Amazon makes health care costs its next world to conquer
Jeff Bezos and Warren Buffett partner with JPMorgan to create a health care system using tech for their workers. It may set an example for the rest of us.
Ben Fox Rubin, Richard Trenholm
Jan. 30, 2018 8:34 a.m. PT
Amazon plans to improve health care for its employees.
Ben Fox Rubin/CNET
Amazon CEO Jeff Bezos is diving into health care, along with two powerful partners.
The world's biggest internet retailer on Tuesday announced plans to team up with Warren Buffett's massive conglomerate Berkshire Hathaway and banking titan JPMorgan Chase, led by Jamie Dimon. The trio are forming a new independent venture focused on handling health care for the hundreds of thousands of US workers their companies employ. The yet-to-be-named company aims to reduce costs and provide simplified health care to workers with the help of technology, and will be "free from profit-making incentives and constraints."
"The ballooning costs of health care act as a hungry tapeworm on the American economy," Buffett, CEO of Berkshire Hathaway, one of the most valuable holding companies in the world, said in a statement Tuesday. "Our group does not come to this problem with answers. But we also do not accept it as inevitable."
The new venture -- once it gets going -- could have a significant effect on many other workers and their families. Bezos, Buffett and Dimon have the potential to shake up the current complex and costly US health care system, particularly if they're able to rein in expenses from insurers, hospitals and doctors. But even with all that brain power, that's still a big if.
The ballooning costs of health care act as a hungry tapeworm on the American economy.
Warren Buffett, CEO, Berkshire Hathaway
"It could be big," Ed Kaplan, who negotiates health coverage for big companies at the Segal Group, told The New York Times. "Those are three big players, and I think if they get into health care insurance or the health care coverage space they are going to make a big impact."
The Obama administration tried to bring down health care costs with the Affordable Care Act -- also known as Obamacare -- but results have been mixed, with premiums in some state marketplace plans increasing. Whether Amazon and its partners can find more success in making changes to employee plans -- an area that was less affected by Obamacare -- remains to be seen. The employer-sponsored health insurance market covers about 160 million Americans, with health care premiums typically split between companies and their employees, the Washington Post noted. Costs for those premiums are growing much faster than wages, the paper said.
Cowen analyst Charles Rhyee said Tuesday the venture "doesn't appear to break any new ground."
"Better outcomes and lower costs could be the mission statement of most of health care today," he said, "and it's certainly a challenge that hasn't been solved."
What the new company may do, though, is offer a beachhead for Amazon to break into health care and prescription drugs, areas Bezos has been rumored to be pursuing over the past few months. Amazon has been working itself into customers' lives over time and this effort enables it to expand the services it offers, said Danny Silverman of e-commerce data provider Clavis Insight. That list already includes retail, groceries, streaming video, smart speakers and cloud storage.
"They are playing for the entire ecosystem that surrounds shoppers and consumers, and in doing so, must have a stake in every key area of that ecosystem," Silverman said. "With health care, they capture the next, most valuable layer of the ecosystem -- the system that keeps us well and healthy."
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There's still a lot to be sorted out beyond the broad goals, and the companies didn't provide many details about how it will all work. What we do know is the new venture is in the early planning stages and will be jointly run by a leader from each of the three companies. The management team, the headquarters' location and key operational details will be announced later. Amazon is based in Seattle, while JPMorgan, the largest bank in the US, is in New York City and Berkshire is in Omaha, Nebraska.
Those meager details, though, were enough to contribute to a selloff in shares of insurers like UnitedHealth and drugstores like CVS. Amazon, which has a history of disrupting established markets, prompted a similar reaction when it agreed to buy Whole Foods last year, driving down shares of rival grocers including Kroger and Costco.
Right now, the focus for Bezos and his partners seems to be on setting direction and grabbing attention.
"The health care system is complex, and we enter into this challenge open-eyed about the degree of difficulty," Bezos said in a statement. "Success is going to require talented experts, a beginner's mind, and a long-term orientation."
First published Jan. 30 at 4:51 a.m. PT.
Update, 7:49 a.m. PT: Adds more details throughout, along with analyst comment.
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