Disintermediation.
That’s why.
The U.S. military does it (VA hospitals), so why not?
These three companies employ 1 million people and spend approximately $8.4 billion annually for employee healthcare. Of that number approximately $500 million is the net paid to insurance companies—net of any healthcare spending.
What kind of healthcare system could $500 million (annually) buy?
Apparently, we’re about to find out.
Disintermediation
Disintermediation means eliminating the middle man. In healthcare that pretty much means the health insurance company.
Together, Amazon, Berkshire Hathaway and JP Morgan are charged about 5.9% of their total $8.4 billion in annual employee health care spending by insurance companies for the service of administering healthcare purchases.
That is $500 million annually which could go towards funding an in-house, comprehensive health care service for 1 million employees.
On Tuesday January 30, these three companies announced that they were forming an independent health care company to serve their employees in the United States.
They said that they would initially focus on technology to provide simplified, high-quality health care for their employees and their families, and at a reasonable cost. The initiative is in the early planning stages but would be a long-term effort and would be free from profit-making incentives and constraints.
Well…also $500 million in potential annual savings.
This joint venture may be designed to be no more than a break even enterprise, but each participant could realize significant savings.
Too Much Power at the Health Insurers?
Over the past five years, health insurers have been consolidating at a record pace. The American Medical Association (AMA) has opposed the largest of these prospective mergers since they would, in their view, create virtual monopolies in numerous health care markets.
For example, the proposed merger of Aetna and Humana would have created an 88% market share in Kansas, an 80% market share in West Virginia, 58% in Iowa and 51% in Missouri.
Healthcare providers, who must negotiate with the health insurance providers were horrified. An 88% market share in Kansas essentially eliminates any bargaining power for hospital chains, the state of Kansas and certainly the large, consolidated orthopedic companies like Synthes/DePuy, Zimmer/Biomet, Stryker and so forth.
More recently pharma retailer CVS Health announced a deal to buy health insurer Aetna for about $69 billion.
