Amazon is Creating its Own Healthcare Provider

JM Ashby
Written by JM Ashby

Healthcare stocks tumbled this morning for a very good reason.

Amazon has announced that it has partnered with JP Morgan and Warren Buffet's Berkshire Hathaway to create a new health care company for their own employees.

If we take their stated intentions at face value, they're doing this for one simple reason: the cost of health care in America is ridiculous and providing health care for their employees isn't getting any cheaper so they're taking control of their own destiny.

The independent company will be “free from profit-making incentives and constraints,” they said. It will initially focus on technology to provide “simplified, high-quality and transparent healthcare” at a “reasonable” cost for its more than 500,000 employees in the United States, they said. [...]

The plan, currently in the early stages, will be spearheaded by Berkshire investment officer Todd Combs, JPMorgan managing director Marvelle Berchtold and Amazon senior vice president Beth Galetti.

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” said Berkshire Hathaway Chairman and Chief Executive Officer Warren Buffett. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”

I have wildly mixed feelings about this.

If these companies believe they could lower the cost of health care by providing it themselves instead of contracting a middle-man, creating their own provider makes perfect sense. If they control the provider, they can control prices. Amazon can use its enormous bulk purchasing power to lower the cost of drugs.

That all makes sense, but this also offers a troubling vision of the future of access to health care in America.

The fact that we tie health care to employment in this country creates problems, but in the future affordable coverage could also be tied to employment at specific companies.

Those fears may be overblown, and so could the anticipated benefits of creating their own provider, but this is uncharted territory so we don't know what's going to happen.

There's at least one part of this that I find very amusing. It's amusing to see massive insurance industry providers like UnitedHealth Group, which saw its market value drop by $19 billion following Amazon's announcement, sleeping in a bed of their own making.

We may never have a single-payer health care system in this country, especially not if the insurance industry has anything to say about it, but that doesn't mean the insurance industry as we've known it will always be the dominant force in health care. Their arrogance and piss-poor management could still get the best of them if Amazon's new venture is successful and if more companies follow their lead.

The industry was anticipating that Amazon would start its own pharmacy business to sell prescription drugs, but I don't think anyone anticipated this.

The cost of health care in America is a choke-collar around the entire economy and while Obamacare did reduce growth is health care spending, the problem is very far from solved. Republicans in Washington are also doing everything they can to reverse the gains made under Obamacare.

  • muselet

    I had low expectations for this initiative when I first read about it this morning. My expectations fell further when I heard a snippet of a report this afternoon that said one of the first things planned was “a sort of dashboard” for employees to track their healthcare expenditures. Yeah, that’ll help.

    Hello, employee SMITH, ROBERT SAMUEL. You have used your health insurance 62% more than the average for people in your employment tier.

    Our records indicate you have a history of TYPE 1 DIABETES, but that is no excuse being a drag on your fellow employees. We recommend you make lifestyle changes, and have made an appointment for you with the company HEALTHCARE ECONOMIST to discuss what you can do to improve your condition.

    I do hope I’m wrong, but at best this will be three companies with no expertise, experience or specialized knowledge picking away at the edges of the problem before they throw up their collective hands.

    The pong of failure is already heavy on this plan. (Again, I hope I’m wrong.)


    • JMAshby

      The way I read it, that’s just the first thing they’re doing. It’ll take years to establish a system.

      Like I said, there may not be as many benefits as it appears at face value. We’ll see how far they take this. Bloomberg’s analysis is that creating their own system will be very difficult but the potential for disruption in the industry is very high.

      • muselet

        Kaiser Permanente started out to change the way healthcare insurance was paid for in the 1930s. KP’s focus has always been on preventive medicine and patient education, which is what it sounds a lot like Amazon/JP Morgan/Berksire Hathaway want to do.

        Problem is, every healthcare organization in the country is also doing exactly that already. And since, as I say, these are three entities with no specialized knowledge, they’re likely to spend a lot of time faffing about and reinventing the wheel six or seven times.

        I could well be wrong (not to mention excessively cynical), and I wish them all the luck in the world, but it’s hard for me to believe that three companies that know sod-all about healthcare are going to manage to do much. If I’m wrong, I’ll be a happy man.


        • Badgerite

          Businesses deciding to self insure in other areas is not all that out of the ordinary.
          This is just a step beyond in that it sounds as if they are planning to establish their own system of healthcare providers and cut out the insurance middleman that way. Quite a few companies, manufacturing plants, etc, have health providers on site. They just cover the expense through insurance plans. I think this just cuts out the insurance plans part. This is my guess, anyway.
          Quite a few companies already focus on the health of their employees as affecting their own bottom line in terms of insurance costs and lost time already.

          • muselet

            These three companies may be able to use their size—500,000 employees gives them a lot of leverage—to negotiate favorable terms with insurance companies, which will help them but won’t disrupt or transform anything.

            Alternatively, they could self-insure—effectively, reinvent Kaiser Permanente—in which case they save some money for themselves but won’t disrupt or transform anything.

            Focusing on wellness and preventive care is all well and good, but that is, as I said before, what KP has focused on for 80+ years. Again, I don’t see any disruption or transformation.

            I admit I’m responding to the over-the-top, This Changes Everything! coverage I’ve seen rather than a (currently nonexistent) plan. I also admit, not for the first time, that I may doing more than merely managing expectations. Time will tell.


        • David Greenberg

          Next to organized religion, the healthcare insurance industry in the US is a boondoggle of enormous proportions. As a retired dentist and a frequent patient myself I have seen this system at its worst. These companies simply move cash from one place to another while raking off a gigantic percentage and trying to deny patients benefits and procedures. Physicians and dentists have taken in many instances to calling for and doing unnecessary procedures to maximize profits. In effect health insurance companies produce nothing and provide no useful services. We are the only country in the industrialized world where healthcare is a major profit center. Single payer would eliminate the health insurance industry as it exists today and good riddance. I do believe that the companies involved in this effort Ashby has reported are capable of enlisting the necessary smart people to help them get up and running quickly. The problem as I see it is that these powerful companies and smart people would serve the country better by using their influence to get single payer in place and this effort will only defer the inevitable. I have never been a Bernie Sanders fan, but about this issue he was dead right.

          • muselet



          • Badgerite

            The health insurance industry is there to ration care based on wealth. The system is designed to provide healthcare to a majority of people, but as few of them as possible.

  • Aynwrong

    The free market screwed over by the free market. Amusing indeed.

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  • Badgerite

    Can’t blame them. Immigrants and taxes my ass. The biggest drag on the competitiveness of American business has always been our overly expensive healthcare system that relies on businesses to pay whatever the healthcare industry and insurance company middlemen decide. We are always at a competitive disadvantage because we don’t have Medicare for All. Or some facsimile thereof as most other industrialized nations do.