Healthcare

Amazon is Creating its Own Healthcare Provider

Written by SK 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.