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WellPoint CEO Envisions Custom Health Coverage

Leonard Schaeffer thinks he can fix what’s ailing the sprawling U.S. medical system.

The chairman and chief executive of WellPoint Health Networks Inc., Schaeffer has always been something of a visionary when it comes to health-care policy. And what he foresees now is a new age for insurance in which coverage will be tailored to specific illnesses and individual wants and needs.

The key, he says, is advances in information science, which will allow the medical establishment to determine instantly “how effective this treatment is and whether this treatment is for you.”

That kind of big-picture thinking tends to get lost in the day’s headlines. But it’s a big part of what underlies the $14.3-billion deal announced this week in which Thousands Oaks-based WellPoint agreed to be purchased by Anthem Inc.

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Schaeffer is set to retain the post of chairman in the new company, but he plans to hand over the chief executive reins to Larry Glasscock of Anthem. The new company, which would be named WellPoint, would be headquartered in Indianapolis, not Southern California.

So, is this transaction a graceful way for Schaeffer to step quickly into retirement? Even though the 58-year-old could wind up with a personal net worth of $350 million or more as a result of the acquisition, don’t bet on it.

“I am not going to play golf,” Schaeffer says bluntly.

Rather, he predicts that the new WellPoint, which would come into existence next year if shareholders and regulators approve the deal, is sure to have a major role in shaping a new sort of insurance market. And, he adds, “I might have a role individually” in that arena.

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It wouldn’t be the first time Schaeffer has been a medical maverick. After serving as head of the Health Care Financing Administration in the Carter administration, he took the helm of Blue Cross of California, which he ultimately turned into the profit-making WellPoint.

In his 18 years at Blue Cross-cum-WellPoint, “he was always on the cutting edge of health-benefits plan design,” says Peter Lee, head of the Pacific Business Group on Health, a San Francisco organization that represents big companies in California and the West.

In the 1980s and ‘90s, Schaeffer perfected the art of squeezing costs out of hospital operations and doctors’ practices.

But those old remedies are no longer yielding big savings. Health insurance costs are going up 15% a year again, after growing at a moderate 3% or less in the mid- to late 1990s.

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Meanwhile, more than 40 million Americans lack health coverage -- and the number is rising. As premium costs climb and companies shift more of the burden for health insurance to their employees, the number of uninsured will hit 65 million, predicts Thaine Allison, a Pasadena-based health-care economist. “The middle class,” he says, “is worried about being priced out of health insurance.”

Adds Glenn Melnick, a health-care expert at Santa Monica think tank Rand Corp.: “People will come to know their health benefit premiums as well as they know their monthly rent or mortgage payment now.”

The antidote to runaway premiums, Schaeffer says, is to give consumers and insurers clearer choices as to cost and quality of care. What’s the best place to have knee surgery? In Schaeffer’s world, a database that constantly collects information from health providers all over the country would be able to supply the answer.

In turn, the information would help insurers price policies more effectively, ultimately bringing health-care inflation under control.

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However, getting there won’t be easy -- or cheap. Insurance firms could spend more than $1 billion constructing such data systems, health economists say, and millions of dollars annually keeping them up.

That is one major reason Schaeffer accepted the offer from Anthem. It was a chance to create a firm with a projected $36 billion in annual sales -- the kind of money he would need to make his database a reality before he finally hits the links.

James Flanigan can be reached at jim.flanigan@latimes.com.


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