- Amazon, Berkshire Hathaway, and JPMorgan are teaming up to try to make healthcare more affordable for their US-based employees.
- Americans on average spent $US714 on out-of-pocket healthcare in 2016, up 3.6% year-over-year.
- This post is part of Business Insider’s ongoing series on Better Capitalism.
Amazon, Berkshire Hathaway, and JPMorgan Chase are creating a new business designed to lower healthcare costs for US-based employees in a move that could shake up the managed-care industry.
The companies were not specific about what kind of enterprise they aim to create, noting only that they wanted to improve employee satisfaction while reducing costs, according to a joint release. Still, the news was enough to send shares of managed-care providers lower.
Americans on average spent $US714, or 1.6% of their take-home pay, on out-of-pocket healthcare costs in 2016, according to a report from JPMorgan. That was up 3.6% from the year before and up 13.5% from 2013. The bank also found that the US spent 18% of gross domestic product on healthcare, up from 13% in 2000.
Healthcare has been a focus of Warren Buffett
The rising cost of healthcare has been a focus of Berkshire Hathaway’s chairman and CEO, Warren Buffett, and his partner Charlie Munger for some time. In May, the pair criticised the healthcare system and suggested that a single-payer healthcare system in the US could be the long-term solution.
Buffett and Munger also lavished praise on Kaiser Permanente, a large managed-care consortium. Kaiser Permanente is made up of multiple branches to handle a variety of healthcare needs and operates its health plans on a not-for-profit basis, with a mix of for-profit businesses and health centres mixed in to help subsidise the other parts of the group.
Tuesday’s announcement was short on details, but given the Berkshire partners’ praise of Kaiser Permanente and the stated goals of the new group, the Berkshire-JPMorgan-Amazon healthcare business could take a similar approach.
‘Healthcare at a reasonable cost’
The companies, which employ a combined 1.1 million people worldwide, plan to create a new, independent company they say is “free from profit-making incentives and constraints.” Initially, the release said, it will focus on technology solutions designed to “provide US employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.”
“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” Buffett said in a statement. “Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”
The new initiative will be led by Todd Combs, an investment officer of Berkshire Hathaway; Marvelle Sullivan Berchtold, a managing director of JPMorgan Chase; and Beth Galetti, a senior vice president at Amazon.
Managed-healthcare stocks are getting hit
Amazon’s forays into new sectors can erase billions of dollars of competitors’ market value in a short time as investors fear its ability to shake up an industry, given the company’s abundance of resources.
This dynamic was in play Tuesday, with shares of managed-healthcare companies and pharmacy providers falling. The moves were as follows (all prices premarket as of 8:20 a.m. ET):
- Express Scripts (-6.6%)
- MetLife (-6.3%)
- Cigna (-5.8%)
- CVS Health (-5.5%)
- Anthem (-5.3%)
- Humana (-4.9%)
- Walgreens Boots (-3.6%)
- McKesson (-2.5%)
- Aetna (-2.5%)
- HCA Healthcare (-1.7%)
Joe Ciolli and Bob Bryan contributed reporting.