Deep inside the gleaming, lakeside Indianapolis headquarters of Golden Rule Insurance Co., the elevator doors open with a swoosh and a worried-looking man in a trench coat hurries in. "Trouble in Washington," he says to a colleague, with the air of someone who has seen Washington trouble before. "We're in pretty good shape in the House, but the Senate's giving us some problems. Gotta work on them, gotta work on the Senate." The man is Darrell Richey, general counsel at the billion-dollar insurer. And today Richey is very concerned about the fate of a few provisions in the Medicare bill before Congress--provisions that could mean tens of millions of dollars to Golden Rule's bottom line.
As the GOP's plan to dismantle Medicare has moved forward, no other corporation has lobbied as effectively, nor positioned itself as well to reap big dividends from the Republican legislation, as Golden Rule. While doctors, hospitals, drugmakers, and other, larger insurers are going to garner pieces of the Medicare carcass, the relatively obscure Midwestern company--thanks to its unique alliance with the Republican leadership and a network of far-right think tanks and industry groups--is poised to gain a disproportionate chunk.
Golden Rule is an intensely political company, from its patriarchal chairman, J. Patrick Rooney, down to its most junior employee. Behind the fresh-scrubbed, Midwestern faces of Golden Rule's workers lies a hard-edged, ideological fervor whose tone is set by Rooney's own libertarian, free-market views. For years, the company has been known for its unusually aggressive underwriting policies and its battles against regulators and insurance reform legislation in states across the country.
Since the start of the decade, Golden Rule has funneled a staggering amount of cash into the GOP's campaign coffers--including nearly $1 million in the last election cycle alone--to win hearts and minds for Rooney's pet project, Medical Savings Accounts, a kind of medical IRA that heavily benefits the healthy and affluent. Rooney himself has led Golden Rule's political and free-market jihad in Washington, jetting to the capital almost weekly for meetings with key members of Congress--including House Speaker Newt Gingrich, the top recipient of Golden Rule's largesse.
The payoff: Rooney has forged a close working alliance with Gingrich and other leading Republicans, and his MSA scheme, although derided as a kooky idea by most economists and health care experts, is now the ideological crown jewel of the Republican Medicare plan.
MSAs and Medicare
In a rare moment of candor last October, Newt Gingrich outlined his vision for eliminating Medicare funding. "We don't want to get rid of it in round one because we don't think it's politically smart," he said. "But we believe that it's going to wither on the vine because we think [seniors] are going to leave it voluntarily."
And what is Gingrich counting on to draw seniors out of Medicare? Golden Rule's Medical Savings Accounts.
As part of their headlong effort to balance the federal budget by 2002, House and Senate Republicans agreed last summer to slash Medicare spending by an astronomical $270 billion over seven years. By cutting spending that much, the Republican plan will dramatically reduce Medicare payments to doctors and hospitals. That, in turn, will collapse the current system of fee-for-service care, because health care providers will no longer be able to care for patients at the lower rates paid by Medicare. The cuts will send shock waves across the entire Medicare system, so severe that most patients will be forced out of the traditional doctor-patient relationship in one of two directions.
First, they may move into an HMO or some new hybrid of "managed care" in the form of doctor-owned corporations that will be allowed to charge patients fees above and beyond their Medicare payments. Second, they may set up Medical Savings Accounts, and thus run straight into the waiting arms of Patrick Rooney and the Golden Rule Insurance Co.
Essentially, an MSA is a form of "anti-insurance." Under an MSA system, instead of buying a traditional insurance policy with a low deductible (say, $250), an individual purchases a "catastrophic," high-deductible insurance policy that pays only for costs in excess of perhaps $3,000. To pay for health care costs below that amount, the individual sets up a tax-free MSA account. (Employers can also offer an MSA health care plan to their employees. In this case, the employer funds the employee's MSA and pays for the catastrophic policy.)
But here is the trick: The MSA would probably contain an amount much smaller than the catastrophic policy's deductible, perhaps $1,500, making MSAs a kind of gamble on good health. If policyholders stay healthy, whatever they do not spend on health care during the year, they get to keep. But if they become sick, they rapidly use up their MSA funds and are stuck facing a large amount in uncovered medical costs until the catastrophic insurance policy kicks in.
Golden Rule began selling catastrophic health insurance linked to MSAs in 1994. In an effort to expand its market, the company has lobbied hard for a bill now before Congress that will declare MSAs tax free. (The bill is sponsored by Rep. Bill Archer, R-Texas, chair of the House Ways and Means Committee, and Rep. Andy Jacobs, D-Ind., whose district includes Golden Rule's headquarters.)
More significantly, early last year the Republican leadership seized the opportunity to include MSAs as the "free-market" option in its plan to dismantle Medicare. Under current Medicare rules, Golden Rule cannot sell health insurance to Medicare recipients. But under the changes proposed by Gingrich & Co., Golden Rule would get a crack at millions of Medicare recipients, on whose behalf the government spends more than $100 billion each year. Under the Republicans' new "Medicare Plus" program, the federal government would put money into MSAs for seniors who opt for them, and would also foot the bill for the accompanying Golden Rule catastrophic insurance policies.
What the Republican leadership doesn't mention is that allowing Medicare recipients to choose MSAs could bankrupt Medicare. At present, the vast majority of Medicare spending is used to provide care for a small portion of Medicare enrollees. Just over 3 percent of Medicare enrollees (i.e., the very sick) use 40 percent of Medicare's annual spending, while about 53 percent (the relatively healthy) use less than $500 each in Medicare funds per year.
If a substantial portion of healthy Medicare recipients choose to enroll in MSAs--as MSA proponents believe they will--they will find themselves with bank accounts holding, say, $1,500, most or all of which they will not spend on health care and will therefore get to keep. This money, sitting in the MSA accounts of healthy people, will no longer be available to Medicare. To provide care for sick people, Medicare will either have to radically increase its per capita spending (highly unlikely) or ratchet back medical care. That, in turn, will drive more people out of the traditional Medicare system into MSAs or managed care programs, further eroding Medicare. This process feeds on itself, becoming a "death spiral" in which the very ill are left alone in an expensive and rapidly collapsing Medicare system. "It creates a risk in the long run of just wiping out comprehensive insurance," says Joseph White, who has studied MSAs for the Brookings Institution.
Republican hatred of Medicare is nothing new. Going back to Franklin Roosevelt's Depression-era New Deal, conservatives have opposed each and every attempt to guarantee health insurance to any group of Americans. The creation of Medicare in 1965 was the result of a compromise in which the federal government agreed to finance health care only for Americans over the age of 65, a plan that passed over the bitter objections of the far right.
Even three decades later, much of the right has never come to terms with Medicare. Newt Gingrich, for example, recently compared Medicare to Soviet-style "centralized command bureaucracy." Said Gingrich, "It's everything we're telling Boris Yeltsin to get rid of."
The Economics of MSAs
Rooney and the Republican leadership in Congress argue that MSAs will reduce health care spending. Instead of relying on insurance to pay doctors, hospitals, and drug stores, holders of MSAs will use the money in their accounts to buy health care. Because they get to keep whatever money is left over in the MSA at the end of the year, the reasoning goes, they'll be more careful about what they spend: They'll shop around, try to get better prices from health care providers, and forgo unnecessary trips to the doctor or emergency room.
But few health care analysts, accountants, insurers, or government number-crunchers think MSAs will work. Studies by the Brookings Institution, the American Academy of Actuaries, the respected health research firm Lewin-VHI, Blue Cross, the magazine Health Affairs, and others have declared MSAs to be everything from marginally unworkable to outright ludicrous. "It's a screwball idea," says Dr. Steffie Woolhandler, a Harvard health care expert. "A lot of its right-wing appeal is that it ends up being a big reward for affluent, healthy persons."
Even the Republicans' own Congressional Budget Office found recently that not only would MSAs fail to reduce Medicare savings, they would actually increase costs to taxpayers "by about $4 billion over seven years." That finding stands in sharp contrast to some of the more outlandish claims by MSA advocates, including one by a Rooney-funded think tank, the National Center for Policy Analysis, which says MSA programs could save the government "as much as $195 billion." Actuary Mark Litow (whose work is also paid for by Golden Rule) is the source for NCPA's figure, but Litow's calculations are so far out of line with other, more levelheaded estimates that an audience at a press conference in Washington last October burst into laughter when he tried to defend them.
MSA opponents point out that the GOP seems ready to gamble Medicare's billions on a plan that hasn't been tested in the real world. Although Golden Rule claims that 1,000 American firms already offer MSA plans to their employees, all but a handful are tiny businesses with only a few employees. Larger companies that have looked at the possibility of MSAs for their workers have generally dropped the idea. Frank McArdle, a health care consultant with Hewitt Associates, says that for most large companies MSAs would end up significantly raising health care costs.
One company that has had experience with an MSA-like plan is DuPont. According to Kenneth Porter, an actuary with the Delaware corporation, when DuPont offered the option to employees, fewer than 4 percent selected it, and they tended to be young, single people with no history of medical problems. Noting that MSAs "are not a wildly attractive option," Porter adds DuPont was concerned that if many people chose the MSA-type option, it would drive up costs for everyone else, since healthy people would still draw money out of the system.
Golden Rule offers MSAs to its own employees, as do a few right-wing think tanks and policy shops. Yet none of these small entities provides anything like a laboratory to generate reliable data on how MSAs would work for a large population. Further, when the American Academy of Actuaries asked Golden Rule for concrete numbers on its employee MSA plan, the company refused to give them.
J. Patrick Rooney's Plan
That Congress is giving serious consideration to an idea as flawed as MSAs is a tribute to one man, J. Patrick Rooney, whose figure looms over everything Golden Rule does. "This company is almost his child," says a former staffer. (Indeed, the company itself is a family-owned affair.)
Many Golden Rule employees exhibit fierce loyalty. "Pat Rooney is my personal hero," says one aide. Others, however, including people who have left the company, think Rooney creates a climate of fear and intimidation. One former employee, reached by phone, feared retaliation for talking to a reporter, explaining, "We have a comfortable life now, and we don't want to do anything to jeopardize that."
"Rooney is nothing if not impatient and single-minded," says a former lobbyist. "He doesn't take no for an answer. He drives people hard and he wants results."
"There's always an undercurrent that he's called to a mission," says Carl Schramm, the former head of the Health Insurance Association of America. "He has a preset agenda. Here's a person in a company with a small voice, who has moved the national policy agenda virtually single-handed."
Rooney's evangelical passion for MSAs dates back to a meeting he had in early 1990 with John Goodman, founder of the Dallas-based NCPA, which has been the chief ideological advocate of MSAs. Rooney decided that backing Goodman's research and promotional efforts would be a good investment. That summer, according to Goodman, Rooney joined the center's board and started making annual contributions of $60,000.
For Golden Rule, the opportunity provided by MSAs could not have come at a better moment. Faced with intense competition from the national trend toward managed care (which elbowed out many small and midsize insurers like Golden Rule in the late 1980s and early 1990s), the company was beginning to feel squeezed. Insiders say company officials worried that the future looked bleak. To make matters worse, politicians from both parties favored HMOs and other forms of managed care. Golden Rule saw this as a life-and-death threat. To push MSAs forward, Golden Rule launched
its own political action committee, the Golden Rule Financial Corp. "We called it the Golden Rule Survival PAC," explains Shelli Johnson, the PAC's administrator.
From almost nowhere in 1989, Golden Rule has emerged as one of the country's largest single political donors, especially to the GOP. According to The Indianapolis Star, Golden Rule's total political donations rose from $81,000 in 1989-90, to $277,000 in 1991-92, to a sky-high $1,069,000 during 1993-94.
Rooney and Gingrich
Sensing that Newt Gingrich would be invaluable in the pursuit of pro-MSA legislation, Rooney became one of the largest donors to Gingrich's campaigns and to GOPAC, the political action committee Gingrich headed until last year. According to Rooney's stepdaughter Megan Garrett, Golden Rule became a "charter member" of GOPAC. (After working for Golden Rule's PAC, Garrett spent six months as GOPAC's deputy finance director.)
From 1991 to 1993, Rooney and Golden Rule President John Whelan chipped in more than $117,000 to GOPAC's coffers. Their support has continued since the GOP captured Congress in 1994. In the first quarter of 1995, Rooney gave $25,000 to GOPAC, and in the second quarter, Whelan made a $10,000 donation. In addition, the insurer and its leading executives have lavished support on Gingrich's personal campaigns, donating $42,500 to Gingrich from 1989 through 1994, according to a Common Cause study and records gathered by the nonpartisan Center for Responsive Politics in Washington, D.C.
Rooney has also curried favor with the speaker by supporting his think tank, the Progress and Freedom Foundation. A PFF executive says that Golden Rule contributed $20,000 through the foundation to sponsor "Progress Report," Gingrich's talk show on National Empowerment Television.
Gingrich promoted Golden Rule in his televised "college course"--even showing a promotional video supplied by Rooney. The speaker also touts Rooney's company and praises MSAs in his book To Renew America: "Every American ought to have the opportunity to belong to [an MSA] system."
"Newt looks to Pat [Rooney] as an adviser on health care," says Garrett. "Socially, they are mutual friends. If Newt is close to Indianapolis, he will try to stop by." Others who have observed the two men together offer similar views. "Newt relies on people for ideas and Pat is an idea person," says Suzanne Katt, a former vice president for government relations at Golden Rule who now works directly for Rooney. Gingrich, Katt says, recently asked Rooney to come up with some hypothetical case studies the speaker could use to show senior citizens how they would benefit under various Medicare options in the GOP plan.
Ed Kutler, Gingrich's top health aide, is very solicitous of Rooney, according to former Golden Rule pollster Kellyanne Fitzpatrick. Fitzpatrick recalls one meeting in which Kutler kept asking Rooney "if it would be OK with him" if MSAs were not the only alternative option in the Republicans' Medicare plan.
Rooney, knowing Golden Rule could not rely just on Gingrich, has made other contacts that have proven useful in promoting MSAs. Senate Majority Leader Bob Dole's Campaign America was a big recipient of Golden Rule's largesse, receiving $30,000 in the last election cycle, while Senate Finance Committee Chairman William V. Roth (R-Del.) reaped $10,000. Sen. Rick Santorum, a brash young conservative from Pennsylvania and one of the earliest and most ardent champions of MSAs, was similarly rewarded. In the last election cycle, he received $24,600.
Building Industry Muscle
In addition to his new allies on Capitol Hill, Rooney realized he would need more insurance industry lobbying muscle. Golden Rule was a member of the giant Health Insurance Association of America, but the group's large size frustrated Rooney, and he didn't like playing second fiddle to the big companies that dominated the trade group. More importantly, HIAA wasn't interested in MSAs and was flirting with moderate reforms that were anathema to Rooney.
In 1989, Rooney pulled out of HIAA and began brainstorming about launching a trade group devoted mainly to the MSA cause. In early 1992, he hooked up with other small insurers and founded the Council for Affordable Health Insurance. According to CAHI lobbyist Jack Strayer, Golden Rule tossed in about $100,000 of the council's $800,000 budget last year.
Golden Rule also supports the American Legislative Exchange Council, a group that provides lobbying support for MSAs. According to a council executive, Golden Rule gives between $10,000 and $20,000 a year to the group, which boasts a membership of 3,000 conservative state legislators and has helped spur the passage of bills favoring MSAs in about a dozen states.
All of these contributions, of course, are in addition to the money Golden Rule spends on a large stable of lobbyists. The company has paid at least one of these lobbyists, Robert Thompson, more than $250,000 since 1991. According to Katt, Thompson has been particularly effective at getting Rooney appointments to see legislators. (Thompson, a former aide to George Bush, gained a dubious reputation in Washington after representing James M. Fail, one of the sleazier S&L owners of the late 1980s. Among the questionable dealings in which Fail and Thompson were involved: Thompson invested $100,000 in a partnership with a former Federal Deposit Insurance Corp. official who had ruled favorably on Fail's acquisition of an Oklahoma bank--on the very day of the official's resignation from the FDIC.)
Torpedoing the Clinton Plan
In 1993, Rooney's fight for MSAs took a back seat to the struggle to defeat the Clinton administration's health care reforms, which Rooney saw as potentially lethal to Golden Rule. After more than a decade of rapid growth (revenues shot up from $330 million in 1987 to $820 million in 1993), Golden Rule's growth had flattened out, even declining slightly in 1994. Under the Clinton plan, Golden Rule would have been in danger of being squeezed out of the health care market altogether by large insurance companies that operate HMOs and other managed care programs. These big companies (Aetna, Prudential, MetLife, Cigna, Travelers, Kaiser, etc.), flexing their own Washington muscle, had won both George bush and Bill Clinton to managed care. Clinton's reform would have all but handed them the health care system.
Golden Rule and other small and mid-size insurers decided early on to take an active role in the fight against the Clinton health care plan, joining many industry groups and the Republicans. The company used the opportunity to recruit new allies for its pro-MSA crusade.
Billed as the major free-market alternative to managed care, MSAs attracted the attention of such conservative activists as Phyllis Schlafly, the head of the 80,000-member Eagle Forum, who began trumpeting MSAs in her newsletter. (Schlafly concedes that Rooney contributed a few thousand dollars to the forum and has given between $10,000 and $20,000 to an anti-abortion group she also runs.)
So, in 1993-94 Golden Rule's political contributions soared to finance the anti-Clinton health care wars and to promote MSA legislation, with the money sloshing heavily into right-wing and GOP coffers. In that election cycle, Golden Rule, its executives, affiliates, PAC, and Rooney family members gave the Republicans almost $1 million, nearly four times the amount they gave the party in the previous cycle. (Only Amway and Philip Morris gave the GOP more during the 1993-94 elections.) In October 1994 alone, when many close races were being fiercely contested, Golden Rule delivered $416,000 in soft money to the GOP.
Golden Rule makes no apologies for Rooney's blatant use of cash to get his way in Washington. "We wanted to get their attention," says Katt. "The money gave us that opportunity originally, and once you find allies, you support them."
Above all, money was critical in cementing Rooney's alliance with Newt Gingrich. "To get access to just about any political figure, you've got to find a way to reach them," says Katt, blithely admitting that Rooney might never have had a chance to win Gingrich as a convert had it not been for Golden Rule's large donations. "You pay to go to GOPAC."
As Mother Jones goes to press, President Clinton and the GOP-led congress are heading into a year-end showdown over Medicare. Although the exact fate of MSAs is still uncertain, it appears they will be included in some form in any Medicare reform legislation.
In late October, Democrats succeeded in pulling the MSA provisions out of the Senate Medicare bill. But within days, a hodgepodge of right-wing groups, including the American Conservative Union, Americans for Tax Reform, the Eagle Forum, the National Taxpayers Union, Citizens for a Sound Economy, and the Family Research Council, held a news conference to declare that without MSAs the Republican Medicare plan was merely "warmed-over Clintonism" and would be unacceptable to the right.
Following this blast from the pro-MSA forces, Gingrich and Dole conferred on a strategy to restore MSAs to the joint House-Senate bill that would be sent to the White House. (According to Peter Ferrara of Americans for Tax Reform, who coordinated the pro-MSA news conference, the right was concerned about Dole. Earlier, the Senate majority leader had expressed some hesitation about MSAs. But Dole, Ferrara said, could not afford to alienate conservatives while he was running a presidential campaign, and Ferrara boasted that he had "friends in Dole's campaign" who would make sure the Kansas Republican got the message on MSAs.)
The Republicans working on the final version of Medicare reform are aware that the bill faces a certain, and pre-announced, veto by the White House. But according to many observers, the president primarily opposes the size of the GOP's spending cuts, and does not consider MSAs a make-or-break issue in the battle over Medicare.
Meanwhile, the Archer-Jacobs bill, which makes MSA tax-free for the non-Medicare part of the population, is also moving forward despite objections from congressional Democrats.
As Republican leaders maneuver to insure that MSAs are included in the final health care legislation, no doubt J. Patrick Rooney is among the first to hear of each new development.
Robert Dreyfuss is a contributing writer to Mother Jones. Peter H. Stone covers money and politics for the National Journal.