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Catching Up With . . . Leonard Schaeffer

From Punch Lines and Punch Cards to Public Spirit

by Brooke C. Stoddard '69 


Leonard Schaeffer grew up in Evanston, Illinois. His mother was a social worker and his father a pharmacist; Leonard himself received his Apprentice Pharmacist certificate while still in high school. At the time, suburbs north of Chicago were competing to offer the nation's best high schools, and Leonard attended one: Evanston Township High School. Princeton was looking to attract students more broadly from beyond its core of eastern prep schools; Leonard looked like a good fit.

 

At Princeton, Leonard spent a good deal of his spare time with the Triangle Club, for which he wrote and performed. With some other Triangle troupers he appeared on the television show What's My Line (their secret was that they appeared in a kick line, which they performed). He majored in economics, though he admits he was somewhat at odds with what then was considered the nation's foremost department focused on econometrics, or the approach to economics based on mathematical formulas -- Leonard tended to believe that economic subjects (human beings ) did not always make decisions rationally or even in their best interests. Taking a cue from a course taught by Professor Strayer, he wrote his thesis on the labor aspects of the Model Cities program in Trenton. What time he could spare from that effort senior year he devoted to being president of Colonial Club.

 

"The two best things Princeton did for me," he now recollects, "were 1) I met my wife Pamela, and 2) I applied for and was accepted into a summer internship with Illinois Senator Paul Douglas (photo, right, taken circa Summer, 1966). The former made me happy; the latter sparked an interest in the role of government and policy."

 

As graduation loomed, Leonard was married. He was called by his draft board for a physical but never for induction. Not particularly focused on what he wanted to do or how, he accepted a job offer from accounting and consulting firm Arthur Andersen, which had recruited on campus in the spring of 1969. The job sent him back to Chicago where he worked with some of the first people applying computers – in this case a UNIVAC – to business; Leonard trained in how to program using punch cards. "I learned to think in terms of systems and processes at a time most people were not familiar with information technology," he says. "It was great training for nearly every job I had afterwards, that is working to make large organizations more efficient and to use data for guiding better decisions."

 

The work led Leonard in 1973 to being the head of information technology in the Department of Mental Health for the state of Illinois. He came up with a way for the department to save money and get better clinical results. "No one really knew what I was doing, so they left me alone," he recalls, "and the idea worked!" At the time, the country was suffering economic pains and some states and cities were going broke. In 1975, Leonard was made Director of the state's Bureau of the Budget, thus no longer in charge of eight people but now holding sway over thousands. At least in part due to Leonard’s efforts, Illinois cut its budget and was one of the few industrialized states to keep its triple-A bond rating. Leonard was not yet 30.

 

Thus at a young age Leonard rose to senior positions of a kind in which he would remain for much of his career – large labor-intensive geographically dispersed service organizations. "I was using technology and processes that most people were unfamiliar with, but that could increase efficiency and lower costs," he says.

 

He next went to Citibank, but in 1978 the Carter Administration recruited him to work for Joe Califano, the cabinet secretary of Health, Education and Welfare (HEW, now Health and Human Services). As he departed Illinois, the Chicago Sun-Times ran a headline: "Aging Whiz Kid Leaves State."

 

Califano named Leonard Assistant Secretary for Management and Budget and later put him in charge of Califano's notion for saving the government money: merge Medicare and Medicaid into a single agency. It was a huge job: Medicare came from a Social Security background and measured success in getting the checks out on time; Medicaid came from a welfare background and measured success in delivering health care to people in distress. Put together, the combination would be the nation’s largest purchaser of health services. Leonard saw tremendous rationalization potential and worked as the Administrator of the combination agency – the Health Care Financing Administration (HCFA) -- for three years. Multiple factions were arrayed against him, including a bevy of interests in Congress. Understanding that factions could throw up barriers for years, Leonard waited until an official congressional recess before swiftly ordering a move of both agencies into a combined facility in Baltimore. Protests erupted; layoffs ensued but the move broke down old relationships and forged a new culture and new ways of doing things. The fruits of Leonard's work remain in what is now called the Centers for Medicare and Medicaid (CMS).

 

Califano left HEW in 1979 and Leonard departed soon thereafter to become the COO of the Student Loan Marketing Association (Sallie Mae). "This was interesting work, but I thought not as interesting as health care," Leonard says. "An opportunity came up in 1983 to run a combination financing and delivery system – Minnesota Group Health." He took it and made the plan grow, but he also had bigger ideas.

 

Blue Cross of California was big, and Leonard made the move in 1986 to run it. Indeed, the job was huge; the operation was split between northern and southern California and was losing $1 million a week. Leonard recalls: "Basically, the organization was insolvent; its finances had been mismanaged. It was worth $10 million and had 6,000 employees." This was the largest challenge Leonard had ever faced, and the most agonizing. He combined the north and south entities, initiated automated systems, reorganized the combination, and laid off 4,000 workers -- "the most difficult thing I ever did," he says.

 

But he turned the operation around. He took it from the least profitable Blue Cross in the country to the most profitable. In the process of buying other health plans to fit into the growing non-profit corporation, Leonard established a for-profit subsidiary to raise acquisition capital. Eventually the for-profit subsidiary acquired the non-profit health plan and a 1993 IPO created WellPoint Health Networks, which Leonard guided through significant growth and 17 acquisitions. He worked as chairman and CEO of Wellpoint through 2004. For six straight years under Leonard's hand, Fortune magazine named Wellpoint the nation's "Most Admired Health Care Company." Forbes magazine delivered similar accolades; BusinessWeek blessed Wellpoint and named Leonard one of the "Top 25 Managers of the Year;" and Worth magazine listed Leonard as one of the "50 Best CEOs in America." When Leonard left the company after merging with another health care company, his record was that he had taken the $10 million Blue Cross operation and built it into one worth $60 billion. In addition, as part of the conversion from not-for-profit to for-profit status, five charitable foundations were created and received $6 billion in funding.

 

Leonard never wanted his salary to stand out and instead accepted stock options, which he never sold during his employment on the advice that the public might take it as a sign of corporate weakness. When Leonard retired from the merged WellPoint-Anthem -- now called Anthem, Inc. -- he was comfortably well off. "I got rich by accident," he says.  

 

After turning over the reins of the health care giant, Leonard stayed active in health care policy. He joined the boards of the RAND Corporation (photo, left, taken as Leonard gave the Albert P. Williams lecture at the Rand Corp. in Santa Monica, June 12, 2014), the Brookings Institution and the Board of Fellows of Harvard Medical School, at the latter two endowing chairs in health care policy. He was elected to the National Academy of Medicine and endowed a chair there and one at UC Berkeley.  After joining the Board of USC, he endowed the Leonard D. Schaeffer Center for Health Policy and Economics, which bridges the USC School of Pharmacy and the USC Price School for Public Policy (photo, below right, taken as Leonard gave the Robert Maclay Widney lecture at USC, April 10, 2012).  

 

Still grateful for his own Princeton-aided internship with progressive Senator Douglas, Leonard a few years ago called Jeri Schaefer (different spelling and no relation) at Princeton's PICS and asked if any interns were going to government entities. When Jeri admitted that none were, Leonard volunteered to donate money for interns to do so. He says "Jeri did a terrific job setting this up and placing student interns in local, state and federal government." Leonard thought such placements should be available at other universities to help young people understand the challenges and the potential of government policy. He established the Leonard D. Schaeffer Fellows in Government Service, which now supports internships for 15 Princeton students and 10 each from Harvard, USC, and UC-Berkeley.

 

This is not all Leonard does in support of Princeton. Having at one time administered Sallie Mae, Leonard understands how much tuition debt can saddle students and strongly applauds Princeton's decision to assure that all graduating seniors receive their degree debt-free. Accordingly, Leonard's family has endowed a Princeton undergraduate scholarship program that each year supports eight students – one male and one female in each class (photo, left, shows the Schaeffer Family Scholarship recipients, taken May 5, 2016, at Princeton's Prospect House). He travels to the campus at least once a year to meet with them.

 

Leonard also serves on President Eisgruber's President's Advisory Council, which meets once a year to hash through a designated national or collegiate issue.

 

"I think we should all be grateful for and try to extend Princeton ideals," he says. "I believe in the university's motto: 'Princeton in the nation's service and in the service of all nations.' We ought to be training young people to have a sense of social responsibility, to pay attention to public issues, to keep our country focused on honorable and important pursuits, and to serve with integrity. It's my work now to try to help in that effort."

 

 

 
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