would anyone put out a report and not identify who they are as
    to where they come from because Rep. Wally Herger and Rep.
    David Reichert could be a ``rep'' from the various States that
    have, what, reps. But there is nothing on this report that
    indicates that the Congress is involved in the inquiry that
    certainly is not complimentary to the work that your
    organization has been doing for half a century; is that
    correct?
        Mr. RAND. It certainly isn't complimentary; that is
    absolutely correct.
        Mr. RANGEL. Well, I hope your counsel will share with me,
    since it is impossible for me to get any information, it will
    be in the record, I hope that they would find out exactly what
    was the motivation behind the report. Because if the motivation
    is just to refer you to the IRS, anyone can do that without a
    report. And I would hope that they would ask the questions that
    I can't get answers for as to what were the resources that were
    used in order to prepare the report, why there is no
    identification with the United States Government, the United
    States Congress, the Ways and Means Committee, the Subcommittee
    on Oversight and the Subcommittee on Health, and the reason I
    want it in the record is so that it doesn't disappear. I want
    this in the record. I want you to be able to use this in the
    record, and I want to make certain that the ability that we
    have to put whatever we think is helpful to an inquiry, helpful
    to a hearing, that no member be denied for partisan reasons the
    opportunity to put it in.
        So, Mr. Chairman, let me thank you for this opportunity. I
    yield back the balance of my time, and I thank you for your
    answers, and I look forward to working with you to see that
    America continues to receive the best possible health care that
    we can provide.
        Mr. RAND. Thank you, sir.
        Chairman HERGER. The gentleman yields back.
        Again, this is the report. It says right on the report:
    Investigative report prepared by Representative Wally Herger
    (R) of California and David Reichert (R) of Washington. Inside
    it mentions recognition of former Representative Ginny Brown-
    Waite who represented the Fifth District of Florida, and
    throughout it indicates congressional inquiries. So I think it
    is very clear. I think it is important that we not have this as
    diverting our attention from what the purpose, the very real
    purpose of this hearing is.
        Mr. RANGEL. What are you reading, Mr. Chairman? I have the
    document that has been distributed.
        Chairman HERGER. With that, the gentle lady from Kansas,
    Ms. Jenkins, is recognized.
        Ms. JENKINS. Thank you, Mr. Chair, and thank you for being
    here to answer our questions.
        As representative Roskam noted earlier, Representative
    Nancy Pelosi, the Democrat minority leader, is on record as
    having complained that AARP is in the pocket of Republicans,
    and she suggested that ``because you sell insurance to your
    members there is a conflict of interest.'' I am just curious if
    you believe Leader Pelosi is wrong? And in the interest of time
    with the bells ringing, just a simple yes or no, Mr. Rand?
        Mr. RAND. Yes. We don't believe anybody who says that we
    are in the pockets of anybody.
        Ms. JENKINS. So Leader Pelosi is wrong. Representative Pete
    Stark, a Democrat from California, is quoted as saying: ``AARP
    members know they are being sold out by an organization that is
    happily using member dues and Medigap premiums to promote a
    Medicare bill that does more harm than good.''
        Do you agree with Representative Stark?
        Mr. RAND. We do not.
        Ms. JENKINS. Representative Rangel from New York is quoted
    as saying ``AARP has forgotten where they come from because
    once you get into the business of making money with the devil,
    you forget your mission.''
        Is Representative Rangel wrong?
        Mr. RAND. We have not forgotten our mission.
        Ms. JENKINS. Representative John Larson, a Democrat from
    Connecticut, is quoted as saying: ``Why does the national AARP
    leadership support a bill that meets almost none of their
    clearly stated needs and conditions?'' Is Representative Larson
    right to question this logic?
        Mr. RAND. We have said in testimony that there were a
    number of items.
        Ms. JENKINS. Just yes or no? Is he right in questioning
    this?
        Mr. RAND. I don't believe he is right in questioning this.
        Ms. JENKINS. Former Representative Rahm Emanuel, a Democrat
    from Illinois, is quoted as saying that ``AARP's latest step
    forward into the insurance realm gives him some pause. When
    there are principles about Medicare drug prices and
    reimportation run into their business practices, which goes,
    business practices or principles?''
        I would just like you to answer Rahm's question, which
    goes, business practices or principles?
        Mr. RAND. We are first with principles and policy.
        Ms. JENKINS. And finally, 85 Democrat Members of Congress
    led by Representative Lynn Woolsey from California signed a
    letter to AARP's CEO resigning their membership or stating that
    they would not be joining the group in the future. The letter
    stated that the AARP, this is a quote: ``AARP's misguided
    decision to embrace this legislation and sacrifice the future
    of Medicare must go unchallenged.''
        I am curious if you know if any of those 85 Members were
    true to their word and have continued to boycott AARP?
        Mr. RAND. I do not know. We have always stood for our
    policy.
        Ms. JENKINS. Could you find out for us?
        Mr. RAND. We will.
        Ms. JENKINS. Thank you. The point I would like to make is
    that I think we have run across something that Democrats and
    Republicans in Washington can agree on, and perhaps that is
    that the AARP leadership doesn't necessarily protect the best
    interests of the American senior citizens that they pledge to
    represent. So I simply beg of you as representing the
    leadership of AARP, please don't mislead our seniors who sent
    all of us, Democrats and Republicans alike, to this body to
    represent them. Please don't use them as pawns to line your
    pockets on their backs.
        With that, I yield back.
        Mr. RAND. Can I comment? Mr. Chairman, may I comment?
        Chairman HERGER. The gentlelady yielded back.
        I think it is very important, very important, that we not
    allow the purpose of this hearing to be taken in a different
    direction. The seniors of this Nation deserve the right to know
    how money is being spent and whether it is being spent in their
    best interests.
        With that, I yield 5 minutes to the gentleman from Oregon,
    Mr. Blumenauer.
        Mr. BLUMENAUER. Thank you, Mr. Chairman. I actually agree
    with that notion about the senior citizens. I would first of
    all like to thank AARP because I have not always agreed on some
    issues, but I respect the work that is done. The folks back
    home provide lots of energy and activity. I for one am sorry
    that you are subjected to something of this nature because I
    truly think, reading through a 25 and a half page pamphlet with
    243 footnotes, to try to dress it up to try to make it look
    official and authoritative and scholarly misses the mark.
        I find it fascinating on page 17, you are taken to task
    because somehow you are undermining your long-term business
    interests because you have underwriting standards that are more
    flexible and speak to the needs of people who are 50 to 64 that
    costs potentially some money, and you are taken to task for
    that.
        Well, you supported the Affordable Care Act, which now
    requires every American to have these protections, which you
    undertook at perhaps some financial disadvantage to your model,
    because you thought it was the right thing.
        I remember that when some Members of Congress who used to
    support helping seniors with end-of-life care, when the big lie
    about death panels, and they retreated, AARP was part of 400
    individuals and groups that came forward to tell the truth. Now
    just because somebody, like my friend from Georgia, thinks
    something is in the bill, doesn't put it in the bill. And I
    appreciate your zeroing in.
        This report takes you to task because AARP had the
    audacity, the audacity, to support the children's health
    program expansion, assuming you did that only for some sort of
    convoluted financial benefit, ignoring the fact that your
    members have children and grandchildren and great
    grandchildren, and we all want intergenerational cooperation.
        Mr. Chairman, I have read it. I think it is a little bit
    goofy. With all due respect, the notion somehow that they focus
    on Medicare Advantage that is rocky and is a draconian cut,
    Medicare Advantage means that 75 percent of your members who
    are senior citizens in fee-for-service pay $90 a year more. So
    maybe trying to reform Medicare Advantage speaks to the 75
    percent of your members and 75 percent of America's seniors who
    are paying more because a system got out of hand.
        Mr. RAND. You have expressed our rationale.
        Mr. BLUMENAUER. I just think that I am glad it is in the
    record. I hope people look at it. ``Witch hunt'' is such a
    nasty term. I look forward to bringing before us people who
    have really crossed the line, people who have commingled funds
    and pushed the limits or crossed over them in terms of IRS
    regulations. But I think any fair reading is that your work on
    preexisting conditions, children's health, end of life,
    Medicare reform, speaks to what we need to be doing as a
    country and as a Congress. Sadly, this morning's exercise moves
    us no further along towards the implementation. But the things
    that you came out for back in the day used to be bipartisan
    supported. And some day they will again.
        I appreciate your efforts. Again, I apologize for being a
    part of this, but I do hope people analyze this and understand
    that it is no indictment of AARP. It does say something about
    this committee's operation.
        Thank you, and I yield back the balance of my time.
        Chairman HERGER. The gentleman yields back.
        I think it is important to note that AARP, in its written
    and oral testimony, did not refute any specific conclusions or
    findings in this report. Neither ranking member refuted any
    specific conclusions or findings in this report in their
    opening statements. So all of this talk about which
    congressional staffer was involved with the report or who the
    committee will investigate next is simply a stunt to draw
    attention away from the findings of the report; specifically,
    that AARP stands to gain an additional $1 billion over the next
    10 years as a result of the Democrats' health care law.
        With that, I yield 5 minutes to----
        Mr. LEWIS. Would the chairman yield?
        Chairman HERGER. With that, I yield 5 minutes----
        Mr. LEWIS. This is a stunt.
        Chairman HERGER. With that, I yield 5 minutes to the
    gentlelady from Tennessee, Mrs. Black, to inquire.
        Mrs. BLACK. Thank you, Mr. Chairman.
        I want to begin by saying how disappointed I am that this
    has been turned into what people say is a witch hunt. It is the
    role and responsibility of this subcommittee, when there are
    things that seem to be outside of what should be happening,
    that we should investigate. It is the role and responsibility.
    I would hope that Members on the other side of the aisle that
    have concerns about other organizations that may not be
    operating or may have questions, that they bring that before
    this committee.
        And so my question I want to turn to you just comes from my
    own personal experience prior to coming here to Congress. I was
    an executive director of a 501(c)(3), a health care foundation.
    We were very careful because we were providing funds for the
    hospital for which we were the foundation about commingling our
    members of our boards. One of the things that concerned me as I
    read this report was the fact that your AARP, Inc., the
    501(c)(4) tax exempt social welfare organization, is run by 22
    board members. But you also have seven board members from your
    for-profit, and all seven of those board members also serve on
    your other board. So I am concerned about the commingling of
    board members from your for-profit from your not-for-profit. If
    you could speak a little bit about that, I would appreciate it.
        Mr. HAMMOND. I would be glad to, Mrs. Black, if I could. I
    am not sure what for-profits you are talking about with seven
    members. Are you talking about the grantor trust, the insurance
    trust?
        Mrs. BLACK. Explain to me how many different boards you
    have.
        Mr. HAMMOND. Thank you. I appreciate that question because
    it needs to be clarified.
        There are basically three different boards that are
    involved in the AARP organization. One is the parent board,
    which is the AARP board.
        Mrs. BLACK. And is that the 22 members?
        Mr. HAMMOND. That is the 22-member board. It is 22 during
    this body. There is another board which is the board for ASI,
    our tax-paying affiliate, which has on it two AARP board
    members.
        Mrs. BLACK. Okay.
        Mr. HAMMOND. There is a third board, which is the AARP
    Foundation board, which has four board members on it. There are
    seven total, but four AARP board members are on the Foundation
    board.
        The purpose of those interlocking boards, the purpose of
    having the AARP board members on those interlocking boards, is
    to make sure that the mission of AARP is the first priority of
    each of the boards and that everything that goes through those
    boards is in concert with our AARP policy and our mission.
        Mrs. BLACK. So which of those boards sets your rates, the
    premium rates?
        Mr. HAMMOND. The premium rates are set by the State
    insurance----
        Mrs. BLACK. You have a contract with United. Who oversees
    those contracts? Which one of those boards oversees the
    contracts?
        Mr. HAMMOND. The contracts are not overseen by the board,
    they are overseen by ASI, which is our for-profit. They manage
    and oversee the contracts.
        Mrs. BLACK. You do have members from your for-profit on
    your not-for-profit; correct?
        Mr. HAMMOND. We have two board members from AARP who are
    members.
        Mrs. BLACK. Which is the non-profit arm?
        Mr. HAMMOND. On the seven-member board of the ASI.
        Mrs. BLACK. And so with these three different boards, are
    they all in the same office?
        Mr. HAMMOND. No.
        Mrs. BLACK. So they have three different offices?
        Mr. HAMMOND. They have three different offices. They meet
    at three different spots.
        Mrs. BLACK. With three different managers.
        Mr. HAMMOND. There is the president of the Foundation and
    there is the president of ASI.
        Mrs. BLACK. But as far as your managers go, your
    administrative staff, so they are all three separate
    administrative staff?
        Mr. HAMMOND. They are separate. If there are a few
    occasions where they may be commingled, their time is set. But
    there are only a few of those occasions. Most of the work is
    done by the staff of those individual entities.
        Mrs. BLACK. Mr. Rand, are you the CEO over all three of
    these entities?
        Mr. RAND. No. The board--they report to their separate
    boards. I am the CEO of AARP, the (c)(4).
        Mrs. BLACK. The (c)(4)?
        Mr. RAND. Yes.
        Mrs. BLACK. The nonprofit (c)(4)?
        Mr. RAND. Yes, that is correct.
        Mrs. BLACK. Do you sit as an ex officio on any of these
    other boards?
        Mr. RAND. I sit on the board of ASI as a nonvoting member.
        Mrs. BLACK. Okay. I am concerned about the intermingling of
    these board members and veto power and the decisions that are
    being made by each one of these groups and these members being
    commingled. I am concerned about that, and I will be interested
    to see, once IRS looks at the way in which you manage your
    organization by the commingling of these, what they have to say
    because I know how sensitive of a situation that was as I
    served as the executive director of a non-profit and the for-
    profits.
        Thank you.
        Chairman HERGER. The gentlelady's time has expired.
        With that, we have a series of votes, so we will recess and
    reconvene immediately after the votes and we will continue with
    this panel. I apologize. It will probably be about an hour, but
    I appreciate your indulgence.
        With that, we are recessed.
        [Recess.]
        Chairman HERGER. The committee reconvenes.
        I would like to first recognize the chairman of the
    subcommittee, Mr. Boustany, for a quick comment.
        Chairman BOUSTANY. I thank Chairman Herger.
        I want to make clear a previous comment I made about Mr.
    Levin's approval of the IRS detailee that I spoke of earlier in
    our discussion. I want to be really clear so there is no
    confusion here. When Mr. Levin requested from IRS Commissioner
    Shulman an IRS detailee be assigned to the Republican staff of
    the committee, the detailee would be looking into, and I quote
    from Mr. Levin's letter, ``in areas related to tax-exempt
    organizations and other matters of interest to the Ways and
    Means Committee.''
        Mr. Levin was not aware that the detailee would be working
    on the investigation specifically of AARP. I just wanted to
    offer that clarification.
        I yield back.
        Chairman HERGER. The gentleman yields back.
        The gentleman from California, Mr. Becerra, is recognized
    for 5 minutes.
        Mr. BECERRA. Mr. Chairman, thank you very much for yielding
    the time, and I thank Chairman Boustany for the clarification
    which I think simply leads to more confusion because the
    reality is here that we are looking at a document that was
    prepared without I think the knowledge of most every member on
    this committee. It appears to be a document that was prepared
    without the committee staff's full participation. Certainly
    nowhere in the document does it indicate that this is an
    official report, certainly not an official investigative report
    by the Ways and Means Committee. And in my 12-plus years of
    being on this committee, this is the first time I have seen us
    conduct business this particular way.
        We are a week away from a government shutdown where this
    House has been unable to reconcile its differences with the
    President, and there are Members on the other side of the aisle
    who are talking about the need to shut the government in order
    to make the case. We are watching as this discussion about a
    budget has become more an issue about a social agenda that some
    Members believe should be attached to a fiscal bill, and I
    would think that most people watching with us just a week away
    from seeing this government shut down and the services that
    would be provided to all of the seniors that might be
    interested in this hearing in jeopardy as a result of a
    government shutdown, that they would probably look at this and
    wonder: Is this the way that those who took control of the
    House of Representatives intend to govern?
        I don't believe this is any way to run the largest economy
    in the world or the smallest business on Main Street. So I hope
    that we get down to the real business, which I thought and I
    remember on both sides of the aisle, people campaigning back in
    November talking about job creation; jobs, jobs, jobs.
        I don't know how having this hearing today where we have
    requested Mr. Rand and Mr. Hammond to come testify does
    anything to help create jobs. To some degree maybe it is better
    that if this is the way that the House of Representatives is
    going to operate that this is all we do because fortunately,
    with the work that was done in the last 2 years with the
    President, this Congress was able to get this economy back on
    track. We just heard this morning that the economy was able to
    generate another quarter of a million new jobs in the last 2
    months, 450,000 jobs created in the private sector. But then
    again when you recognize that in January of 2009 when new
    President Barack Obama was handed the keys by outgoing
    President George Bush, we hemorrhaged 780,000 jobs, and you see
    the type of work that we have in front of us.
        So this committee, which is perhaps the most important
    committee in the House to help the private sector stimulate
    that job growth that we need to see, we find ourselves
    essentially engaged in a discrete, aggressive attack on an
    organization that represents, and has for many decades, perhaps
    the population in America which deserves the most respect,
    those who made it possible for us to be here.
        I guess this is the business of the day, and so we will
    conduct the business of today.
        I do hope, and Chairman Boustany has said this and so I
    applaud him for having said this, that we will continue to do
    oversight because whether Mr. Rand or Mr. Hammond or AARP, or
    any other organization wishes to get favorable treatment from
    the taxpayers of this country, we have an obligation to do
    oversight to make sure that no one abuses the opportunity to be
    treated differently in the Tax Code than any other American who
    is paying his or her full share of taxes.
        I think it would have been wholly appropriate to have AARP
    or any other non-profit come before this committee and explain
    itself if we legitimately thought there was something going on.
    Mr. Chairman, I hope we will conduct true oversight because I
    can tell you about any number of organizations that have
    swindled the American public out of precious contributions and
    done very few things that are good for this country.
        Perhaps the biggest concern I have, and it is actually kind
    of funny, today I realized as I was walking back, today is
    April 1, April Fool's Day. And if it weren't for the fact that
    we have been at this for over 4 hours, it would be a joke. But
    this is not a joke. And my sense is it is not a joke because I
    suspect what we are trying to do here, what some are trying to
    do here through these hearings is perhaps to silence voices,
    instead of having full participation in this process.
        So, I hope, Mr. Chairman, this is not an effort to try to
    silence voices of people who represent seniors in America. My
    understanding is that with regard to Medicare and Medicaid and
    Social Security, there are efforts underway to cut the benefits
    for seniors in America, and I hope that this House is willing
    to do the hearings that it takes to show the American people
    that we are working for them and not against them.
        I yield back the balance of my time.
        Chairman HERGER. Mr. Kind is recognized for 5 minutes.
        Mr. KIND. Thank you, Mr. Chairman. I want to thank the
    gentlemen for your presence here today. It has been a long time
    and your patience is appreciated. To echo what my colleague
    from California said, you might think this is some type of
    cruel April Fool's Joke, hauling you before a congressional
    committee, but it really isn't. I mean, whenever you are
    subjected to a prosecutorial inquiry before a United States
    Congress committee, it is a serious matter. And I think it is
    unfortunate. I don't want to ascribe any motives on the other
    side, but on the surface at least, this appears to be a form of
    selective retribution or political retribution here.
        There are many other organizations and individuals who
    could be sitting out there right now answering the same types
    of questions and inquiries that you have been subjected to over
    the last few hours, but they are not. I think that is
    unfortunate because if there is anything that ultimately works
    for the Tax Code, it is the feeling that it is being applied
    and addressed fairly to everyone in this country and not being
    used as some type of a political weapon.
        We can go through a litany of organizations that are
    collecting royalties and licensing fees that are tax exempt
    under the Code, from television stations to universities, to
    the Chamber of Commerce to NFIB to the Association of Health
    Insurance Plans, and on and on and on, that the same questions
    could be directed to here. On the surface, this just smacks of
    political retribution.
        Everyone on this committee, I am sure, has not been in
    complete agreement with AARP and where they come down on policy
    issues. I wasn't with you in 2004 when you were supporting the
    Medicare Modernization Act, which also created the new
    prescription drug benefit plan for seniors, and the main reason
    I wasn't was because it was largest expansion of entitlement
    spending since Medicare was created in 1965, and not a nickel
    of it was paid for. It all went to deficit financing. And there
    was language in it that prohibited the price negotiation with
    drug companies in that bill. Significant policy differences.
        And yet Republicans, when they were in control of the
    Congress then, that was a bill that they offered. You had
    supported it. They were not coming back the next week or the
    next month subjecting you to these type of questions. It was
    only after you had the audacity to support the Affordable Care
    Act that they want to haul you before them and start
    questioning you about your royalty payments, when again a list
    of organizations could very well be subjected to the same line
    of inquiry.
        In fact today, Mr. Chairman, former Representative, a
    colleague, Billy Tauzin, wrote an article for the Politico, a
    Capitol Hill publication here entitled, ``Don't Play Politics
    With AARP.'' In that Article I would just like to quote one
    paragraph that he wrote: ``The fact is that the organization,
    AARP, gets significant revenue from licensing its name to
    others and selling products. But that isn't unusual. Many non-
    profit health insurers, like Care First, member organizations
    like NRA, trade associations like the American Bankers
    Association, and human service activities like the Red Cross,
    get significant revenue from product sales or name licensing.''
    That is the point I was just making.
        Mr. Rand, maybe you could inform the committee, how many
    dues-paying members does AARP have today?
        Mr. RAND. 37 million, sir.
        Mr. KIND. About 37 million, just shy of 40 million. Yet it
    is my understanding that AARP does not spend a nickel directly
    advocating the election or the defeat of any candidate running
    for office in the United States; is that correct?
        Mr. RAND. That is correct. And we don't have a PAC.
        Mr. KIND. And you don't have a PAC. So you are not
    contributing any campaign funds to any person, Republican,
    Democrat or otherwise, running for office?
        Mr. RAND. That is correct. We are nonpartisan and
    bipartisan.
        Mr. KIND. And I don't want to put you on the spot, but the
    Sixty Plus organization that views themselves as the
    conservative alternative to AARP, do you know how many dues-
    paying members the Sixty Plus organization has?
        Mr. RAND. I don't know. Not many.
        Mr. KIND. Well, let me answer that for you: None. Zero.
    They take all their contributions from wealthy interests out
    there that don't have to be disclosed. They turn around and run
    negative attack political ads against candidates throughout the
    country, and they are a tax-exempt organization. It is not
    surprising that we don't find them sitting next to you here
    today either, because they basically went on the attack against
    Democratic candidates in the last election cycle.
        Let me also ask you, getting to the crucial question here,
    I think AARP supported the Affordable Care Act and we want to
    know why today. Was it because there was a direct financial
    benefit for you of what was in this legislation that was
    passed? Or was it based on substantive or policy reasons on why
    you supported the Affordable Care Act?
        Mr. RAND. It had nothing to do with revenues. It was 100
    percent focused on our mission and what our seniors and 50-plus
    populations were saying that they needed for the American
    dream.
        Mr. KIND. And what more specifically that you found in the
    Affordable Care Act that made sense for your members to come
    out in support of that?
        Mr. RAND. We talked about no preexisting conditions, which
    is what they wanted, what we advocated for. The stopping of age
    discrimination through age rating which they said as we get
    older we have less money.
        Chairman HERGER. The time of the gentleman has expired.
        I want to thank our witnesses, you, Mr. Rand and Mr.
    Hammond, for participating in today's hearing. With that, that
    will conclude our first panel, and I would like to call up our
    second panel, please.
        Mr. LEWIS. Mr. Chairman?
        Chairman HERGER. The gentleman from Georgia.
        Mr. LEWIS. Mr. Chairman, I would like to raise a question
    of committee procedure.
        Mr. Chairman, according to the hearing advisory released
    March 25, any organization has until April 15, 2011, to submit
    written comments as long as they follow the process set forth
    in the advisory; is that correct?
        Chairman HERGER. Yes, that is correct.
        Mr. LEWIS. And that applies to any organization; is that
    correct?
        Chairman HERGER. That is correct.
        Mr. LEWIS. So, Mr. Chairman, would that also apply to our
    witnesses before us today, AARP?
        Chairman HERGER. Our witnesses today have had an
    opportunity to submit their testimony for this committee, so
    they have already had that opportunity.
        Mr. LEWIS. It is my understanding----
        Mr. RAND. May I respond to that, Mr. Chairman?
        Chairman HERGER. Again, AARP has had their opportunity to
    submit their testimony and submit for the record, so that has
    already been extended to them.
        Mr. LEWIS. Well, Mr. Chairman, it is my understanding that
    the report is 26 pages long with 243 footnotes and was only
    released on Wednesday. This was not sufficient time for AARP to
    review and develop written comments. We should have the benefit
    of a full record. That is the point, to get your questions and
    all of our questions answered.
        Chairman HERGER. I would mention to the gentleman that we
    met with AARP 2 weeks ago and went over this report with them,
    so they have had 2 weeks to be able to submit to us their
    report.
        Again, I would like to move on to our second panel.
        Mr. RAND. Can I just correct that? We went over four pages,
    Mr. Chairman.
        Mr. RANGEL. I ask unanimous consent that the witnesses be
    allowed to submit additional information for the record.
        Chairman BOUSTANY. I reserve the right to object. I object.
        Mr. RANGEL. With this witness?
        Mr. KIND. Not us, the witnesses before us.
        Chairman BOUSTANY. The witnesses have provided testimony.
        Mr. LEWIS. Mr. Chairman, could I refer to the advisory, a
    direct quote from the advisory? A person or any organization
    wishing to submit for the hearing record must follow the
    appropriate link of the hearing page of the committee Website
    and complete the information or form from the committee home
    page.
        Chairman HERGER. Just a quote from our advisory. In view of
    the limited time available to hear from witnesses, oral
    testimony at this hearing will be from the invited witnesses
    only. However, any individual, organization not scheduled for
    an oral appearance may submit a written statement for
    consideration by the committee and for inclusion in the printed
    record of hearing. A list of invited witnesses will follow.
        The chairman, again, would like to thank our witnesses. We
    would like to move on to our next panel. I want to thank you
    for your patience and waiting over for the hour plus that you
    did.
        And I would like to call up our next panel, please.
        Mr. RAND. Thank you, Mr. Chairman.
        Chairman HERGER. Thank you.
        Mr. RANGEL. Thank you.
        Chairman HERGER. I would like to introduce the second
    panel's witnesses. Mr. William Josephson is a nationally
    recognized expert on tax-exempt and nonprofit organizations. He
    is currently of counsel at Fried, Frank, Harris, Shriver and
    Jacobson LLP, New York. He joined the firm in 1996, became a
    partner in 1967, and retired in 1999.
        He was appointed assistant attorney general in charge of
    the New York State Law Department's Charities Bureau in 1999.
    He served in this capacity for 5 years under then-attorney
    general Eliot Spitzer.
        Mr. Josephson's opinions on nonprofit issues are frequently
    reported in The New York Times, Washington Post, The Chronicle
    of Philanthropy and other newspapers.
        I would also like to recognize Ms. Frances Hill, professor
    of law, University of Miami School of Law, Coral Gables,
    Florida. Ms. Hill has a Ph.D. in government from Harvard
    University, where she majored in political theory and
    comparative politics, and a J.D. from the Yale Law School.
        Professor Hill teaches courses in taxation, including
    corporate tax, bankruptcy tax and the taxation of exempt
    organizations, constitutional law and election law. Her current
    scholarship focuses on bankruptcy tax, and constitutional
    issues and election law.
        You will have 5 minutes to present your testimony. Your
    entire written statement will be made a part of the record.
        Mr. Josephson, you are now recognized for 5 minutes.

    STATEMENT OF WILLIAM JOSEPHSON, J.D., OF COUNSEL, FRIED, FRANK,
           HARRIS, SHRIVER & JACOBSON LLP, NEW YORK, NEW YORK

        Mr. JOSEPHSON. Thank you, Mr. Chairman. I am very happy to
    be here today. I want to make it very clear that I am not a
    health care person.
        What I have done is looked at the report in question, the
    investigative report in question, as if it had been a complaint
    that had been filed with my office, whether at a time when I
    was counsel to the Peace Corps or other government agencies, or
    when I was the head of the Charities Bureau, from the point of
    view of whether or not the contents of the report would, in my
    judgment, warrant further inquiry or further investigation, and
    my answer to that question is yes.
        What I would have done if this had been a complaint filed
    with me is I would have solicited the cooperation of the
    organization; ask it to make available information, much of
    which would be similar to the information the committee staff
    has already asked for, but I would go much deeper, actually,
    than the committee staff has asked. And if I did not receive
    that kind of cooperation, I would regrettably use my subpoena
    power to acquire it. Why? Because the totality of information
    contained in the report raises the question into my mind as to
    whether or not this organization is truly a nonprofit or, in
    fact, is a business.
        In that connection, there are many areas that I would
    particularly examine. I would try to understand the complexity
    of the organizational structure. I would examine the extent to
    which its board and officers, in fact, exercised their
    fiduciary responsibilities of due diligence, of prudence, of
    candor. The same would be true for the fiduciaries of each of
    the eight affiliates of AARP.
        I would look at AARP's expenditures, especially those for
    its exempt purposes, as a percentage of its total expenditures.
    I would ask how much AARP actually spends not just at the
    Federal level, but also at the State and local levels on
    lobbying.
        I would try to find out the adequacy of AARP's internal
    controls, its documentation retention policies, its
    whistleblower protection policies, the scope of its external
    audit function, and any management letters AARP has received
    from its auditors.
        AARP classifies much of its income, as the committee knows,
    as royalties. When the Congress exempted royalty income from
    the unrelated business income tax, it did not define royalty. I
    think that was a grievous error. Consequently, the IRS and the
    courts have struggled to apply the concept of royalty to
    various kinds of nonprofit income to determine whether or not,
    in fact, it was a royalty, which I understand traditionally to
    be a percentage of gross income that goes up or down depending
    on how successful the product to which it attached is, or
    whether or not, in fact, as the report may suggest--I emphasize
    ``may suggest''--the amounts characterized by AARP as royalty
    really are closer to insurance commissions, which I believe
    would be subject to unrelated business income tax. This is a
    factual inquiry that is not necessarily resolved by questions
    of law.
        This is an issue, actually, on which I agree 100 percent
    with Professor Hill's statement, and she is, in fact, a highly
    respected colleague of mine in the not-for-profit tax area,
    where she, too, talks in her statement about the uncertainties
    that involve the application of royalty to various situations.
        AARP's compensation and benefits are issues, including to
    what extent all of its fiduciaries, officers, managers receive
    compensation from multiple sources.
        Unfortunately, in conclusion, I would like to say that the
    resources that the IRS has available to itself with respect to
    the oversight of tax-exempt organizations are completely
    inadequate. I can cite two examples that the committee should
    be familiar with.
        The Pension Protection Act of 2006 asks the IRS to produce
    within a year a study of supporting organizations.
        Chairman HERGER. If you could conclude your testimony, and
    the rest of it will be submitted for the record.
        Mr. JOSEPHSON. Thank you.
        Chairman HERGER. Thank you. Thank you very much, Mr.
    Josephson.
        [The prepared statement of Mr. Josephson follows:]

        Chairman HERGER. Ms. Hill, you are now recognized for 5
    minutes.

         STATEMENT OF FRANCES R. HILL, J.D., Ph.D., PROFESSOR,
        UNIVERSITY OF MIAMI SCHOOL OF LAW, CORAL GABLES, FLORIDA

        Ms. HILL. Thank you, Mr. Chairman, Mr. Chairman, and
    Ranking Member Lewis.
        I am a tax lawyer, and as a tax lawyer, we live in a world
    of uncertainty at every turn. Corporate tax consolidated
    returns. Tax turns on the facts and circumstances of each
    particular case. And that phrase resonates through all the
    regulations and all the guidance we have.
        What I was asked to do today is talk about 501(c)(4)
    organizations from the perspective of a student of exempt
    organizations, and that is what I propose to do. I want to note
    a couple of developments.
        The exempt sector as a whole, all types of exempt
    organizations, 501(c)(3) public charities, 501(c)(6) business
    leagues, all have grown enormously over time since the 1950s.
    They have grown in size, they have grown in scale, they have
    grown in scope. They all conduct now a broad range of
    activities that perhaps was not contemplated fully when the law
    was written. On the other hand, this is part of the dynamic and
    dynamic vibrancy of the sector.
        Certainly exempt organizations have become complex
    structures of multiple types of exempt entities, taxable
    entities, joint ventures, 527 political organizations of at
    least two types. But no one has thought that that was a
    necessarily alarming thing.
        Schedule R of the new form 990 is going to teach us all a
    very great deal about complex structures because it is going to
    allow for the orderly reporting of information that has never
    been available before to scholars like me or, indeed, to many
    policymakers.
        The central issue in complex structures is not whether they
    are big or not. Some of them are really, really big. I come
    from the world of universities, and we are very big. Most
    universities are, in fact, bigger than mine. Harvard University
    or Yale University are enormous. They have many resources, and
    certainly Harvard has some 100 affiliated entities in the
    larger Harvard structure. Hospitals tend to be very large and
    also to have multiple structures. Schedule R recognizes this
    modern development and the need for information about them.
        I just want to say a few things about the complex
    structures. Overlapping boards are not, themselves, a problem.
    They don't lead to the attribution of one entity's activities
    to other entities.
        Sharing of staff, if it is properly documented and paid
    for, is not a problem. The problem is if one organization
    controls the daily operation of another.
        I want to talk a bit about royalty income. Yes, there is
    uncertainty about what is a royalty, but generally we know what
    a royalty is. It is a payment pursuant to the licensing of a
    right in generally intangible property for a defined use, and
    the IRS and the courts have, for UBIT purposes, the unrelated
    business income tax, focused on the issue.
        Is it this kind of payment for the use of this right in
    intangible property, or is it for the provision of services? If
    it is for the provision of services, it is taxable. And there
    have been a variety of cases, but not a dividing line or two
    lines of cases, cases that reached different results about the
    facts and circumstances.
        501(c)(4) organizations also engage in a great deal of
    lobbying, and this is--has become so pervasive. But the IRS
    over time decided lobbying was, in fact, an exempt purpose of
    501(c)(4) organizations.
        This is, I regret to note, I think an unfortunate but long-
    term development. We have now seen organizations that are
    heavily engaged in pursuing their rights under Citizens United
    under the First Amendment as interpreted by our Supreme Court
    to make independent expenditures from their general treasury
    funds. They can show that they satisfied 501(c)(4) solely by
    showing that their lobbying activities exceed their independent
    expenditures.
        It is possible that this new form that is emerging may
    simply be a tax-exempt lobby shop with this defined First
    Amendment right, and I am not referring to specific
    organizations, I am referring to the possibility of the new
    legal form.
        I have written in my testimony a discussion brief, but a
    longer one in the book that I have done on tax-exempt
    organizations, on Section 4958, which the IRS has spent a great
    deal of time and resources learning to administer.
        Chairman HERGER. Your time has expired. Could you maybe
    conclude quickly and submit for the record your testimony?
        Ms. HILL. Thank you, Mr. Chairman. I will wrap this up.
        Chairman HERGER. Okay. Thank you very much.
        [The prepared statement of Ms. Hill follows:]

        Chairman HERGER. Mr. Josephson, I want to thank you for
    your testimony and for sharing your expertise with us.
        One of the many facts I find troubling in the report
    released by the committee is the overlap between the boards of
    AARP's for-profit and not-for-profit affiliates.
        Do you think that it is appropriate for seven members of
    AARP, Inc.'s, board of directors, a 501(c)(4) that establishes
    AARP's advocacy positions, to also comprise the entire board of
    AARP's for-profit side, the AARP insurance plan, a grantor
    trust that processed $6.8 billion in insurance premiums in
    2009?
        Mr. JOSEPHSON. Interlocking directors always raise concerns
    about the duties of loyalty, diligence, because there are
    inherent conflicts of interest.
        As I said in my statement, were I in charge of an
    investigation of this organization, I would look very carefully
    at the composition of each of its board and officers. I would
    look at the minutes of their meetings. I would try to determine
    how frequently they are attended.
        Chairman HERGER. Mr. Josephson, could you move microphone a
    little closer, please?
        Thank you.
        Mr. JOSEPHSON. Thank you. Is that better?
        Chairman HERGER. Yes.
        Mr. JOSEPHSON. I would try to determine how frequently the
    committee meets, who sets the agenda, is there independent
    leadership to the board and committee meetings? There are a
    whole host of good governance issues that are equally
    applicable to for-profit and nonprofit organizations that cry
    out for inquiry into this complex situation.
        Chairman HERGER. Do you think it is appropriate for an
    additional two AARP, Inc.'s, board of director members to serve
    on the for-profit AARP Services, which negotiates the lucrative
    contract with insurance companies?
        Mr. JOSEPHSON. I can't speak directly to that issue, Mr.
    Chairman. I can say, for example, if my former colleague Tom
    Conway, the head of the Bureau of Consumer Protection, were
    sitting here with me, we would both be looking very carefully
    at the procedures that the for-profit board followed in
    ensuring competition, and ensuring consumer protection, and
    ensuring value for money.
        I do not understand on the present record the basis for the
    choice of the insurers of each product that AARP makes.
        Chairman HERGER. I share your concerns.
        In your testimony you stated that the royalty payments AARP
    receives might be more properly characterized as commissions.
    As you know, AARP's royalty payments are not subject to tax.
    However, if these payments were, instead, considered to be
    commissions, would they be subject to taxation?
        Mr. JOSEPHSON. Yes, sir, but that is a factual inquiry that
    needs to be made. And if I may say so, sir, the Congress, when
    it enacted 512(b)(2), I think did practitioners and itself a
    disservice in not trying clearly to define royalty. As a
    result, both the courts and the IRS have struggled with trying
    to make sense out of that concept.
        Chairman HERGER. If the $657 million in royalty payments
    AARP received in 2009, largely from insurance companies, were
    then taxed as unrelated business income, what sort of tax
    liability would AARP be subject to?
        Mr. JOSEPHSON. I can't speak to that because I don't know
    what the state of the proper deductions would be. That it would
    be subject to unrelated business income tax is quite clear, but
    what the ultimate tax burden would be, one would have to know a
    great deal more about the organization's finances and
    expenditures.
        Chairman HERGER. Thank you.
        With that, I recognize the gentleman from Georgia Mr. Lewis
    for 5 minutes.
        Mr. LEWIS. Thank you very much, Mr. Chairman.
        I want to thank the two of you for being here today and for
    being so patient.
        Dr. Hill, the Republican report points out that there is an
    overlap of the board for AARP and the subsidiary. Have you seen
    this in large nonprofit organizations, in other nonprofits?
        Ms. HILL. I have, and so has the IRS. And so in my written
    testimony I went to some effort to talk about board overlap.
        When there is an overlap of less than a majority, the IRS
    has never been interested in it and doesn't think this leads
    for the purposes of determining whether the activities of one
    organization should be attributed to another. And that is
    important to tax lawyers, which is the role I am testifying in
    today, because that can jeopardize the exempt status of the
    organization to which the activities are attributed.
        The question of a total overlap of boards, of course,
    raises questions for inquiry, and the IRS has looked at
    situations of overlap or potential 100 percent overlap and
    found in the facts and circumstances of the case that is
    available to us, in the form of a private letter ruling, that
    in that one case, it did not lead to attribution.
        And so the idea of the overlap of boards can, in fact, be
    the way that the whole core mission of an organization is built
    into all the other entities. But these inquiries are always
    factual inquiries.
        If the question is is it such a red flag that whenever we
    see any overlap, we must immediately investigate, the IRS has
    not taken that position, and I personally do not see that
    unless we find something very strange and very unexpected
    through our Schedule R information, that that would be the best
    use of the IRS' scarce resources.
        Mr. LEWIS. Well, Professor Hill, I know you are very
    familiar with the great and distinguished law firm Caplin &
    Drysdale.
        Ms. HILL. I am.
        Mr. LEWIS. One of its lawyers publicly stated that there is
    not anything in this report that really adds up to the loss of
    tax-exempt status.
        Do you agree with this?
        Ms. HILL. Of the six pages of the report, pages 21 to 26
    that touch in some way on tax issues, I saw nothing in that
    section of the report that would cause me to think that
    revocation of exemption is likely, probable or warranted, not
    from what I saw in those six pages of the report.
        Mr. LEWIS. Now, the AARP sponsors NASCAR drivers, sponsors
    a NASCAR driver, to promote a campaign to fight hunger. Does
    that sound like a reason that an organization should have its
    tax-exempt status revoked?
        Ms. HILL. It doesn't to me.
        If I had been their lawyer, I would have asked, you know--
    and I am sure their lawyer did--for a thorough examination of
    why they are doing it and how it relates to their mission.
        But I have always thought that there is some latitude to
    organizations to promoting their mission, and making people
    aware of a mission, and trying to generate donations.
        I am not a follower of NASCAR. I am sure I am not fully
    aware of the implications of supporting a NASCAR driver in any
    particular----
        Mr. LEWIS. You are not alone. You are not alone.
        Ms. HILL. So I am perhaps not the best person to ask about
    the NASCAR driver, but they, I am certain, would have some
    reason in their minutes and in their deliberations. Any
    organization would.
        Mr. LEWIS. Thank you very much for your testimony and for
    your response.
        Ms. HILL. Thank you.
        Mr. LEWIS. I yield back.
        Chairman HERGER. The gentleman yields back.
        The gentleman from Louisiana Dr. Boustany is recognized for
    5 minutes.
        Chairman BOUSTANY. Thank you, Mr. Chairman.
        Let me start, Mr. Josephson, with you. You stated in your
    written testimony that I read that AARP's organizational
    structure is unprecedented in your years of experience, and you
    specifically mentioned how uncommon it is for a tax-exempt
    organization to have such a large number of affiliates, some
    for-profit and some nonprofit.
        What sort of red flags would be raised by such a structure?
        Mr. JOSEPHSON. I have never seen anything in the nonprofit
    area as complex as AARP's structure. And as I said in my
    testimony, I would have to examine its justification for each
    of these separate organizations were I in charge of any
    investigation. And I would also have to examine the nature of
    the control that AARP exercises over the organizations that are
    its affiliates. I agree with my colleague that the existence of
    an interlocking situation is not necessarily a bad thing, but
    it is also necessarily something that needs to be looked at.
        The Internal Revenue Service, IRS, Code is not only replete
    with references not only to direct control, but to indirect
    control, and indirect control may well be an issue that goes
    beyond the actual numerical composition of each governing body.
        Chairman BOUSTANY. Thank you, sir.
        I asked questions to the first panel about the royalty
    income, and is it royalty versus unrelated business income that
    should be taxable.
        What kind of information--and clearly the report that we
    have issued leaves a lot of questions unanswered in this
    regard, but what type of information would you be interested in
    reviewing to understand how the royalty income is controlled
    and allocated and whether----
        Mr. JOSEPHSON. I would want to review each contract in
    detail with respect to any royalty payments.
        Chairman BOUSTANY. Thank you, sir. Ms. Hill, is that your
    opinion as well?
        Ms. HILL. Well, every lawyer would be quiet and refuse to
    give an opinion without reading the documents. That is what we
    do.
        Chairman BOUSTANY. Yes.
        Ms. HILL. We read things, and we are careful. And so we
    would read the documents, but we would also want to know if the
    documents were being implemented consistent with the--
        Chairman BOUSTANY. So we need the documents.
        Ms. HILL. And so I just want to reiterate that the core
    issue for UBIT is whether or not this is a payment for the use
    of these intangibles. I understand it.
        Well, take the university context. We have mascots, we have
    all that sort of stuff. And we put it on T-shirts and
    everything that we can possibly sell, and we receive royalties
    for selling it.
        And so the question then is are we promoting those sales
    through services that are improper? And my written testimony
    addresses how the courts have said there can be services to
    protect our good name, our universities' good names when we put
    a mascot on a T-shirt so that nothing disgusting appears with
    our mascot.
        Chairman BOUSTANY. Sure.
        Ms. HILL. So that is the state of the law. It is an
    administrable standard----
        Chairman BOUSTANY. Right. Let me understand that. Yes. Let
    me go to a slightly different line of questioning for you,
    Professor Hill.
        In your testimony you indicate that a 501(c)(4) should work
    for the common good and promote social welfare for a community,
    and you state that a 501(c)(4) organization, and I quote,
    ``could not expect to satisfy the requirements for tax-exempt
    status if they deliberately excluded nonmembers or free
    riders.''
        So if a 501(c)(4) limited access to a program to only
    members, which is what we see with the Medigap plan that AARP
    has, because in order to enroll you have to be a member, could
    that lead to the loss of status, a tax-exempt status?
        Ms. HILL. Well, it is going to depend. Here, in the cases I
    cite about the community television antenna and the community
    bus service----
        Chairman BOUSTANY. Right.
        Ms. HILL [continuing]. Those were small communities and
    fairly small programs. We get to the Tax Court with the Eden
    Hall case, one corporation, the recreational facility for the
    female members, and there were apparent several thousand or at
    least 1,000 female employees of this one corporation. The IRS
    said, too few. The Tax Court said, enough. And, therefore, Eden
    Hall kept its exempt status.
        And so the question of number and expanse enters into this.
    This is what I mean by facts and circumstances. It is what
    makes tax law so interesting to do and so challenging to do.
    But those are the precedents that are out there.
        And so it is a totality of facts and circumstances. So a
    very large organization with a very large program might be,
    under the Eden Hall precedent, thought to qualify; whereas if
    it were much, much smaller, like the television antenna,
    different outcomes.
        Chairman BOUSTANY. So what you are suggesting to me is we
    really need more information.
        Ms. HILL. What I am suggesting is the tax base, some facts
    and circumstances.
        Chairman HERGER. The gentleman's time is expired.
        The gentleman from New York Mr. Rangel is recognized for 5
    minutes.
        Mr. RANGEL. Thank you.
        Let me thank our witnesses. You really have impressive
    backgrounds. Professor Hill, Denver, Fulbright, Harvard,
    University of Texas. Thank you for taking time to share your
    views with us.
        And, of course, my fellow New Yorker. It is always good to
    have someone from New York testify, and you have been in charge
    of charity bureau with the attorney general's office in New
    York, Peace Corps. Bard College is one of my favorites. I am
    glad to see you are associated with that, small but essential;
    and George Washington University. And you went out of your way,
    counselor, to explain that you had no particular knowledge of
    health care-providing institutions. I assume that you didn't
    think that was necessary in order to testify about AARP?
        Mr. JOSEPHSON. I did not think it was necessary in order to
    express the opinions I was asked to express with respect to the
    report.
        Were, hypothetically, I in charge of any further
    investigation, this is a subject I would have to become an
    expert in and I would become an expert in.
        Mr. RANGEL. But you are not familiar with what AARP really
    does. You were given a hypothetical, and you gave your
    professional opinion?
        Mr. JOSEPHSON. I take the report as if it were a
    hypothetical.
        Mr. RANGEL. Okay. You know, it is the practice down here
    that the Republicans and the Democrats select different
    witnesses, support their case, and, Professor, you are the
    Democratic selection. Did you know, counselor, that you are the
    so-called Republican witness?
        Mr. JOSEPHSON. Well, I do know that I was contacted by the
    current majority staff, but I am sure the current majority
    staff also knows that I am the Democrat, a member of no
    organized political party.
        Mr. RANGEL. Okay. So based on the fact that you had no
    knowledge of AARP--and you are retired now, right?
        Mr. JOSEPHSON. Well, you might say so. I seem to be busier
    than ever.
        Mr. RANGEL. Well, good for you. That is encouragement for
    me.
        Mr. JOSEPHSON. We are virtually the same age, Mr. Rangel.
        Mr. RANGEL. Oh, well, anyway, that is good for me to know
    people can be as active and intellectual as you.
        So let me ask you this. You referred to the majority party
    when you talked about the report.
        Mr. JOSEPHSON. I believe it is the majority party in this
    body.
        Mr. RANGEL. Do you have a copy of the report anywhere near
    you?
        Mr. JOSEPHSON. I do.
        Mr. RANGEL. Is there anything on that report that would
    allow you to believe that there is a party affiliation,
    Republican or Democrat, or majority or minority?
        Mr. JOSEPHSON. Yes, there is, sir.
        Mr. RANGEL. What is that?
        Mr. JOSEPHSON. It identifies Representative Herger and
    Representative Reichert as Republicans.
        Mr. RANGEL. But that doesn't mean that the report is
    Republican.
        Mr. JOSEPHSON. That is correct.
        Mr. RANGEL. So you don't know whether--do you see any
    congressional seal on that?
        Mr. JOSEPHSON. I did not.
        Mr. RANGEL. Did you see anything that this report was
    prepared by the Ways and Means Committee?
        Mr. JOSEPHSON. I did not, nor do I see a committee document
    number.
        Mr. RANGEL. So everything that you have testified to is
    based on the hypothetical?
        Mr. JOSEPHSON. That is correct.
        Mr. RANGEL. And two Members of Congress who happened to be
    Republican gave it to you?
        Mr. JOSEPHSON. Well actually the staff gave it to me.
        Mr. RANGEL. And you would assume they did it on behalf of
    the two Republican members?
        Mr. JOSEPHSON. I do assume that.
        Mr. RANGEL. So, if, indeed, the information, by some
    strange chance, is not accurate, and you based your testimony
    on this hypothetical, you would have to revisit everything that
    you testified to?
        Mr. JOSEPHSON. I would revisit each issue with respect to
    which the information might turn out to be inaccurate.
        Mr. RANGEL. I am sorry?
        Mr. JOSEPHSON. I would revisit each issue with respect to
    which the information turned out to be inaccurate.
        Mr. RANGEL. But as you testified today, the only evidence
    that it is accurate is your confidence in the staffs of these
    two Members. In other words, there is nothing to indicate that
    it is official, that it is congressional; that if, indeed, you
    found that the hypothetical had problems, then your testimony
    based on the hypothetical would have to be different?
        Mr. JOSEPHSON. Correct.
        Mr. RANGEL. I have no further questions.
        Chairman HERGER. The gentleman yields back his time.
        I might mention there are 243 footnotes which are
    documented, which anyone can look and verify or at least see
    where the information has come from.
        With that, I recognize for 5 minutes the gentleman from
    Washington Mr. Reichert.
        Mr. REICHERT. Thank you, Mr. Chairman.
        Well, I really appreciate the way you answer your
    questions, Mr. Josephson.
        Mr. JOSEPHSON. I have been around for a long time.
        Mr. REICHERT. Well, it is--as you probably heard while you
    were sitting here earlier today, I spent 33 years in law
    enforcement, so I am one of those that have been on the witness
    stand before and raised my right hand. And I have given
    straight answers to the questions that have been asked, and
    also, of course, have had the opportunity to interview and in
    some cases interrogate suspects who sometimes are not quite so
    forthcoming in their answers. But I appreciate your
    straightforwardness and your answers to the question. I think
    it makes the process much easier and much more credible when we
    have witnesses that are cooperative and ready to supply those
    answers to us.
        Mr. JOSEPHSON. Thank you, sir.
        Mr. REICHERT. So I think you and I do have maybe a little
    bit of something in common. We are both, I am guessing,
    investigators at heart, and so I would just ask this question
    first.
        So you stated in the--stated that AARP's organizational
    structure merits further investigation, and that an extensive
    document production from AARP maybe could be provided to us.
        I am interested in what types of documents should this
    committee request from AARP so that we can better understand
    the relationship between AARP's numerous for-profit and tax-
    exempt affiliates?
        Mr. JOSEPHSON. That is a long list. I would start with the
    composition of the governing bodies of each of the affiliates.
    I would want to know to what extent they also operated through
    subcommittees, just as I would want to know whether AARP itself
    operates through subcommittees. I would want to see, let us
    say, 5 years' worth of minutes of each of the governing bodies
    and its subcommittees. I would be very interested in flows of
    cash among the affiliates. I would be very interested in the
    internal controls that AARP applies and its auditor's opinion
    as to the adequacy of those internal controls. I would be very
    interested in looking at not AARP's consolidated 990, but in
    the audit process. Each auditor, of course, audits separately
    the books of each affiliate and then combines them for purposes
    of consolidated reporting. I would be very interested in
    looking at the elements of each consolidated financial
    statement, consolidated 990. That is a brief summary.
        Mr. REICHERT. And, hopefully, if I have made a request
    today, could you give me the rest of the list that we might be
    interested in?
        Mr. JOSEPHSON. I could try.
        Mr. REICHERT. I would appreciate that very much, thank you.
        Mr. REICHERT. So have you had time at all to look through
    the report that you have before you? I am sure you have had
    some time to look at it.
        Mr. JOSEPHSON. Not much.
        Mr. REICHERT. Not much.
        Mr. JOSEPHSON. The committee called on Monday. I read it
    Tuesday. I prepared my statement Tuesday night and Wednesday.
        Mr. REICHERT. So from what you have heard today and maybe
    the report that you have had some time to look at, even though
    briefly, would you say, would you agree, that there is some
    interest there that should be followed up?
        Mr. JOSEPHSON. I do agree with that.
        Mr. REICHERT. There is something that we should at least
    have some answers to some questions that should be answered?
        Mr. JOSEPHSON. I do agree with that.
        Mr. REICHERT. Thank you, sir.
        I am particularly interested in another aspect of AARP in
    their insurance plan, a massive grantor trust that processed
    more than $6.8 billion in insurance premiums in 2009 before
    kicking some of that money up to the tax-exempt AARP, Inc. Is
    this an area where we should seek more information?
        Mr. JOSEPHSON. It is interesting that you ask that
    question. That was exactly the first question I asked the staff
    member who contacted me, and she was unable to provide me with
    any more information about that grantor trust. I am fascinated
    to know more about that grantor trust, why it was created, how
    it actually functions.
        Mr. REICHERT. What do you think that might tell us?
        Mr. JOSEPHSON. I don't know, but I am curious.
        Mr. REICHERT. And why are you so curious, just from your--
    --
        Mr. JOSEPHSON. It is an unusual element. I have never seen
    in the context of profit or nonprofit affiliates a grantor
    trust playing such a key role.
        Mr. REICHERT. Mr. Chairman, I yield back.
        Chairman HERGER. The gentleman yields back.
        The gentleman from Oregon Mr. Blumenauer is recognized for
    5 minutes.
        Mr. BLUMENAUER. Thank you, Mr. Chairman.
        I guess I would just posit for a moment that AARP does a
    whole range of activities that aren't a part of their
    foundation. I mean, this is the revenue stream that deals with
    people that I am working with on the Healthy Communities
    programs, with health policy; that this is part and parcel of
    what they do that is part of the revenue structure, which Mr.
    Josephson seemed to feel was so complex.
        If I understood Professor Hill correctly, you mentioned
    Harvard University has over 100 affiliated entities. I wonder
    if either of you are familiar with the AAA program?
        Mr. JOSEPHSON. I am not.
        Ms. HILL. No, not specifically.
        Mr. BLUMENAUER. Here we have a program that operates in
    about a dozen countries. It has an affiliate in, I think, every
    single State, and some large States are divided. There is an
    AAA of northern California and southern California. They are
    involved with roadside service. They are involved--they have
    programs that are involved with accommodations. They have a
    travel service. They sell insurance for cars, boats. And I
    think it is a fair assertion that to have all of those entities
    involved in all those lines of business, that it would not look
    substantially different than what is being waved around here
    for AAA.
        Ms. Hill, would you agree?
        Ms. HILL. I would just--yes, I would agree as a
    hypothetical matter. I would just like to reiterate how
    important it is for all of us, and possibly the committee might
    choose to do this, to look at the Schedule Rs going forward.
    These are the information returns filed, signed by the
    organization under penalty of perjury. This new Schedule R
    really is important in understanding complex structures. It
    would help provide baselines----
        Mr. BLUMENAUER. Yes.
        Ms. HILL [continuing]. To see what is unusual and what is
    not unusual better than any of us could with our own
    observations drawn from practice or scholarship.
        But I have to say that just, even in teaching my exempt
    organizations class, I have drawn on the board structures that
    are more complex than what we saw in the report, because young
    lawyers have to know about those structures.
        But the Schedule R is so helpful to an inquiry like this.
        Mr. BLUMENAUER. Thank you, Professor Hill. I don't want to
    prolong this, but I think it would be useful for people who are
    raising some what I think are rather bizarre notions and having
    a conspiracy theory and so forth, just look at some other
    complex organizations.
        I do a lot of work with AAA. They have advocacy programs
    for public safety. They are part of a group that we are working
    with to try and deal with how we actually finance
    infrastructure in this country. They have played an integral
    role in public policy in my State and nationally. They lobby,
    they get involved with politics, but, as I mentioned, well,
    they are involved with banking and loans. They offer insurance
    on autos, boats, homes, life, health, long-term care, RV, trip
    cancellation and trip delay.
        With all due respect to wherever the majority is going with
    this, I do think, as I mentioned earlier, that there are some
    legitimate areas where there are people that crossed the line
    and need to be looked at. There are real questions about what
    happens in some universities, where you talk about skewing
    priorities, where the top 10 salaries are one football coach,
    thank you very much, and how much tax-exempt and business
    activities intermix.
        These are all legitimate areas for inquiry, but to single
    out AARP for legitimate policy differences--and on balance I
    think the evidence suggests that they were better attuned, and
    that it wasn't anything wrong with being concerned about health
    care for children or for people with preexisting conditions and
    advocating their position--I think that is unfortunate.
        I would suggest take a look at AAA and compare that to see
    if this is somehow bizarre, unwarranted or worthy of
    investigation.
        Chairman HERGER. The gentleman's time has expired.
        The gentlelady from Kansas Ms. Jenkins is recognized for 5
    minutes.
        Ms. JENKINS. Thank you, Mr. Chairman, and thank you two for
    joining us today.
        Mr. Josephson, you referenced IRS enforcement and audit
    capabilities in the tax-exempt arena in your testimony. You
    also note that there is a lack of guidance in several areas
    related to tax-exempt organizations, especially involving
    501(c)(4) organizations.
        I have a series of questions for you. Do you think the lack
    of IRS oversight in this area is related to the lack of
    guidance? What type of changes at the IRS would improve this
    situation? And, finally, what additional guidance do they need
    to issue health--to ensure that tax-exempt organizations
    properly serve their missions?
        Mr. JOSEPHSON. As my statement says, the IRS, in its work
    plan for the next year that it released in December, announced
    that it has decided to take a careful look at the whole
    question of 501(c)(4) organizations. This, in my some 50 years
    experience in the law, is the first time the IRS has ever
    announced that this area of exemption would be the subject of
    administrative scrutiny.
        I can't say, frankly, that I am too hopeful of an immediate
    product. As I was saying at the end of my original 5 minutes,
    the Pension Protection Act asks the IRS to produce in a year a
    report on supporting organizations, which it hasn't produced.
    The Pension Protection Act asked it to produce a report on
    donor-advised funds. I haven't seen hide nor hair of that
    report.
        And I am sympathetic to the IRS, because, as I say in my
    statement, it really--in the exempt organization area it has
    been starved of resources because the 4940 excise taxes,
    originally conceived as supporting oversight in that area,
    never was actually appropriated for that purpose. So I have to
    be skeptical.
        Ms. JENKINS. Okay. I can appreciate that.
        You also stated that the compensation and benefits paid by
    AARP and its affiliates are worthy of further legislative and
    regulatory attention. Do you think it is appropriate for AARP's
    CEO to have received $1.6 million in compensation in a single
    year? And additionally, is it appropriate for AARP's volunteer
    board to be holding multiday conferences at a resort described
    as a beacon of grandeur and refinement among vacation
    destinations in southern California and the world, a definitive
    example of what a luxury resort should be, and is also named as
    one of the top 10 resorts in the world today?
        Mr. JOSEPHSON. During the 1972 political campaign, I was
    Sargent Shriver's campaign manager. We stayed at the Coronado
    one night in the course of the campaign. I can attest to the
    quality of the resources in the Coronado. I have never thought
    of spending the kind of money that would be required to return.
        Ms. JENKINS. Thank you. I would yield back.
        Chairman HERGER. The gentlelady yields back.
        The gentleman Mr. Kind is recognized for 5 minutes.
        Mr. KIND. Thank you, Mr. Chairman.
        I want to thank our witnesses for being here and for your
    testimony today.
        Professor Hill, let me first start with you. More and more
    organizations, it seems, are registering as (c)4s--we were just
    talking about that a moment ago--and they are doing primarily,
    if not exclusively, political activities now.
        Do you think this is an area that is rife for more IRS and
    congressional inquiry in regards to the (c)4 status and what is
    going on there?
        Ms. HILL. Yes, and I want to be clear about why. I do not
    at all question the First Amendment right to express themselves
    by making independent expenditures from organizational general
    treasury. This is what the Supreme Court decided. This is now a
    First Amendment right. The question is, is that a tax-exempt
    activity?
        My problem is not with the advocacy. I think it is
    important to keep nonprofit, tax-exempt organizations in the
    advocacy mix and not to get it--it is so expensive to be an
    advocate that nonprofits of ordinary size cannot even afford to
    play in that arena. I do think it is important.
        My technical problem, if I could just talk about the
    technical tax of this, is the following. You can do a lot of
    independent expenditures. Fine. But what is the (c)4 activity
    that is the primary activity?
        Now, my taste runs to taking vacant lots and turning them
    into playgrounds. I would love to see political operatives of
    both political parties both devote themselves to that. But let
    us not fantasize. Because of the way the IRS has, in fact,
    interpreted the law, then lobbying can be the sole exempt
    function of these kind of organizations that are springing up
    like mushrooms in both parties. And I have always had trouble
    with the IRS treating lobbying as an exempt activity, because I
    think the original point was you would be converting vacant
    lots to playgrounds, and you had to lobby the zoning board or
    the city council to get it done. The lobbying was related to
    that kind of purpose.
        Ms. HILL. But now it is clear that you can use your
    lobbying as your exempt purpose. That is a powerful, powerful
    money-raising machine that has all sorts of implications for
    advocacy and public policy, for the dollar amounts involved,
    for the expectation of supportive, independent expenditures.
    And I think that we need to look at not what the Supreme Court
    has decided because they have decided that, we have to look at
    whether lobbying is an exempt purpose or only a permissible
    purpose in furtherance of and related to some other 501(c)(3)
    exempt activity. And that I think is really important for the
    use of 501(c)(4) structures.
        Mr. KIND. Thank you for that comment.
        Mr. Chairman, I might propose that this could be ripe for a
    future congressional hearing for us to get into in a little
    more detailed fashion. I think this is an area that does
    deserve some greater scrutiny.
        Mr. Josephson, let me turn to you.
        Mr. JOSEPHSON. May I comment on your first question, sir?
        Mr. KIND. Yes. I am limited on time though.
        Mr. JOSEPHSON. I understand, and I will be very brief.
        I also teach exempt organizations at NYU, and I asked my
    class the other night, in light of the Citizens Union case, how
    long they think it would take before a 501(c)(3) brings an
    action similar to Citizens Union to exercise its right to
    intervene in a political campaign and whether or not the
    tradeoff between the exemption and the First Amendment right,
    which would trump which?
        Mr. KIND. That is an interesting inquiry. I don't think it
    is going to take long at all.
        Mr. Josephson, I was a little surprised when I heard you
    testify that you only had a couple of days really to look at
    the prepared investigative report that was submitted to you for
    testimony this week, but in your testimony you stated that you
    thought it was unprecedented in your experience for a tax
    exempt organization to have eight affiliates; is that right?
        Mr. JOSEPHSON. It is unprecedented in my experience, that
    is correct.
        Mr. KIND. Have you heard of any type of eight-affiliate
    limit for tax exempt organizations though?
        Mr. JOSEPHSON. No, I have not.
        Mr. KIND. Would it surprise you if I told you that the
    British Broadcasting Network, the largest social welfare
    organization here in the United States, listed nearly 100
    related entities on its Form 990 Schedule R?
        Mr. JOSEPHSON. I would be flabbergasted as well.
        Mr. KIND. Yes. I was just looking at that myself; I was a
    bit flabbergasted as well. Or the fact that a Harvard
    University entity has over 145 related entities listed on its
    Form 990. And there are other organizations too that are larger
    than AARP that have a lot more affiliated entities that they
    are listing on their Schedule Rs, as Professor Hill just
    indicated. That, I think, is going to deserve more attention as
    we move forward.
        Mr. JOSEPHSON. I agree.
        Mr. KIND. Which brings me back to the original point. Why
    AARP? Why today? Why under these circumstances when there could
    be a whole host of organizations sitting up there right along
    with them subject to the same inquiry and the same line of
    questioning. And again, on the surface, it does smack of
    political retribution. I mean, the same questions could have
    been asked to AARP after the prescription drug bill was passed
    in 2004 when you guys were in charge, but you didn't haul them
    in front of us then because they were supportive 4 years ago.
        Chairman HERGER. The gentleman's 5 minutes has expired.
        The gentlewoman from Tennessee, Mrs. Black, will inquire
    for 5 minutes.
        Mrs. BLACK. Thank you, Mr. Chairman.
        And before I begin my remarks and the questions for the
    witnesses I want to once again say thank you to this committee
    for doing what it is to be doing, and that is oversight.
    Regardless of where we started, this committee is doing what
    its role and responsibility are, and that is oversight. And I
    hope we will have more of this. And I encourage those that are
    trying to characterize this as a witch hunt will bring about
    those concerns that they have that they are mentioning right
    here today.
        But let me go to my question. As a condition of the tax
    exempt status of 501(c)(4), entities are expected to operate
    for the benefit of the community. And though evidence suggests
    that AARP may have strayed a bit from that mission, the size
    and the extent of AARP's insurance-related business activities
    compared to their social welfare programs and their executive
    compensation suggests that maybe AARP may not be operating
    primarily for the benefit of the community.
        Indeed, AARP's royalty revenues--primarily from insurance
    companies--nearly tripled from 2002, with $218 million, to
    2009, at $656 million. They also report to have $2.2 billion
    worth of assets and $1.4 billion worth of revenues for 2009.
    Yet, at the same time, AARP's cash and in-kind contributions to
    their foundation only increased by 11 percent, $3.1 million,
    and their cash contributions to the Legal Counsel for the
    Elderly actually decreased by 9 percent.
        And in the last session I noted that, as Mr. Rand spoke
    about when questioned where their dollars are going for their
    advocacy, he started out by making a statement about percentage
    of their revenues spent on their advocacy, and he very quickly
    changed that to say the percentage of their expenditures. And
    so as I look at the amount of revenue and how rapidly it has
    grown by the various ways that they have allowed their label to
    be used and been able to receive a royalty on that, it doesn't
    appear that what they are getting in the royalty also matches
    what they are doing in their advocacy.
        Would that be something that the IRS would be looking at?
    And it is either one of you, Ms. Hill or Mr. Josephson,
    whichever of you would like to answer that.
        Ms. HILL. I will start. Here is the way I look at the chart
    and the discussion this morning. The measure of whether the
    (c)(4) entity--and remember, I know nothing about this
    particular case and I didn't come here claiming to know about
    this particular case, but a (c)(4) that has an affiliated
    501(c)(3) public charity is not obligated to contribute a dime
    to that affiliated public charity. That affiliated public
    charity could raise all its money from outside. So anything
    they contribute to the (c)(3) is voluntary and is not a measure
    of their own exempt activities. One has to look at whether they
    are pursuing their own 501(c)(4) purposes and exempt activity
    as a measure, and then one can discuss whether that has become
    larger commensurately. But there is no requirement in fact that
    the (c)(4)'s income from something like a royalty actually
    match, then, a commensurate increase in its (c)(4) activities
    because 501(c) organizations, tax exempt organizations,
    heretofore have had broad latitude in defining programs, saving
    money for later times, are making these decisions. Now Congress
    is free to legislate otherwise, but they have not done so, or
    States would be free to do that, but States have not done so.
        So I think the looking at how many contributions, the scope
    of the contribution to the (c)(3) is not the measure, and one
    has to look at the (c)(4), but there is no benchmark and no
    requirement under current law.
        Mr. JOSEPHSON. I agree with Professor Hill, but I would
    make a further comment if I may, and that is, listening to the
    testimony this morning, AARP certainly made a point about the
    section 501(c)(3) activities of its (c)(3) organizations. Yet,
    assuming the chart in the investigative report is correct,
    while it is not required to fund its (c)(4) monies with those
    organizations, it certainly appears not to have done so
    commensurate with the increase in its revenues. And if I may
    also say so, its return on equity, if the report is correct, is
    astonishing.
        Mrs. BLACK. I am curious, and I know my time is up, but I
    am curious, Mr. Chairman, even looking at the legality of this,
    but it is the morality of it, too, in which the organization is
    selling itself one way to those that are seniors that are
    getting the services and actually how they are using their
    money.
        Thank you.
        Chairman HERGER. The gentlewoman's time has expired.
        Again I want to thank our witnesses for your testimony
    today.
        As a reminder, any member wishing to submit a question for
    the record will have 14 days to do so. To all of today's
    witnesses, if any questions are submitted, I ask that you
    respond in a timely manner.
        With that, the subcommittees are adjourned.
        [Whereupon, at 2:20 p.m., the subcommittees were
    adjourned.]