The AARP is fighting case by case to defeat claims that it is cheats consumers who purchase AARP-branded Medicare supplemental health insurance (“Medigap”) products by charging illegal commissions.

A non-profit organization that claims to advocate for Americans age 50+, the AARP is facing several lawsuits around the country, including a Washington, DC, lawsuit that is moving forward as a class action lawsuit and two proposed California class action lawsuits that are (for now, at least) not.

Since at least 1997, the AARP has held, in its name, group Medigap policies underwritten by UnitedHealth Group and UnitedHealthcare Insurance Company. For each policy purchased and renewed, the AARP charges an undisclosed 4.95% fee that it maintains is a royalty to compensate AARP for UnitedHealth’s use of its intellectual property.

The plaintiffs in lawsuits against the AARP say it is actually charging a “commission” but disguising it as a “royalty” to avoid oversight by insurance regulators and to avoid paying taxes on the income generated through insurance sales.

The rulings below reflect the dramatically different analysis of the facts by two federal judges in Washington and California.

U.S.District Judge Beryl Howell of Washington, D.C., last fall ruled the case of Krukas v. AARP, Inc, et. al, can proceed as a class action against the AARP, which is headquartered in Washington.

She rejected AARP’s argument the lawsuit should be dismissed because it would force the court to second-guess insurance rates approved by state regulators. Judge Howell said the plaintiffs are not challenging state-approved rates but allege the AARP used unfair business practices and deceptive conduct that prevented consumers from making informed decisions about the cost of AARP-branded insurance.

Judge Howell said the AARP does far more than simply endorse UnitedHealth Medigap policies. She ruled the plaintiffs “provided ample detail concerning AARP’s extensive responsibilities – to allow the reasonable inference that the defendants are merchants.”

By contrast, Senior U.S. District Court Judge Dean D. Pregerson of Los Angeles summarily dismissed two proposed class action lawsuits filed against the AARP in California.

Judge Pregerson in 2018 dismissed the case of Levay v. AARP, without allowing the plaintiffs to engaged in discovery, and did so with “prejudice” so the case cannot be refiled. The plaintiffs have filed a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit in San Francisco.

Regarding the AARP’s undisclosed 4.95% fee, Judge Pregerson said, “It would be foolish indeed for an enterprise, regardless of its status as a non or for-profit entity to be blind, all other factors being substantially equal, to revenue generating opportunities.” Appeals Court Circuit Decision?

It’s not clear how Judge Pregerson’s ruling in the Levay case squares with a 2017 decision by a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit in response to Judge Pregerson’s dismissal of Friedman v. AARP, Incl, et. al, which also challenged the AARP’s Medigap insurance program.

The panel sent the Friedman case back to Pregerson for reconsideration. He dismissed the case again on November 1, 2019, with instructions that it cannot be refiled. Judge Pregerson criticized the lack of specificity of the third amended complaint and ruled the plaintiff failed to show they suffered any economic harm. Alan I. Schimmel of Sherman Oaks, CA, lead attorney for the plaintiffs, could not be reached for comment about whether the plaintiffs will appeal.