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

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.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets on
{{ count_down }}