The New York Times
October 28, 2003
Acquisition Would Create Nation’s Largest Health Insurer
By Milt Freudenheim
In a marriage of Blue Cross giants, Anthem Inc. agreed yesterday to buy WellPoint Health Networks for $16.4 billion in stock and cash, creating a company that would be the nation’s largest health insurer, with 26 million health plan members in 13 states.
Anthem and WellPoint were pioneers in converting Blue Cross plans into for-profit companies…
WellPoint’s chief executive, Leonard D. Schaeffer, who created the company on the foundation of a successful turnaround of Blue Cross of California, will hand the reins to Larry Glasscock, Anthem’s chief executive.
Mr.Glasscock, 55, will be president and chief executive of the new company, and Mr. Schaeffer, 58, a former government health care official, will be chairman.
Mr. Schaeffer’s WellPoint holdings – 3.3 million shares, according to a Securities and Exchange Commission filing last month – jumped in value by more than $70 million yesterday, to over $300 million. He would also receive $27.5 million under a change-of-control clause in his contract and about $10 million more in executive retirement benefits, according to the WellPoint proxy and other filings.
Comment: When the deal is approved, besides the payouts listed, Leonard Schaeffer will receive 3.3 million shares of the combined company, WellPoint
Inc., plus an additional $78 million in cash. His total reported gain, not including his high salary, will be $116 million in cash plus the 3.3 million shares of WellPoint Inc., valued at about $257 million, for a total of $335 million. In spite of all of the other rhetoric, this one-third of a billion dollars is precisely why Leonard Schaeffer led the conversion of California Blue Cross into a for-profit insurer, establishing WellPoint as the parent company.
Although many become angry at the thought that these are funds that should
be going to health care, several economists point out the fact that these funds come from the shareholders who own the companies. They credibly contend that Wall Street investors rather than patients are footing this bill. But what is the traditional method of establishing the price per share? It’s the price-earnings ratio. Those earnings would be patient care funds in a public insurance program. And, of course, earnings are increased by hiking prices (premiums) and by reducing expenditures (health care benefits). Leonard Schaeffer’s wealth was gained by sacrificing value that would have accrued to purchasers and patients (insurance beneficiaries).
Social insurance anyone?