Even with their combined brainpower, resources, and a U.S. employee base of 1 million people, the new partnership formed by Amazon, Berkshire Hathaway, and JPMorgan Chase will have a tough time curing the persistent ills of the $3.3 trillion U.S. health care industry. But the size of the target—with health care accounting for 18 percent of domestic GDP—is too large for these three world-class organizations not to try to disrupt the system, if only to wring some cost savings for their employees.
Controlling costs will be a monumental task, given rising health care consumption, the aging population, and increasing number of chronic diseases and conditions. The harsh reality in health care is obesity, poor diets, and lack of exercise are major risks. Greater technology usage also adds to skyrocketing costs. It’s expensive, and the reality is that, by extending life expectancy, the technology also adds to higher costs for health care as people live into their 80s and even 90s and beyond.
For three companies with the will and good intentions, but no expertise in health care delivery, these challenges could prove to be insurmountable.
Yet there is a void in health care now that the Affordable Care Act, after numerous repeal attempts, has been largely undermined by the new tax legislation, which reversed major provisions of the health care reform law.
A joint announcement by the companies gave few details about the partnership’s new entity, described as being in the early planning stages, other than it will be an independent company “free from profit-making incentives and constraints.”
While the partnership is unlikely to set off a gold rush among other organizations, its developments will be closely watched to see if it can, as promised, deliver “U.S. employees and their families with simplified, high-quality and transparent health care at a reasonable cost.” Any progress in achieving that lofty goal will likely involve a model that could be relatively easy to replicate—and plenty of large employers could similarly band together to implement initiatives.
News of the partnership and the potential that its solutions could scale elsewhere were enough to send shock waves through the health care sector, with the market value of 10 large, publicly traded health insurance and pharmacy companies losing a combined $30 billion—on a day when the overall stock market sold off sharply.
But even with the leadership firepower behind this new venture, health care is an extremely complex problem to fix. In the joint statement, Amazon’s Jeff Bezos acknowledged that “we enter into this challenge open-eyed about the degree of difficulty.” Berkshire’s Warren Buffett added: “Our group does not come to this problem with answers. But we 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.”
Employers and employees alike are seeking ways to improve health and wellness for individuals and to lower the cost of providing health care in the U.S. It’s also a competitive issue. With health care closing in on 20 percent of GDP, the U.S. is less globally competitive. In contrast, health expenditures in Germany, the Netherlands, France and Sweden account for about 11 percent of their GDPs. In Japan, health care is about 10 percent of GDP.
Any progress in reining in health care expenditures would be a huge positive for Amazon, Berkshire Hathaway, and JPMorgan Chase internally as they manage health care costs for their employees and dependents. And given Amazon’s massive reach to consumers in every demographic in the U.S., and its appetite to expand (reportedly, it has been looking at pharmaceuticals), health care is an obvious target. But making the first inroads will prove whether this is only good intentions or a plan that can yield real actions and results.
This Op-Ed first appeared in Crain’s Chicago Business here followed by Harry’s LinkedIn platform here.