AARP - Company Profile, Information, Business Description, History, Background Information on AARP

601 E Street N.W.
Washington, D.C. 20049

Company Perspectives:

AARP is the nation's leading organization for people age 50 and older. It serves their needs and interests through information and education, advocacy, and community services which are provided by a network of local chapters and experienced volunteers throughout the country. The organization also offers members a wide range of special benefits and services, including Modern Maturity magazine and the monthly Bulletin.

History of AARP

AARP (The American Association of Retired Persons) is a not-for-profit association with 33 million members, a membership second only to the Catholic Church in the United States. This gives its publication Modern Maturity a colossal circulation. Fortune polls found it to be the most influential lobby on Capitol Hill; the group spent $35 million lobbying in 1995. Although it sells health insurance, among other things, the organization is considered a nonprofit group and receives many tax breaks and federal grants ($86 million in 1997). Its economic influence goes far beyond its membership revenues, administrative allowances, and commissions on product offerings, which include various types of insurance and financial products, and its pharmacy service, which controls ten percent of the mail-order market. Investigative journalist Dale Van Atta estimated "that the total revenue for AARP and its partners in 1994 was $5.6 billion."

1940s Origins

Even AARP detractors credit California educator Dr. Ethyl Percy Andrus as "one of the truly great women of recent American history," as Dale Van Atta put it. Andrus had become the first female high school principal in the state of California, and upon her retirement she became interested in the poverty of her fellow retired teachers trying to live on tiny pensions.

Andrus founded the National Retired Teachers Association (NRTA) in 1947. She started a nursing home for teachers but was unable to find health insurance for them until joining forces with Leonard Davis, who had succeeded in securing this for a group of retired New York teachers. Their first policy went into effect in 1956; within a year the number of subscribers had leapt from 5,000 to 15,000. The policies were highly profitable, pulling in $75,000 in premiums per month and laying out only $25,000 in claims. The Continental Casualty Company, which had developed an insurance plan to be sold by mail, found the NRTA members to be reliable customers.

In 1958 Andrus and Davis created the American Association of Retired Persons to share the insurance benefits the NRTA had gained with the general retired population. Davis provided the $50,000 of start-up capital. The company publication, Modern Maturity, consumed much of this capital but proved an effective marketing tool, touting an "invitation to security" in the organization's health insurance plans. A company publication, the Bulletin, described the group's lobbying efforts. Thousands of volunteers also worked to promote the offerings of AARP/Colonial Penn.

Rocking the Drug World in the 1960s

Andrus and Davis started an early mail-order pharmacy, the "AARP Drug Buying Service," in 1959, to help older persons manage the high cost of filling prescriptions. In fact, Andrus and pioneer drug discounter Herbert Haft, who briefly ran the service, testified at congressional hearings on high pharmaceutical prices. Established pharmacists tried to ban the drug program stores and in some cases boycotted its distributors. Pharmacists' groups, who resented the fact that neither AARP nor Retired Persons' Services, Inc. (RPS) paid taxes on their sales, continued to provide opposition based on safety, community, and service issues.

John McHugh took over the drug service in 1962 and managed it for 30 years. Upon his retirement, it employed 250 pharmacists and filled eight million prescriptions per year. Besides price, privacy and convenience were key selling points. A line of generic products was added. The company's catalog expanded to include sundries, which eventually generated 40 percent of its sales. The service operated as a separate nonprofit organization, Retired Persons' Services, Inc., "not owned or controlled by AARP." Van Atta reported its sales as $440 million in 1993, with a one percent commission on gross sales payable to AARP.

Media Scrutiny in the 1970s

In 1963 Davis bought 750,000 policies from Continental and set up a holding company, the Colonial Penn Group. According to Morris, Colonial Penn's revenues grew from $46 million to $445 million between 1967 and 1976, thanks to NRTA/AARP members, which provided most of its health insurance revenues. This made Colonial Penn the most profitable company in the United States, according to Forbes magazine. At the same time, Consumer Reports published a highly critical review of Colonial Penn's service to AARP members. A U.S. Postal Service investigation into the organization's use of nonprofit mailings ensued. The post office, in fact, recommended that criminal federal prosecutors bring charges against AARP and Colonial Penn for fraud. Charles Morris and Dale Van Atta reported, however, that Leonard Davis had been expunged from official AARP histories because of his questionable reputation. In fact, he lost his insurance license in 1965 in a New York bribery scandal. Andrus died in 1967, the year the Age Discrimination in Employment Act was passed.

In 1978, after being fired by Davis, Executive Director Harriet Miller (who eventually became mayor of Santa Barbara, California) filed a $4 million suit leveling many of the same charges, contending that control of the organization rested in the hands of Colonial Penn. A 60 Minutes exposé demoralized AARP workers, members, and volunteers, and Davis left the organization in February 1979. AARP settled Miller's suit for $480,000 and began inviting competitive bids for its insurance business in 1981. Prudential Insurance Co. won the contract and devoted a staff of 4,500 to the project.

New Offerings in the 1980s

In 1983 Davis retired from Colonial Penn. A couple of years later, the company, which had lost AARP's health insurance contract, sued its former partner for not allowing competitors to advertise in Modern Maturity.

The NRTA and AARP had merged officially in 1982. The membership age was lowered from 55 to 50, allowing for a larger pool of potential members. South Carolina native Horace Deets, a former Catholic priest, became chief executive of AARP in 1988. The organization lobbied to standardize Medigap coverage in the late 1980s, which Smart Money reported had the effect of drying up competition.

AARP tried putting together a federal credit union, which was vigorously opposed by other bankers. AARP Federal failed within two years, since it decided not to open any regional branches, and senior citizens proved wary of placing transactions without speaking to tellers in person. Van Atta reported that the AARP Travel Service was another seemingly logical marketing concept that soon failed. In the mid-1990s an offering of a simplified cellular phone, the Roadphone, fell apart when the provider, ASCNet, went bankrupt. Van Atta noted that AARP initially refused to compensate members for the $200 phones but relented after an intense public outcry.

Battling for Boomers in the 1990s

AARP fought another publicity battle when Republican Senator Alan Simpson attacked the organization's tax exempt status in congressional hearings. Deets characterized these proceedings as "an absolute witch hunt." At the same time, articles in National Review, Fortune, and others lamented an intergenerational inequity in the Social Security system. They observed that the current generation of retirees would reap many more benefits from the money-losing program than their children ever would--the funds simply were not there to support them. As Simpson put it, "Do any of you care a crap about your grandchildren?" Chrysler Chairman Lee Iacocca delivered much the same message at the 1992 AARP convention.

AARP still faces the challenge of capturing the Baby Boomer generation, something it must do to survive as natural attrition trims two million people a year from its rolls. It has tried marketing tactics such as sending alternate magazine covers to younger (less than 60 years old) members and even has considered changing the publication's name from Modern Maturity to something more appealing to the more hip and independent group demographic. In fact, at least one analyst urged the organization to change its own name to something more positive as well. One of its own ads implored: "Forget for a moment that the word 'retired' is in our name." In 1998 the group began using the acronym AARP (pronounced to rhyme with "harp") as its official name. Direct Marketing writer James Rosenfield summed up the organization's image problem: "Experiencing adolescence in the '50s was a mite different from adolescence in the '60s. Were two decades ever more in contrast?"

As politicians and providers tossed about solutions for the impending Medicare crisis, some observers criticized AARP for impeding the debate. Bill Clinton's universal health care plan, for example, foundered without AARP support. Critics accused the organization of using scare tactics on its elderly members and, generally, campaigning for liberal causes that primarily would benefit its relatively affluent population.

In 1996 AARP test-marketed a retail drug program administered through Arizona-based PCS (Pharmaceutical Card System). The organization decided to cancel its group health insurance contract with Prudential in 1997. United HealthCare, Metropolitan Life, and ITT Hartford won the right to administer the $4 billion program.

While few discount the influence of this venerable organization, AARP faces serious threats to existence in the next century. Although the U.S. elderly population was expected to double by 2040, the children of Woodstock have values different from those of the children of the Depression. Perception is reality in lobbying and marketing; the group is trying to maintain the appearance of power and prestige while at the same time staying relevant and credible with its varied membership constituency.

Principal Divisions: NRTA.

Principal Operating Units: Information and Education (AARP Andrus Foundation); Community Service; Advocacy; Member Services.

Additional Details

Further Reference

Besack, Mike, "AARP Gets Ready for the Boomers," Workforce, December 1997, pp. 27-28.Birnbaum, Jeffrey H., "Washington's Power 25," Fortune, December 8, 1997, pp. 144-52.----, "Washington's Second Most Powerful Man," Fortune, May 12, 1997, pp. 122-26.Finger, Anne L., "What This Man Wants, You May Get," Medical Economics, February 23, 1998, pp. 177-91.Geist, Bill, "Surviving Your AARP Attack; A Boomer Will Turn 50 Every Eight Seconds, and the Ugly Reminder Is Sure To Follow," Washington Post, January 26, 1999, p. Z12.Gupta, Dipak K., et. al., "Group Utility in the Micro Motivation of Collective Action: The Case of Membership in the AARP," Journal of Economic Behavior and Organization, February 1997, pp. 301-20.Machan, Tibor R., "AARP Turns Extortion into a Group Activity," Arizona Republic, April 10, 1998, p. B7.McAllister, Bill, "AARP Alters Name to Reflect Reality," Washington Post, November 18, 1998, p. A25.McArdle, Thomas, "Golden Oldies," National Review, September 11, 1995.Moore, Wayne, and Monica Kolasa, "AARP's Legal Services Network: Expanding Legal Services," Wake Forest Law Review, Summer 1997, pp. 503-44.Morris, Charles R., The AARP: America's Most Powerful Lobby and the Clash of Generations, New York: Times Books, 1996.Rosenfield, James R., "AARP: Slaying the Mail-Order Insurance Dragon," Direct Marketing, May 1997, pp. 42-44.----, "Boomers and Branding: The Agonies of AARP," Direct Marketing, August 1998, pp. 60-62.Smith, Lee, "Rebelling Against the Tyranny of the Old," Fortune, March 22, 1993.Van Atta, Dale, Trust Betrayed: Inside the AARP, Washington, DC: Regnery Publishing, 1998.Waldrum, Shirley B., and H. Geral Niemira, "Age Diversity in the Workplace," Employment Relations Today, Winter 1997, pp. 67-73.Walker, Sam, "Congress May Bite Hand that Feeds Members," Christian Science Monitor, June 28, 1995.

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