(CN) – A federal judge in the nation’s capital ruled that senior citizen advocacy group AARP must face class-action claims that it defrauded consumers who bought insurance plans to supplement Medicare coverage.

Lead plaintiff Helen Krukas, a Florida resident who brought a federal class action against the nonprofit group last year, claims AARP fooled consumers into paying an undisclosed 4.95 percent commission that was hidden in their monthly “Medigap” insurance premiums.

Chief U.S. Judge Beryl A. Howell in Washington, D.C., sided with Krukas in a ruling Sunday denying AARP’s motion to dismiss the case, which alleges fraudulent misrepresentation and consumer-protection violations.

“The plaintiff has adequately alleged that the defendants’ misrepresentations or omissions regarding the nature, cost, and purpose of the 4.95% charge may be material because they affected her understanding of the cost of her Medigap insurance,” wrote Howell, a Barack Obama appointee.

The ruling continues, “She has further sufficiently alleged that this misrepresentation was intended to induce consumers to purchase AARP-sponsored Medigap insurance over other policies that offered identical benefits, believing that their premiums paid only for ‘expenses incurred by [AARP] Trust in connection with the insurance programs and to pay the insurance company for [consumer’s] insurance coverage.”

Medigap is supplemental health insurance sold by private insurance companies to fill the “gaps” in original Medicare plan coverage. It covers health care costs that a Medicare plan doesn’t, according to the Centers for Medicare and Medicaid Services.

Since at least 1997, AARP has offered group Medigap policies that are underwritten by UnitedHealth Group and UnitedHealthcare Insurance Company.

UnitedHealth compensates AARP through commissions in exchange for marketing, selling and administering the insurance to AARP members.

The senior advocacy group advertized that UnitedHealth paid royalties to AARP for its services, but allegedly concealed the fact that the funds came out of consumers’ pockets in the form of a hidden 4.95 percent fee in monthly premium payments.

Krukas claims the AARP characterizes its commission as a royalty to avoid oversight by insurance regulators and avoid paying taxes on the income generated through insurance sales. She alleges that these royalties are actually illegal commissions because they were diverted from her Medigap payments to AARP.

Krukas had argued that AARP is so entwined in the solicitation of and administration of UnitedHealth’s insurance policies that it should be considered an unlicensed insurance agent or broker, which would mean it cannot legally collect the commission.

Judge Howell declined to rule on whether AARP should be considered an insurance agent.

According to the ruling, AARP argued that the final cost of the insurance it markets, including the additional 4.95 percent fee, is comparable with Medigap plans offered by most agencies and requested that Krukas show where she could find cheaper coverage.

But Howell wrote that Krukas’ fraudulent misrepresentation claim survives the motion to dismiss because she sufficiently alleged she would not have purchased a Medigap policy whose premiums included a royalty charge, but instead would have purchased a lower-priced policy offering identical benefits.

Krukas also did not protest the overall cost of the plan, just that AARP allegedly hid the extra monthly fee from consumers, the ruling states.

AARP claims the paperwork and documents sent to those purchasing the coverage includes enough detail outlining its premiums, but Howell found that was not enough to dismiss the case.

“Here, however, the plaintiff has adequately alleged that the defendants’ disclaimer that UnitedHealth paid AARP a ‘royalty’ was only a partial disclosure, as it did not sufficiently alert consumers to the undiscoverable or unobservable fact that they were being charged 4.95% of their premiums in order to satisfy that obligation,” the judge wrote.

An AARP spokesperson said in an email Monday, “The allegations in the lawsuit are wholly without merit and we are confident that the court will ultimately agree.”