Three huge and influential employers, Amazon, Berkshire Hathaway and JP Morgan Chase, announced Jan. 30 they were partnering to create an independent company aimed at reining in health-care costs for their U.S. employees.
There were almost no details available about what the company would do or how it would use technology to disrupt and simplify the complicated fabric of American health care. But there’s no doubt that the companies, which collectively employ more than 1 million workers worldwide, have a real interest in ratcheting down their spending on health care. Health-care premiums are split between employers and employees and have been growing much faster than wages.
Major health company stock prices tumbled on the news, and the announcement stirred excitement — and questions — about how the three companies could bring their clout to containing costs in the massive employer-sponsored health insurance market, which provides coverage to approximately 160 million Americans.
According to a survey of employer health benefits, health insurance premiums have been rising faster than wages. Between 2012 and 2017, workers’ earnings grew by 12 percent, while premiums went up by 19 percent. Between 2007 and 2012, premiums increased twice as fast as workers’ earnings.
The announcement comes amid rampant rumors and anticipation that Amazon could disrupt health care as it has in other industries, particularly in the business of selling prescription drugs.
A person at one of the companies who is familiar with the matter said that this is day one of the joint venture and that specific plans will take shape over time. The person said that the joint venture is not currently expected to be a new health insurance company or a hospital or a pharmaceutical company, but a company that can bring technology tools to bear on making health care more transparent, affordable and simple. The person warned that could change.
“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,” Warren Buffett, Berkshire Hathaway chairman, said in a statement.
This isn’t the first time big employers have tried to tackle health-care costs. Two years ago, 20 major companies including Verizon, American Express, IBM and Shell Oil joined in a Health Transformation Alliance to improve the way health care is purchased for employees. Mercer, a human resources consulting firm, runs several collectives of employers that join forces to purchase prescription drugs, using the extra leverage from having a larger group to wring better prices.
Amazon, with 541,900 employees globally as of October, is known for transforming industries. For months, rumors that it could enter health care have sent shudders through the stock prices of companies whose business models might be threatened. Some see the biggest health-care deal in years—a merger between CVS and Aetna announced last year — as partially fueled by the threat that Amazon could start selling drugs.
Amazon, already one of the country’s largest employers, has been expanding. Last year, the company announced plans to hire 50,000 warehouse workers, staging a one-day blitz dubbed “Amazon jobs day.” The company is also scouting sites for a second North American headquarters, where it plans to employ as many as 50,000 full-time workers, many of them in high-paying office jobs.
Berkshire Hathaway is an Omaha-based conglomerate employing approximately 367,700 employees across a variety of industries including insurance, candy manufacturing, electric utilities, newspapers, fractional jet ownership, ice cream, bricks and furniture. Its longtime chairman, Buffett, said last year at his shareholder meeting that health-care costs were a bigger impediment to American competitiveness than taxes.
“Medical costs — which are borne to a great extent by business — have gone from 5 percent to 17 percent” of the economy since 1960, Buffett said. “Our health costs have gone up incredibly and will go up a lot more.”
The holding company is one of the most valuable in the world, as measured by market capitalization. Berkshire Hathaway earned $24 billion in net profit in 2016 and has more than $100 billion in cash on hand.
JPMorgan Chase is the largest bank in the country with more than $2 trillion in assets and what its chief executive, Jamie Dimon, calls a “fortress” balance sheet. It is unclear what specific expertise the bank will bring to the effort, but the company has a lot at stake in reining in health-care spending. The company last year spent $1.25 billion on medical benefits for 300,000 U.S. employees and family members.
As the head of the powerful Business Roundtable, Dimon emerged as one of the most vocal and visible chief executives pushing for changes to the corporate tax code last year. But he has not spoken as often or as forcefully about the problems in the health-care system, mentioning it only briefly in his annual letter to shareholders last April.
“Our nation’s healthcare costs are essentially twice as much per person vs. most other developed nations,” Dimon said.
The independent company would be jointly led by executives from all three companies, although a chief executive has not yet been announced. It will be free from the need to deliver a profit. 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 will manage the company in its early stages.