What's going on?
In a somewhat unusual move, corporate titans Amazon, JP Morgan and Warren Buffett’s Berkshire Hathaway are joining forces to launch a new healthcare company (tweet this) catering to their American employees’ medical needs. Interestingly enough, that company will be free from “profit-making incentives,” they say…
What does this mean?
The details are still pretty scant, but apparently the three companies (which employ hundreds of thousands of workers in the US) want to create a tech-focused healthcare provider offering their employees high-quality care at affordable prices. Both Amazon CEO Jeff Bezos and Buffett have argued that American healthcare is too expensive for everyday people and needs shaking up in the interests of the economy and society at large.
To some extent, the partnership makes sense: Amazon has been toying with the idea of bringing its tech savvy to the world of American healthcare, while a crucial part of Berkshire Hathaway’s business deals with the world of private insurance.
Why should I care?
For markets: Investors didn’t like the repercussions for some existing healthcare companies.
As the project potentially threatens to take business away from incumbents, the stock prices of several healthcare companies fell sharply. Express Scripts, which manages pharmaceutical benefits for Amazon employees, dropped 5%, while major American insurer Aetna dropped over 2%. UnitedHealth also saw its shares fall by 4%.
The bigger picture: Ballooning medical costs may be hurting the US economy.
Medical costs in the States have grown faster than the economy for several years in a row, and are expected to pick up even more this year thanks to a number of factors, including more expensive non-generic medicines. Buffett has long decried the impact of high healthcare costs on the competitiveness of American businesses: with employer-sponsored health insurance the norm, firms have been facing bigger and bigger payments to insurance companies (although they’ve passed some of those costs on to employees, too). That money could, the thinking goes, be more productively spent on new jobs or investing in new equipment.