AARP Class Action Says Medigap Insurance Illegal Under New York Law

AARP has been acting as an illegal insurance agent by selling Medicare gap coverage policies on behalf of UnitedHealth, according to a class action lawsuit.

New York plaintiff Renee Baruch, who bought an AARP Medigap insurance policy in 2015, says she and other policyholders have unknowingly been paying for illegal commissions passed to AARP through insurer UnitedHealth.

She claims AARP has been using its arrangement with UnitedHealth to profit from insurance sales without subjecting itself to proper regulation by state insurance authorities.

The policies at issue are designed to supplement the policyholder’s existing Medicare coverage. Defendant UnitedHealth administers the policies, which according to Baruch are marketed and sold by defendant AARP.

In return for its promotional efforts, AARP receives payments from UnitedHealth. Baruch says AARP and UnitedHealth admit to these payments, describing them as royalties for UnitedHealth’s use of AARP’s intellectual property.

But that characterization doesn’t line up with the way the payment is calculated, according to Baruch. AARP allegedly receives a 4.95 percent commission on every policy sold or renewed through its arrangement with UnitedHealth.

By accepting a commission based on insurance premiums, Baruch argues, AARP is acting as an agent for UnitedHealth. The arrangement effectively makes AARP a seller of insurance subject to the same laws and oversight as other insurers, Baruch says.

Yet by framing the payments as a “royalty,” AARP allegedly seeks to dodge regulation by state authorities and avoid paying taxes applicable to income generated through insurance sales.

AARP also violates New York insurance law by failing to license itself as an insurer, Baruch claims. She says that without proper licensing, it’s illegal for AARP to collect a commission for marketing, selling, soliciting or renewing AARP Medigap policies on behalf of UnitedHealth.

These allegedly illegal commission payments come out of the pockets of unsuspecting New York seniors and disabled persons who purchase AARP Medigap policies, according to this AARP class action lawsuit.

Baruch says that similar Medigap policies offered without AARP’s participation offer identical benefits at a lower cost, in part because their premiums do not cover any unlawful commission payment. Baruch claims she and each proposed Class Member have been harmed by unknowingly paying AARP’s unlawful 4.95 percent commission.

Baruch’s claims echo those of three other plaintiffs who brought a similar AARP class action lawsuit in December 2017 in a federal court in California. In addition to challenging the purported royalty payments, the plaintiffs in that case also cite a California law that forbids using a nonprofit’s branding for for-profit insurance sales. They argue AARP is abusing its status as a trusted nonprofit by allowing its name to be used in conjunction with UnitedHealth’s Medigap policies.

Baruch is proposing to represent all persons in New York state who purchased or renewed an AARP Medigap policy.

She is asking the court for a permanent injunction barring AARP and UnitedHealth from continuing the practices described here. She seeks an order of restitution and disgorgement of all funds received by the defendants through their allegedly illegal insurance practices.

Baruch’s attorneys are Joshua D. Arisohn and Scott A. Bursor of Bursor & Fisher PA.

The AARP Medigap Insurance Class Action Lawsuit is Baruch v. AARP Inc., et al., Case No. 1:18-cv-01563, in the U.S. District Court for the Southern District of New York.

Join an AARP Medigap Class Action Lawsuit Investigation

If you purchased Medigap insurance through AARP, you may be eligible to join this AARP Medigap insurance overcharge class action lawsuit investigation.

Learn More