Loyola University Chicago School of Law, JD 2019
In January 2018, Warren Buffet, Jamie Dimon, and Jeff Bezos announced that Berkshire Hathaway, JP Morgan Chase, and Amazon would partner together to form a non-profit company aimed at improving the United State healthcare system and combating ever-increasing costs. The idea for the project came about from the ongoing discussion between the three CEOs regarding providing healthcare for their, collectively, approximately 840,000 employees. Even though details are scarce, given the importance of the issue and the prominent names attached to this project, the press, the public, and the market have reacted accordingly. In other words, people are scrambling to figure out what this might mean for their companies and our healthcare system as a whole.
Regulating our healthcare system has become a national problem. We are heavily reliant on either company-sponsored insurance plans or the government for healthcare access. Costs have increased exponentially in the last several decades; healthcare costs are still currently rising faster than annual income. The Affordable Care Act (“ACA”), signed in 2010, was perhaps the most significant effort taken by the federal government to combat this issue, and it did succeed in the slowing the growth of healthcare costs since it was put into effect. In 2017, the federal government eliminated perhaps the most significant portion of the law, the individual mandate. While the other regulatory aspects of the ACA remain in place, this change is projected to cause millions of Americans to lose coverage. The American public and business owners are in need of answers. How can we overhaul our current regulatory system and its current costs, especially when any changes are subject to intense partisan criticism?
The statement from the parties involved acknowledges that they don’t have the answers. But it’s likely that pooling the financial and innovative resources of these companies would be beneficial, and they are confident that a solution does exist. Warren Buffett notes that “the ballooning costs of healthcare act as a hungry tapeworm on the American economy.” Jeff Bezos admits that “hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going require talented experts, a beginner’s mind, and a long-term orientation.” However, outside of the names attached to the organization and the joint statement, there is little information available as to what the organization will do.
Investors Respond to Uncertainty
Top insurance and drug company stocks fell in response to the announcement. Cigna and Anthem dropped over 5%, and Aetna and Humana dropped 3%. UnitedHealth also dropped 3%, and given the size of the company, this drop alone was enough to cause a 300-point decrease in the Dow. Additionally, CVS and Walgreens both dropped more than 4%, and pharmacy benefits manager Express Scripts dropped almost 7%.
The major worry for business owners is that this alliance is the start of big changes for the insurance business. Although the initiative’s short term focus seems to be their own workforces, introducing giant corporate players (Amazon, Berkshire Hathaway, JP Morgan Chase, etc.) could be “more disruptive than Obamacare ever was – or President Trump’s efforts to neuter it.” Some analysts claim the market is overreacting, and that this announcement could just mean the three companies will decide to fund their own employee’s insurance themselves and move the benefit management services to their own offices. Managing employee benefits and remaining compliant with the ACA and other regulations has become an increasingly costly task for employers, especially large employers. If a more efficient system comes out of this initiative, it’s likely to be widely adapted. Other theories include improving the use and integration of Electronic Health Records or eliminating the middleman in buying and distributing drugs and other healthcare products, an idea that Amazon has already floated around.
Additionally, Moody’s vice president Mickey Chadha wrote “considering the regulatory burden around every aspect of healthcare any new entrant in the space is at a huge disadvantage.” Large existing insurance and drug companies already have their own compliance and regulatory programs in place, making it easier for them to negotiate better prices. Companies are only getting bigger. CVS agreed to buy Aetna last year for $69 billion. A new company attempting to enter the healthcare space may find it difficult to remain competitive, particularly with creating a compliance framework from the ground up. However, the parties on board with this new initiative represent some of the largest and most innovative companies in American history, and this realization has already been enough to at least shake up the markets.
In short, Buffett, Bezos, and Dimon will have to succeed where others have failed. Some critics are skeptical about this alliance having any impact. But despite their misgivings, the market’s reaction to the news still shows curiosity, at the very least, of what changes this might bring.