Amazon, Berkshire Hathaway and JPMorgan Chase sent shockwaves through the health insurance industry on Tuesday by announcing that the three giant companies will partner on ways to address healthcare for their U.S. employees.
The announcement led to a classic knee-jerk reaction on Wall Street, with health insurer stocks tumbling on Jan. 30. UnitedHealth, Aetna and Humana each fell 3%, while Anthem and Cigna fell more than 5%. It extended to CVS and Walgreens, which each fell more than 4% as well. None made up much if any ground on Wednesday. (And Amazon’s recently rumored entry into the pharmacy business has already rattled major drug companies and distributors.)
Are investors right to panic at the prospect of three such high-profile companies (and CEOs) partnering together to create what could become essentially their own private health insurance company? And if it works, would it be quickly be opened up to other companies?
When people think of companies disrupting industries, Amazon is usually the first word mentioned as a master of innovation, distribution and cost-cutting. Add in JPMorgan Chase with its expertise in regulatory issues and banking and Berkshire Hathaway’s experience (Geico) in the property and casualty insurance, and it’s hard to discount this new partnership’s potential to create real disruption. That’s a whole lot of scale and complementary expertise – not to mention the track records of Amazon CEO (and “World’s Richest Man” – ever!) Jeff Bezos, Berkshire Hathaway Chairman and CEO (and Oracle of Omaha) Warren Buffett, and JPMorgan Chase Chairman and CEO (and fellow billionaire) Jamie Dimon.
The joint announcement said the aim of the venture is improving employee satisfaction and reducing costs. Very notably, the three companies said in a statement they will pursue this objective through an independent company that is free from profit-making incentives and constraints. The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.
By bringing together three of the world’s leading organizations into this new and innovative construct, the group says they hope to draw on their combined capabilities and resources to take a fresh approach to critical matters. All three CEOs provided quotes as part of Tuesday’s announcement:
- Buffett: “The ballooning costs of healthcare act as a hungry tapeworm on the American economy. 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.”
- Bezos: “The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty. Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”
- Dimon: “Our people want transparency, knowledge and control when it comes to managing their healthcare. The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans.”
The effort is still very much in its early planning stages, with the initial formation of the company jointly spearheaded 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. The longer-term management team, headquarters location and key operational details will be announced at later dates.
Danielle Cripps, insurance analyst at leading data and analytics company GlobalData, said the scope could very well expand to partner with other employers in the U.S. market. “This would provide a major competitive threat to other U.S. healthcare providers, which has already been confirmed by their shares dropping in value following the announcement,” Cripps said.
Amazon, Cripps notes, may also look overseas. In late 2017, Amazon was recruiting insurance professionals in London to join a new team looking to disrupt the insurance market in the UK, Germany, France, Italy, and Spain.
“If Amazon establishes itself in the insurance market, it will not be long before other alternative providers follow suit. Apple is already a partner with Vitality in the UK, with the pair receiving press for their offer allowing Vitality customers to receive the newest Apple Watch at a discounted price,” Cripps said. “Apple has also updated its health app, enabling U.S. customers to see their medical records on their phone. This could signal a potential move into the healthcare space.
“Alternative providers are highly influential brands, have masses of consumer data and resources, and are known for providing exceptional customer experiences – all of which makes them a significant threat to the insurance industry,” Cripps said.
So – thoughts on how this could impact the health insurance market in coming years? Is it – as Yale Assistant Professor and Health Economist Zack Cooper (@zackcooperyale) tweeted, “a bit like Mayo Clinic, Cleveland Clinic, and Partners Health coming out and saying they don’t like their computers so they’re going to form a new IT company”?
Or perhaps more like Bill McEwen at GV Wire’s take: “It isn’t a tapeworm — either real or metaphorical — that is making the health-care kingpins sweat. It’s the prospect of Buffett, Bezos and Dimon successfully shaving costs and improving outcomes for their employees and then taking what they learn into the entire U.S. market.”
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