UnitedHealth, AARP hit with another lawsuit over co-branded Medigap plans

A lawsuit filed this week accuses UnitedHealth and AARP of violating state insurance laws and charging consumers artificially inflated premiums.

It’s the third such lawsuit filed against the two companies this year and adds to ongoing litigation in several states. A class-action lawsuit filed in a Connecticut U.S. District Court in May alleged that UnitedHealth and AARP siphoned off $400 million in illegal rebates through Medigap plans.

The most recent lawsuit, filed in the U.S. District Court in Eastern Pennsylvania, similarly claims UnitedHealth and AARP “orchestrated an elaborate scheme” in which the senior citizen lobbying group took a 4.95% commission on Medigap plans that were added to member premiums.

A Florida plaintiff filed a similar class-action complaint in February. Last year, the 9th Circuit Court of Appeals overturned a lower court’s decision to dismiss a lawsuit filed in 2014 alleging similar violations involving commission payments.

UnitedHealth and AARP categorize the payments as a “royalty” for the use of AARP’s intellectual property to sell AARP-branded plans. But the lawsuit alleged the term allows AARP to avoid oversight by insurance regulators and avoid paying taxes on that income.

RELATED: UnitedHealth, AARP sued for diverting $400M a year to illegal rebates

The complaint (PDF) says AARP generated $704 million in revenue from royalties in 2012, three times what it generated from membership dues. Nearly two-thirds—$458 million—came from UnitedHealth insurance products.

The plaintiffs—two Pennsylvania residents who purchased Medigap policies—also claim AARP acted as an authorized insurance agent for UnitedHealth even though it wasn’t licensed by the state.

“Ultimately, Defendants’ deceptive and unlawful scheme takes advantage of unsuspecting senior citizens and the disabled who, unfortunately, put their trust in the AARP name,” the complaint stated.

The plaintiffs are seeking to recoup the royalty payments and are asking the court to issue a permanent injunction on the practice.

"We are still reviewing the details of the lawsuit, but it is readily apparent that the allegations are frivolous," an AARP spokesperson said in a statement.   

Medigap, or supplemental Medicare, plans are purchased through private insurers to pay for healthcare costs that aren’t covered by traditional Medicare. Supplemental plans are a big business for UnitedHealth, accounting for $66 billion in revenue in 2017. The insurer owns a 34% market share of supplemental plans, the most of any major insurer, according to an analysis by Mark Farrah Associates. 

UnitedHealth did not respond to a request for comment.

Editor's Note: This story has been updated to include a comment from AARP.