America's health-care system is a mess. Can three billionaires save it?
Jeff Bezos' Amazon (market capitalization: $693.2 billion), Warren Buffett's Berkshire Hathaway (market capitalization: $530.5 billion), and Jamie Dimon's JPMorgan Chase (market capitalization: $399.8 billion) are teaming up to create an independent company that will provide health care for the three mega-companies' roughly 1 million combined employees. Details remain sketchy. But the news still sent shockwaves through the market. Can these titans of finance and technology revolutionize the way Americans get health care?
We don't have much to go on so far. But it sounds like the new company would combine the functions of an insurer and a provider. Employees would either pay this new company premiums — or have the premiums taken out of their paychecks — and get health coverage from the same company in return.
Berkshire-Amazon-Chase wouldn't be the first to pursue this model. Kaiser Permanente does something similar. And CVS's recent purchase of Aetna points in that direction as well.
This model has a lot of potential. So much of our health-care system is fractured. We bounce between different primary-care doctors and specialists and insurance systems. They have to share information on our medical history, our care, our meds, and more. It's complicated and frustrating. Lots of things fall through the cracks.
Bringing the roles of insurance and care provision under the same roof allows for better coordination. "The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality, and transparent health care," as the press release said. You could imagine this leading to more preventative care, better treatment of chronic conditions, in-home and follow-up care, electronic record-keeping, user-friendly internet consultation, and more.
But would any of that actually lower the cost of care? For instance, despite how often it gets touted, there's not a lot of evidence that more preventative care would be a big money-saver.
That doesn't mean preventative care and the rest aren't worth pursuing. They'd lead to healthier Americans with better quality of life. It's just that talk around reforming costs often assumes that bad consumption habits are to blame. We use too much health care, or we use it poorly. There's some truth to this. But not enough to explain why America spends a vastly larger share of its GDP on health care for no discernible edge in outcomes.
The big problem with American health care is really prices. Compared to other countries, medical devices, drugs, and even doctors' pay are all super expensive in America. This is a failure of market leverage. Over the last few decades, providers have been able to bid these prices into the stratosphere, and no one's had the power to bid them back down. If Buffett, Bezos, and Dimon want to really fix American health care, they need to figure out how to lower prices — and better technology or coordination alone won't do it.
Berkshire Hathaway, Amazon, and JPMorgan Chase employ a combined one million people. That seems like a lot of customers — except that major insurers like UnitedHealth Group, Aetna, and Anthem already have customer bases that are many, many times larger. And they haven't been able to cut drug or device prices.
Theoretically, Bezos and Co.'s new group still should have enough scale to at least try and bargain down medical device and drug prices. The "everything in house" model might also help. The company could pay its doctors and providers on a salaried basis rather than a fee-for-service one, and they could expand into more use of nurse practitioners.
But there are limits. The country needs more doctors, and licensing can constrain the supply. That will put a real cap on how much Berkshire-Amazon-Chase can bargain down pay.
Lots of reports noted that the new health-care company will be nonprofit. That might help at the margins, but the real question remains whether it can find a way to control costs.
The underlying irony to all of this hubbub is that the very arguments being deployed in favor of this new health-care company are also the arguments for "big government" solutions. After all, if you want scale to negotiate prices, no one's bigger than the government bargaining for the entire American population.
But for the moment, big government solutions are off the table. Let's see what Buffett, Bezos, and Dimon can achieve by joining forces.