With Insurance Policy Comes Membership

Ex-House majority leader Richard Armey (R-Tex.) heads the conservative group FreedomWorks, formerly called Citizens for a Sound Economy. (By Ray Lustig -- The Washington Post)

That was the first of a series of letters that revealed that insurance policy holders' names would be rented out as CSE members, that the group's bylaws would be changed to accommodate Rooney and that CSE would control dues rates.

Lassman said emphatically that no one has been signed up for the organization unwittingly and no one who joined through an insurance policy has quit upon learning of the group's political activities. An "MSA [Medical Savings Accounts] Association" membership form that CSE produced in 2000 to accompany application forms is emblazoned with the phrases "Flat Tax," "Across-the-Board Tax Cuts," "Limited Government" and "School Choice" among other political slogans.

"I have every confidence that new members to FreedomWorks know what we're about and what that relationship means to them," Lassman said. "There is no confusion about their relationship to us."

He did not deny that the $638,040 that has flowed to the group over 5 1/2 years in monthly checks for "association fees" collected by Medical Savings Insurance Co. is a boost. But, he said, it is a small one for a group with a $7 million budget. A database search of the group's 800,000 members indicated roughly 2 percent -- or about 16,000 -- joined by signing up for insurance, he said.

"If people want an account like this and are not aware of FreedomWorks, and they come to us this way, that's great," said FreedomWorks spokesman Adam Brandon.

But Jeffrey M. Liggio, a lead lawyer in the lawsuit, pointed to the insurance policies themselves, which never mention FreedomWorks or Citizens for a Sound Economy and label the group policyholder simply by a number: 1214.

"The certificates of insurance issued to class members, despite the clear language contained therein, did not disclose the identity of the Group Policyholder of the group policy, despite the fact that each putative insured must 'join' and pay money to such group as a condition of obtaining the insurance," the suit's motion for class certification states. The motion was granted in December.

Larry Butcher, a plaintiff in the case, said in a deposition that he signed on to a policy simply because his insurance broker son thought it was a good deal.

FreedomWorks and its predecessor, CSE, were careful about the deal's financial aspects. In a Sept. 13, 2000, letter, CSE's Quinn said documents should overtly refer to dues, suggesting they be set at $12 a year, to be raised at CSE's discretion upon notifying Medical Savings Insurance Co. She also noted: "I would assume that these people will become CSE members for all purposes and therefore will go on the CSE mailing list. Since the CSE mailing list is rented, as a matter of course, those names would be rented as CSE members . . . without specific identification as MSIC insureds."

A Sept. 20, 2000, correspondence from Medical Savings President Randal E. Suttles to Rooney said the deal could not go through because the CSE charter states "the corporation shall not have members" and therefore does not comply with the law governing group insurance.

Fifteen days later, Quinn told Suttles the group had solved the problem, amending its charter to allow for voting members.

The money that Medical Savings collected on behalf of CSE and FreedomWorks trickled in at first, canceled checks show. The first, in December 2000, was for $28. In April 2001, it was $738. But according to financial documents, the program gathered steam quickly. By March 19, 2003, the monthly "association fees" totaled $10,060. By 2004, they were topping $15,000, peaking that August at $15,309. They have since ebbed, to $10,687 last month.

Last month, Lassman said, about four times as many FreedomWorks members dropped out of the organization as joined by purchasing a policy.

But the total raised so far, $638,040, is not insignificant, Lassman said.

"In the nonprofit world, every dollar is precious," he said, "but to put it in context, hundreds of thousands of dollars over five years does not strike me as out of the realm of normal."