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




                               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

70-865                    WASHINGTON : 2011
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                      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
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
DIANE BLACK, Tennessee

                       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 
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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

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


  A. Barry Rand, Chief Executive Officer, AARP Accompanied by, 
    Lee Hammond, President, AARP Board of Directors..............     9
  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



                         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:]



                 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.


    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.''


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


    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
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for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
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by the close of business on Friday, April 15, 2011. Finally, please 
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Police will refuse sealed-package deliveries to all House Office 
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please call (202) 225-1721 or (202) 225-3625.


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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 
    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 
    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 
    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 
    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 
    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 
    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 
    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.

                       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 
    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 
    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 
    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 
    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 
    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, 
    Mr. RAND. Number one, the royalties have nothing to do with 
the premiums of the beneficiaries. Nothing to do with the 
    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 
    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 
    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 
    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 
    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, 
    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 
    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 
    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 
    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 
    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 
    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 
    Mr. RAND. I will find out for you, and we will get you that 
    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 
    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 
    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 
    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 
    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 
    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 
    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, 
    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 
    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 
    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 
    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, 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 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 
    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 
    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 
    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 
    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 
    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 
    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 
    Chairman HERGER. The gentleman removes his reservation.
    Mr. BECERRA. If I could just take a moment to review the 
    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 
    Chairman HERGER. The gentleman's time has expired.
    The gentleman from New York Mr. Rangel is recognized for 5 
    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 
    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. 
    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 
    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 
    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, 
    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 
    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 
    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 
    Mr. RANGEL. Not in the report, and not in the cover of the 
    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 
    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 
    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 
    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 
    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 
    Mrs. BLACK. Explain to me how many different boards you 
    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 
    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 
    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 
    Mrs. BLACK. You have a contract with United. Who oversees 
those contracts? Which one of those boards oversees the 
    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 
    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-
    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.
    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 
    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 
    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 
    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 
    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 
    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 
    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.


    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 
    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. 
    [The prepared statement of Mr. Josephson follows:]

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


    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 
    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 
    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 
    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 
    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 & 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    Mr. RANGEL. Do you have a copy of the report anywhere near 
    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 
    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 
    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 
    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 
    Chairman HERGER. The gentleman's time has expired.
    The gentlelady from Kansas Ms. Jenkins is recognized for 5 
    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 
    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 
    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 
    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 
    Thank you.
    Chairman HERGER. The gentlewoman's time has expired.
    Again I want to thank our witnesses for your testimony 
    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