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Amazon, Chase, and Berkshire Hathaway Launching Health Insurance Company for American Employees

by Precise Leads

February 8, 2018

Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. hope to lower healthcare costs by forming their company.

In an announcement that shook the healthcare industry, Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. have formed a partnership to explore ways to reduce healthcare costs for their U.S. employees. The three major companies employ a combined 1 million workers and have a market capitalization of $1.6 trillion.

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,”  Berkshire Hathaway Chairman and CEO Warren Buffett said in a statement. “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 announcement stated that the effort is in the “early planning stages,” but three executives have already been tabbed with leading the project: 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. It added that more details about a longer-term management team, the location of the company’s headquarters, and the company’s operations would be forthcoming.

Technology Key to Partnership

Although the announcement was brief, several analysts have speculated that the partners will focus on technologies that can make the patient healthcare process simpler. “Each of those companies has extensive experience using transformative technology in their own businesses,” John Sculley, former chief executive of Apple and now chairman of a healthcare startup, RxAdvance, told the New York Times.

Idris Adjerid, management information technology professor at the University of Notre Dame's Mendoza College of Business, agreed, telling CNBC that Amazon’s technological expertise in particular could be transferred into the healthcare industry via data-sharing platforms and artificial intelligence. “We find that technology initiatives which facilitated information sharing between disconnected hospitals resulted in significant reductions in healthcare spending," Adjerid said.

Adjerid added, however, that the partnership may need to include more than the three companies for technology to make a significant impact on healthcare delivery.

The Amazon-Chase-Berkshire Hathaway union isn’t the first time major corporations have banded together to tackle rising healthcare costs, which Mercer reported will climb 4.3% on average in 2018. International Business Machines Corp., Berkshire’s BNSF Railway, and American Express Co. founded the Health Transformation Alliance that now counts 40 companies among its ranks as well as industry partners CVS and UnitedHealth Group Inc.’s OptumRx.

“Our members’ balance sheets speak for themselves — healthcare is a growing cost at a time when other costs are either not rising or falling,” Robert Andrews, Chief Executive of the Healthcare Transformation Alliance, told the New York Times.

A Kaiser/HRET Survey of Employer-Sponsored Benefits bears out that assertion. It found that the average annual premium for family coverage soared to $18,800 in 2017 from $6,400 in 2000.

Industry Reaction

After the announcement, shares of several healthcare companies including Express Scripts Holding Co., CVS Health Corp., Cigna Corp., and Anthem Inc. tumbled, an occurrence that didn’t surprise some analysts who termed the partnership of three powerful companies as yet another sign of disruption in the healthcare marketplace. The merger between CVS Health and Aetna, Inc. — a retail chain and a traditional insurer — indicates that healthcare providers are seeking new ways to deliver patient care in a rapidly transforming marketplace.

“If this winds up being the low cost provider to make insurance more affordable at employer level, it could wind up being a real disruptive competitor to an industry that has not seen any new players in years," Jefferies Analyst Jared Holz told CNBC.

Other analysts were not so sure that the partnership would wield much bargaining power with healthcare providers, nothing that UnitedHealth Group, Inc. manages or provides health insurance for roughly 30 million employees. “The idea that they could have any sort of negotiation leverage with unit cost is a pretty far stretch,” Sam Glick, a partner at management consulting firm Oliver Wyman, told the New York Times.

Although the partners stated that their healthcare venture will only cover their own employees, the move could signal Amazon’s potential encroachment into the healthcare industry, including its rumored entry into the pharmacy management business. “It could be big,” Ed Kaplan, National Health Practice Leader for the Segal Group, told the New York Times. “Those are three big players, and I think if they get into healthcare insurance or the healthcare coverage space, they are going to make a big impact.”

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