This year, 2023, marked the first time that a majority (51%) of people on Medicare were insured through private rather than public plans. Speculations of Medicare’s demise typically focus on dour projections of trust fund solvency, but creeping privatization portends a more likely death: Medicare’s transformation from a public healthcare program into a public provider of funding for private health insurance. AARP, the iconic advocacy organization representing people above the age of 50, should be working to counter this trend, but in reality, it is participating in it.

Formerly the American Association of Retired Persons, AARP was founded in 1958 by Dr. Ethel Andrus in partnership with the National Retired Teachers Association (NRTA). Organizational lore recalls Andrus’ investigation into the quality of life of retired teachers in 1947 and her decision to better their condition after she found one retired teacher living in a chicken coop. Andrus later partnered with Leonard Davis, an insurance executive and direct-mail guru, forming AARP to provide retirees with access to health insurance. Thus, while portraying itself as an altruistic advocacy organization, AARP was birthed alongside other market alternative plans intended to compete with the nascent Medicare and dilute support for the Social Security Amendments of 1965 that established the program.

The passage of Medicare and other War on Poverty measures led to explosive growth for senior-based advocacy groups and associations in the late 1960s and ’70s. These welfare programs defined and entrenched “seniors” as a political constituency. At 38 million members, AARP constitutes a political double threat: not only is it the largest membership-based political advocacy organization in the United States, but it also represents a major demographic of voters. In 2016, AARP had 36 registered lobbyists, 21 on staff and 15 hired externally; by contrast, even large nonprofit advocacy organizations will typically rely on only 2 or 3 staff lobbyists. Between 1998 and 2016, they spent over $260 million lobbying. While AARP does not donate to or endorse candidates for elected office, it routinely launches multi-million dollar TV ad campaigns to support endorsed legislation.

One of the causes it devoted this massive advocacy operation to was the passage of the 2003 Medicare Modernization Act (MMA), which created the public-private Medicare Advantage (MA) program. MA is a classic case of market alternatives coming in to erode and supersede public programs. How is it that a mass member-based organization could whittle away a program beloved by its members without destroying itself? Understanding how a senior rights organization can work to undermine its own mission of senior betterment illustrates the nature of modern nonprofits and why our zombified civil society fails to protect our basic interests.

Nonprofit Commercialization

Historically, nonprofits have relied on inherently insecure sources of revenue: individual donations and government or foundation grants that expire at the end of each funding cycle. Starting in the mid- to late twentieth century, an increasing number of nonprofits found a stabilizing solution: commercialization by selling goods and services. 

AARP embodies this development well, and it has become one of the most successful and wealthiest nonprofits in the US. In 2021, more than 50% of AARP’s revenue came from royalties. AARP sponsors discount plans for its members, including deals on travel, entertainment, and technology. Most politically significant, the organization also sponsors health insurance plans—including an MA plan—run by UnitedHealthcare. This partnership has been lucrative for both parties. At present, AARP’s approximate annual revenue is $2 billion. Meanwhile, UnitedHealthcare is the fastest-growing MA insurer and currently holds the plurality of MA plans at 29% of the market, or 8.9 million insured.

In 1994 and 1999, following Congressional investigations, AARP paid $135 and $52 million respectively to the IRS in lieu of taxes on its royalty income. It was also forced to create a taxable corporate affiliate, AARP Services Inc., to house its royalty deals. AARP did not admit any wrongdoing and instead became a collection of subsidiary organizations, some of which are now corporations.

As AARP has tied more of its revenue to market-based sources, the financial incentives of the organization put it increasingly at odds with the interests of its constituency, with Medicare, and with the very purpose of the nonprofit membership organization as we know it. In theory, nonprofits are given tax-exempt status because they are mission-driven organizations that fulfill needs the market does not provide. This configuration assumes that mission and market are mutually opposed, when in fact, as growing industries in healthcare and education show, noble missions can rake in big profits.

Paradoxically, nonprofits’ structural position—a “third sector” that is neither state nor market, but increasingly burdened by devolved state functions—incentivizes them to prioritize those profits. The increasing number of social needs foisted upon nonprofits intensifies their financial strain and forces them to rely on market revenue. The commercialization strategy that they have increasingly turned to is, however, obviously in conflict with what makes them socially useful institutions, i.e. enabling associational life and serving the “public good.” In AARP’s case, that contradiction has eroded their claim to be a truly representative membership organization.

“Mass Membership”

AARP owes its status as one of the most powerful political lobbies in the US to its immense membership. In his study of civic organizations, Peter Murray describes AARP as the “undisputed king of membership organizations.” But unlike in the heyday of associational life in America, when members found their own interests represented in the work of the organizations to which they belonged, AARP members have a very conscripted role. 

From AARP’s perspective, members provide two major sources of value. First, they confer financial power. Today, member dollars flow into AARP less from their membership dues than from their purchases of health insurance or sponsored European vacation packages. In 2004, membership dues brought in 31% of AARP’s revenue, but in 2021 they constituted just 15%. In the same timeframe, royalties went from 45% to 53% of revenue. AARP’s membership list makes the organization a gatekeeper to a massive, desirable consumer market, and other companies are willing to pay handsomely for access.

AARP’s reliance on royalty income means that members are more valuable as consumers than as constituents. This relationship explains AARP’s willingness to support legislation like the MMA, which led to an estimated 45,000–110,000 members quitting the organization. While this did mean a loss of membership dues, it also meant new AARP-sponsored MA plans, which dramatically expanded their revenue. What should have been a financial blow turned into a massive payday.

Second, in addition to being political ATMs, AARP’s members legitimize the organization’s reputation as the largest representative of seniors. According to self-reporting, most members join for access to group discounts, creating a membership that is 1/3 Democrats, 1/3 Republicans, and 1/3 Independents. In theory, AARP should have challenges keeping this diverse constituency together. However, in a decayed civil society, AARP only needs a handful of politically engaged members to appear as if they represent all of their membership. As long as the organization mobilizes a fraction of a percent of its membership—which it regularly does at both the state and federal level via petitions and calls to elected representatives—then it can exercise disproportionate public pressure. And because so many members join for a virtual coupon booklet rather than political advocacy, AARP can represent them without addressing complex material or ideological concerns.

The relative scarcity of mass membership organizations gives AARP enormous political power while relieving them of pressure from their members to act in their interests. In such a weak associational environment, members don’t necessarily see AARP as a vehicle to protect their interests (in this case, with regard to their healthcare). More likely, they view it as a magazine subscription or a chance to save on travel for $16/month. In the meantime, the organization reaps the benefits of a mass constituency without the risk or responsibilities traditionally associated with political membership organizations.

What Does AARP Want?

Medicare—government-based insurance for everyone over 65—was not originally created because seniors were a particularly powerful political constituency. Rather, it was a response to the paradoxical structure of American healthcare. Access to health insurance in the US is privately-run and based on employment, and this situation once left seniors and retirees virtually uninsurable from the standpoint of insurance company profit. Prior to 1960s Great Society programs, the poverty rate for Americans aged 65 and older was double the country’s overall poverty rate. Between 1959 and 1978, anti-poverty programs like Medicare reduced the poverty rate for American seniors from 35% to 14%.

As the social safety net has come under fire, AARP’s stated position has been to keep Medicare universal and prevent cuts to program benefits. But their past support of partial privatization— not to mention their routine publication of articles that leverage soft critiques of traditional Medicare benefits—shows a more complex agenda. To keep their reputation intact and their revenue strong, AARP must continue to walk a fine line between supporting the existence of Medicare while ensuring that its privatization through Medicare Advantage continues to grow. Without government dollars, it would once again be unprofitable to insure the elderly, which would lead to a concurrent collapse in the elderly insurance market, a rise in elder poverty, and thus an overall lowering of living standards for their core constituency. But with Medicare Advantage plans, insurance companies get reimbursed by the government and AARP’s revenue continues to grow.

AARP, insurers, and seniors do share a common interest in universal, government-funded health insurance for the elderly. But they all have distinct interests in exactly how that system is structured and funded. Medicare relies on organizations like AARP to defend it, but AARP is hardly a white knight. The organization has a clear self interest in maintaining the program, but only insofar as it keeps seniors from sliding back into poverty. Unfortunately, this rather low bar is completely compatible with the hollowing out of the state—turning government programs into schemes to funnel tax payer dollars into private hands, whether they are corporate or nonprofit entities.

This is the conundrum of the nonprofit sector. To protect programs like public health insurance, we need organizations that can channel the power of mass movements, and right now the nonprofit form sits squarely in the space where that power should be. Nonprofits like AARP have every incentive to drain their membership of political agency. And in the absence of any rivals, Washington can then pretend that AARP represents a mass constituency and use the organization to validate regressive policy.

If the Left wants to contribute toward the transformation of civil society, it will have to fight its way through organizations like AARP that use their money and mailing lists to maintain a patina of mass appeal. For truly ambitious policies like a national public health insurance program, AARP can be a more dangerous enemy than an Aetna or UnitedHealthcare—precisely because its nonprofit status gives it credibility.

Melissa Naschek is a Marxist writer living in Philly.