Health Savings Account and Insurers and Golden Rule and Insurance Products and Uninsured and Health Insurance and Health Care & Life Sciences and Health Care & Insurance

Rooney: healer or heretic in health insurance industry?

March 17, 2008

The "father of health savings accounts" isn't satisfied.

At 80, J. Patrick Rooney is gearing up for another health care reform battle in Washington--five years after winning a colossal victory when Congress awarded health savings accounts tax-free status.

Rooney, a wealthy Indianapolis insurance magnate, won renown in the 1990s for building his company, Golden Rule Insurance, into the largest seller of individual insurance policies and using the money it generated to lobby politicians to embrace health savings accounts. Rooney also made a short-lived run for governor that featured a flood of radio ads touting health savings accounts.

Rooney now heads a different company, Medical Savings Insurance. But he once again has marshaled an army of organizations to wage war over health care.

He is using his insurance company, a not-for-profit foundation, various Web sites, and his own lobbying and campaign contributions to press for his kind of reform--that is, changes that favor private health insurance and consumer responsibility over government financing or control. Much of what Rooney advocates also would benefit his company, though he said he's pushing his agenda for the greater good.

Rooney's crusade also includes aggressively challenging hospitals to amend their practice of charging sky-high retail prices and then negotiating discounts with health insurers. Medical Savings, as a small insurer, lacks the clout to win substantial discounts. So, too, Rooney points out, do the uninsured.

Rooney even has co-written a book with longtime colleague Dan Perrin. Modestly titled "America's Health Care Crisis Solved," it will be published by John Wiley & Sons in May.

"We believe that there will be a major political effort after the election to get health care legislation," said Rooney, sitting at a round table in a conference room in his Indianapolis offices, a Norman Rockwell print hanging on the wall behind him. "We would like to shape it."

Rooney's playbook is the same as before: political and public lobbying for his ideas that intertwine with his business and philanthropic interests. And just as before, Rooney isn't afraid to spark controversy.

Medical Savings markets health savings accounts almost exclusively. Those products combine catastrophic insurance with a bank-like savings account. Patients must spend a few thousand dollars from the money placed in their accounts or out of their own pockets until the catastrophic insurance kicks in.

Rooney and other advocates of the accounts say they make patients more cost- and health-conscious because they have more responsibility for their health care spending and can roll over money they don't spend into future years. He wants to expand their use, even by allowing Medicare revenue to be funneled into such accounts if seniors choose them.

Medical Savings spent $100,000 on lobbying the past two years. Rooney already has donated $15,000 to politicians in the 2008 campaign season, hitting the $2,300 maximum for five candidates.

And, once again, Rooney is making some enemies. Golden Rule ran afoul of regulators and consumers for its aggressive tactics to withhold coverage for expensive conditions and to yank coverage if it found incorrect information on applications--though consumers said Golden Rule seemed to find errors after they racked up big medical bills.

Now, Medical Savings has confronted hospitals over their prices by marking down their bills substantially and calling them "paid in full." Medical Savings even accused Florida hospitals of price gouging in an unsuccessful lawsuit. In return, hospitals and the company's own customers have sued it, saying it has failed to pay as much as owed.

Medical Savings has spent more than $5 million fighting lawsuits, according to attorneys who have sued the company. Jeffrey Liggio, an attorney for plaintiffs in a class-action suit against Medical Savings, said, "They have put both themselves as well as our clients in a precarious situation."

Medical Savings--which Rooney acquired in 1997, the year after he resigned as Golden Rule's chairman--has suffered deteriorating financial health even without the litigation.

Revenue has dropped every year since 2004, when larger insurers, such as Indianapolis-based WellPoint Inc. and Minneapolis-based United-Health Group, began marketing health savings accounts. UnitedHealth dove into health savings accounts by acquiring Golden Rule in 2003 for $500 million in cash.

Medical Savings brought in $39.5 million in 2007, down nearly 30 percent from 2004. On March 11, the New York-based A.M. Best ratings agency cut its grade on Medical Savings' financial strength--or ability to pay claims--to B- and gave it a negative outlook.

Rooney also has courted controversy on the Web. His Indianapolis-based not-for-profit, the Fairness Foundation, pays to publish WhereTheMoneyGoes.com, a cynical blog about the prices, profits and executive pay at hospitals.

In 2006, the foundation paid $116,000 to the blog's writer, Joe Novak. He also writes another blog called Obama-Truth.org, which has criticized Democratic presidential candidate Barack Obama and his wife.

The foundation, which helps uninsured individuals challenge their hospital bills, also publishes hospitals' retail prices on its Web site, hospitalvictims.org.

"He's absolutely a master for working the process and getting his ideas on the front burner," said Julia Vaughn, health issues coordinator for Citizens Action Coalition of Indiana, a consumer group that staged a protest of Golden Rule when Rooney was CEO.

Rooney's motivation

So what drives Rooney to keep fighting for reform?

He has a commitment to conservative ideas, to be sure. But the "conservative" label sticks a bit awkwardly to Rooney.

He attends a black Catholic church called Holy Angels. He's a former contributor to the Indiana Civil Liberties Union. He's a vegetarian who avoids products that require the killing of animals; that's why he wears plastic shoes.

He admits his efforts are self-interested. But he insists he's not trying to line his own pockets.

"The reason for the activity is entirely spiritual," Rooney wrote in an e-mail. "When I die, I would like God to welcome me."

Rooney invokes the Bible--Matthew chapter 25, verse 31, to be exact. That's where Jesus describes the last judgment, when "the sheep," that is, the faithful, will be divided from "the goats," or the unbelievers.

In an interview, Rooney quoted from the passage: "Then the King shall say to those who will be on his right: 'Come, you blessed of my Father. Possess the kingdom prepared for you from the foundation of the world. For I was hungry, and you gave me to eat; I was thirsty, and you gave me to drink; I was a stranger, and you took me in; naked, and you covered me; sick, and you visited me; I was in prison, and you came to me.'"

In Rooney's eyes, he's laboring to give health insurance to the poor uninsured and to protect them from being "crushed" by excessive hospital prices.

"We're trying to help the people that are not able to help themselves," Rooney said.

Another big idea

The centerpiece of Rooney's and Perrin's book is an annual tax rebate for all Americans so they could buy health insurance--on their own or through their employer.

In essence, the U.S. government would give money--$2,000 for adults, $5,000 for families--to either employers or insurance companies to help cover the cost of private health insurance.

The government would get the money for these payments by eliminating the tax deduction employers currently take for the money they spend on their employees' health insurance premiums.

"This is the best way to insure more people without having the government take over health insurance," said Perrin, 44. He also is president of the HSA Coalition, a Washington, D.C.-based alliance of not-for-profits that promotes and lobbies for health savings accounts.

Rooney and Perrin have been working on this proposal, called FairCare, for nearly a decade. It was introduced in Congress in 1999 and picked up by George W. Bush in his 2000 campaign for president. Now John McCain, the presumptive Republican nominee for president, is advocating a nearly identical idea.

Rooney's success, however, hasn't been in inventing health care reforms, but in selling them. He latched onto health savings accounts after hearing the idea presented at a conference by representatives of the Texas-based National Center for Policy Analysis.

In the early 1990s, Rooney turned the idea into Golden Rule's signature product--and into his biggest political cause. By the time Congress granted tax-free status to health savings accounts in 2003, Golden Rule, Rooney and his family had given $3.6 million to political campaigns, mostly to Republicans, according to a report from the Democratic National Committee.

"There's no question that Pat Rooney has had an enormous effect on changing the debate, at least among Republicans, in Washington," said Don Devine, who directed the U.S. personnel office during Ronald Reagan's presidency and now directs Bellevue University's Federalist Leadership Center. "He's had some self-interest in this, too, but he never hid that. So I found him a refreshing kind of guy."

Rooney has self-interest in his latest proposals, too. For one, FairCare would use $376 billion of taxpayer money to pay for private insurance.

"The money is there. Let's just distribute it differently--more fairly," Rooney and Perrin wrote in their book.

Devine called Rooney's proposal of tax rebates "a goofy solution," saying he preferred President Bush's most recent proposal to make health insurance premiums tax-deductible. That change would help only those Americans who actually pay income taxes. The poorest Americans do not.

But Al Hubbard said Rooney's and Perrin's idea has merit. Hubbard, an Indianapolis businessman, directed economic policy for President Bush and worked to sell Bush's health care plans in Washington until the end of 2007. Rooney visited Hubbard regularly during his time at the White House.

"If you polled, you'd find strong support for it," said Hubbard, who has been friends with Rooney for 20 years and used to sit on Medical Savings' board.

Fighting hospitals

Rooney also stands to benefit if hospitals change their pricing practices.

Rooney's foundation has been giving $50,000 a year to a California group called Consejo de Latinos Unidos. Run by K.B. Forbes, a former Medical Savings employee, the group has mounted litigation and publicity campaigns against hospitals on behalf of the uninsured.

In 2003, Consejo pressed 10 lawsuits against Texas-based Tenet Healthcare Corp. at the same time the hospital system was arguing with Medical Savings over allegedly unpaid bills. Tenet, which was under financial and regulatory duress, agreed to forgive Medical Savings' debt and change its policy toward the uninsured. Then Consejo dropped the lawsuits.

Forbes said he and Rooney talk regularly, but do not coordinate their actions.

"It's no surprise that hospitals that play hardball with the uninsured also get in trouble with insurance companies," Forbes said.

The Fairness Foundation, headquartered next door to Medical Savings in Indianapolis' Park 100 industrial center, helps uninsured individuals directly challenge their hospital bills. In the last two years, the foundation has helped more than 70 people save, on average, $18,000.

Many hospitals have a standard discount of 20 percent off retail prices for uninsured patients. That's not nearly enough, Rooney says, especially since hospitals raise their retail prices every year.

Rooney particularly hammers Catholic hospitals on their prices. He cited St. Vincent Hospital Indianapolis, a Catholic facility that has raised its retail prices 46 percent since 2003, according to data from AHD.com. During that same period, St. Vincent's net income more than tripled.

St. Vincent spokesman Johnny Smith said those figures are skewed because St. Vincent acquired its women's hospital in 2003. He noted that, in addition to offering at least a 20-percent discount to uninsured patients, St. Vincent offers financial assistance, sometimes even for insured patients. St. Vincent says it gave away $23 million in charity care in 2006.

The Fairness Foundation cites Johns Hopkins University professor Gerard Anderson, who testified before Congress that "reasonable" payment for services is, on average, 25 percent above Medicare's payment. So that's what the foundation tells its clients to pay.

Medical Savings tells its customers the same thing.

Hospital pricing is inordinately complex. Hospitals publish retail prices that are often 300 percent to 400 percent higher than what Medicare pays. Then hospitals negotiate discounts with health insurers based on the volume of patients they can bring to the hospitals.

The Medicare and Medicaid programs can command the biggest discounts. Among commercial insurers in Indiana, WellPoint gets the biggest discounts because it claims roughly 60 percent of the market.

Medical Savings has been sued more than 20 times since 1999--by both its customers and hospitals. Their lawsuits argue that Medical Savings' contracts promise to pay "usual and customary" charges, but don't spell out that Medical Savings defines "customary" as Medicare plus 25 percent.

"I have never seen a systemic practice" like this, said Mark Ragusa, an attorney for Baycare Health System Inc., a chain of nine Florida hospitals. It has a lawsuit pending against Medical Savings for more than $1 million in unpaid claims. "There was a scheme they set up to make money. And it's backfired. Every judge has ruled against them."

In December, a Florida state court judge declared Medical Savings liable in a class-action suit brought by some of its customers. In January, the Arizona Supreme Court let stand a judgment that required Medical Savings to pay what Phoenix-based Banner Health billed.

Michael Walrath, an attorney for Medical Savings, said, "The Supreme Court in Arizona flat out got it wrong." He noted that in February a state court judge in Tampa, Fla., refused to accept a similar argument in a case brought against Medical Savings by HCA Inc., the nation's largest system of for-profit hospitals.

Tennessee-based HCA has moved to sue Rooney personally. An attorney for HCA declined to comment.

Even Dan Evans, a longtime friend of Rooney's who says he's "95 percent correct" on health care reform, takes issue with Medical Savings' attempts to pay Medicare plus 25 percent.

"They can't do that. That's called a cram down," said Evans, who is CEO of Clarian Health, the largest hospital system in Indiana.

Evans agrees with Rooney that hospitals' prices are "inscrutable" and that hospitals should be offering discounts of greater than 20 percent to the uninsured. But the biggest reason hospitals charge so much is because Congress essentially asks hospitals to shift costs that are not paid by uninsured patients and by programs like Medicare (which hospitals say pays less than their costs) onto commercially insured patients--such as customers of Medical Savings.

"Pat refuses to recognize that," Evans said.

For Rooney, however, the situation is more black and white. In the conclusion of their book, Rooney and Perrin throw their support behind growing calls to take away the federal tax exemption from not-for-profit hospitals like Clarian. As Congress has conducted hearings into hospitals' tax exemptions, hospitals have scrambled to improve their charity care policies and defend their executive pay.

Evans earned more than $1 million in pay and benefits in 2005, the most recent figures available.

"It appears that taking tax exemptions away from price gougers may be the only way. As it is, the hospitals get away with the excessive prices and pay their chief executives sinful amounts of money," Rooney and Perrin wrote. "What is going on is shameful."

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