Class Action Claims Medicare Supplement Insurance Commissions Paid to AARP by UnitedHealth ‘Mischaracterized’ as ‘Royalties’

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A proposed class action alleges AARP and UnitedHealth have reaped millions by charging illegal insurance commissions to California senior citizens and disabled individuals.

More specifically, the 24-page suit claims the defendants have intentionally mischaracterized insurance producer commissions paid by UnitedHealth to AARP as “royalty” payments in order to help the 50-and-over organization avoid regulatory oversight and tax payments on the income it generates through insurance sales. 

“Calling the commission a ‘royalty’ is merely a diction created by Defendants to further their illegal scheme,” the plaintiffs allege. 

Despite its status as a nonprofit, AARP pulls in “substantial income” through business partnerships with larger insurers such as UnitedHealth Group and UnitedHealthcare Insurance Company, the suit says. Together and through their respective subsidiaries, the companies have “orchestrated an elaborate scheme” whereby AARP, as the de facto agent for UnitedHealth, has helped market, solicit and sell or renew UnitedHealth’s Medicare Supplement insurance, which affords extra coverage to traditional Medicare enrollees, in exchange for a 4.95-percent commission on member contributions, the lawsuit alleges. 

The issue is that while the defendants acknowledge the existence of these commission payments, they falsely characterize such as “royalty” payments remitted to AARP, which lacks a license to act as an insurance agent, according to the complaint.

The defendants’ conduct violates California’s Unfair Competition Law in that AARP is not licensed to sell insurance in the state, the case says. 

“Because AARP is not licensed as an insurance agent, broker or consultant, it may not collect a commission for its marketing, soliciting or selling/renewing of UnitedHealth Medicare Supplement product on behalf of UnitedHealth,” the case contends. 

In all, the defendants’ alleged scheme has caused California consumers to be charged artificially inflated and legally prohibited amounts for insurance coverage, the lawsuit says. 

“Put differently, Plaintiffs were injured by the actual loss of the 4.95% commission payments and paid more for UnitedHealth Medicare Supplement product because of Defendants’ challenged conduct,” according to the complaint. 

The lawsuit aims to cover all California residents who are or were enrolled in a Medicare Supplement Insurance Plan insured by UnitedHealthcare Insurance Co. 

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