Rooney's death spawns uncertainty for struggling insurance company, not-for-profit

October 6, 2008

After the unexpected death of insurance magnate J. Patrick Rooney, two organizations he led until the day he died are scrambling to figure out who will lead them into the future.

Rooney, 80, worked a full day on Friday, Sept. 12, still holding the positions of president at both Medical Savings Insurance Co. and the Fairness Foundation. He attended church on Sunday, Sept. 14, before dying in his sleep that night.

Rooney was far more than the top executive at the two Indianapolis organizations. His unique mix of moral, political and business visions formed the foundation of both Medical Savings, which sells health insurance combined with health savings accounts, and the Fairness Foundation, which helps uninsured patients battle hospitals over their bills.

Losing the "founding genius" can be a crisis for any company that has not trained up an obvious successor, said Chris Eckrich, a Fort Wayne resident who is a principal at the Georgia-based Family Business Consulting Group.

"It's a real tough situation if the founding leader and founding genius is gone and the organization hasn't figured out how to go on," Eckrich said.

Neither Rooney's insurance company nor his not-for-profit group has done so. But they aren't without options, either.

For Medical Savings Insurance, its board could ask Rooney's daughter Therese to step in as president. Therese Rooney, 54, succeeded her father as CEO of Indianapolis-based Golden Rule Insurance, leading the company for nearly a decade until Minnesota-based UnitedHealth Group acquired it in 2003.

"I would assume his daughter Therese would take a more active role in the company," said A.M. Best analyst Carl Austin. "I don't have verification of that. But it makes all the sense in the world to me."

But Therese Rooney says that's not a possibility. She's under a non-compete agreement with UnitedHealth until November. And she has no plans to lead Medical Savings after that.

"It's not going to happen," she said.

Brian Davis, the chief financial officer of Medical Savings Insurance, wrote in an e-mail that the company's board would meet within weeks to name a new president. He said the company had no further comment.

The company has been struggling lately, losing $3.1 million last year and another $1.7 million in the first half of this year, according to documents filed at the Indiana Department of Insurance. Pat Rooney and his three daughters had propped up the company with cash infusions each of the past two years.

At the Fairness Foundation, which keeps its offices just a few paces down from Medical Savings Insurance in Park 100, its board held an annual meeting Oct. 2 and planned to talk about a new president, said Bob Hoy, a consultant to the foundation. Results of the meeting were not available before IBJ's deadline.

Hoy, 58, had worked closely with Pat Rooney this year to raise more money to support the foundation's mission. Hoy said he would like to be the foundation's president, but at this point, he's not even an employee.

"The cause is something I've become passionate about," Hoy said. "Until the day that we truly have health reform in our nation, there will always be those struggling with overwhelming hospital bills."

The Fairness Foundation board recently got some new blood--and money. Rooney and Hoy wooed four Indianapolis businessmen--P.E. McAllister, Fred Klipsch, Rollin Dick and Jack Whelan--to join the board. Those four men, along with a few other donors, donated a total of $50,000 to the foundation this year.

Until those funds came in, Fairness Foundation was funded mostly by Rooney's personal contributions, Hoy said. Those contributions totaled $1 million in 2006, according to the foundation's most recent filing with the Internal Revenue Service. However, only $335,000 was donated in cash.

In an e-mail he wrote to IBJ in March, Rooney, a committed Catholic, cited his faith as the motivation behind his work, particularly his efforts to help the uninsured.

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

Rooney's will

In his will, Rooney left $100,000 apiece to his seven grandchildren, another $200,000 to his wife, Karen G. Hall, and the rest to the M.A. Rooney Foundation, an educational charity he ran with Therese Rooney.

Documents filed in probate court in Marion County estimate Rooney's wealth at greater than $1 million, but give no more details.

Therese Rooney, the executor of Pat Rooney's estate, said the estate has yet to decide if it will keep funding Medical Savings or the Fairness Foundation.

"We basically said [to both organizations' leaders], 'Tell us what you are interested in doing,'" Rooney said. "We're still discussing it."

As it stands now, her answers are "probably not" for Fairness Foundation and "maybe" for Medical Savings Insurance. The M.A. Rooney Foundation would evaluate proposals from the insurance company as a potential investment for the foundation's capital.

The M.A. Rooney Foundation--named after Pat Rooney's father--has been funded almost exclusively by Therese Rooney. In 2006, the most recent year for which numbers are available, she contributed $500,000.

Therese Rooney said she expects the M.A. Rooney Foundation to continue to give money to one of Pat Rooney's other creations, the Educational Choice Charitable Trust. That not-for-profit provides vouchers for low-income schoolchildren to attend a private school that they choose.

Rooney founded that organization in 1991, and dozens of others around the country have mimicked its model since then, said Hoy, who was executive director of the trust until the end of 2007.

Health savings accounts

Pat Rooney made his money building Golden Rule Insurance Co. into one of the nation's largest sellers of individual health insurance policies. UnitedHealth paid $500 million in cash to acquire the company.

Under Rooney, Golden Rule also pioneered the use of health savings accounts and high-deductible health insurance to provide a less expensive version of health insurance.

Rooney continued the concept after he retired as Golden Rule's chairman in 1996. He acquired and retooled an Oklahoma insurance company to sell health insurance tied to health savings accounts. Medical Savings Insurance sells those products almost exclusively.

Rooney also lobbied hard in Congress to win tax-free status for health savings accounts, which Congress granted in 2003.

But Rooney's success in Washington has come back to hurt his insurance company. Since 2003, much larger health insurance companies have aggressively pushed health savings accounts--and had some success at Medical Savings' expense.

From January 2006 to January 2008, the number of Americans covered by health savings accounts and high-deductible health insurance nearly doubled to 6.1 million, according to the trade group America's Health Insurance Plans.

But Medical Savings Insurance has been bleeding customers and cash. The company insured more than 24,000 people at the end of 2006. But since then, it has lost 60 percent of them.

Pat Rooney stepped in as president in the spring after the resignation of Randy Suttles, who had worked closely with Rooney since his days at Golden Rule.

In July, Medical Savings pulled out of the Florida and South Carolina markets. Those two states accounted for 44 percent of Medical Savings' premiums last year. But the company had also racked up millions in legal expenses to defend itself against lawsuits from hospitals and customers in those states.

Medical Savings Insurance angered hospitals by paying no more than 25 percent above what the federal Medicare program would pay for the same services.

Such prices, while comparable to those negotiated by larger health insurers, were not negotiated in advance by Medical Savings and represented a sizable discount from hospitals' publicly stated prices.

Pat Rooney was the majority shareholder of Medical Savings Insurance's parent company. In the past two years, the parent poured $5.6 million into the insurance company to shore up its capital position.

Rooney's daughters loaned part of that money, he wrote in March. In return for some of the infusion, the parent received assets it could use to reduce its taxes.

A.M. Best keeps a negative outlook on Medical Savings' already low credit rating because its "level of capital is currently insufficient to support its insurance and investment risks," according to a Best report issued in March.

"We're watching the capital level of the company, but we do expect the Rooney family will keep the required capital in the company," said Austin, the A.M. Best analyst.

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