Amazon, Berkshire, JPMorgan Combine to Lower Health Care Costs

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In an announcement Tuesday morning that is roiling health care provider stocks, Amazon.com Inc. (NASDAQ: AMZN), Berkshire Hathaway Inc. (NYSE: BRK-A), and JPMorgan Chase & Co. (NYSE: JPM) said the three firms will establish an independent company “free from the profit-making incentives and constraints” of a for-profit health care company to improve health care satisfaction and lower health care costs for their employees.

Shares of UnitedHealth Group Inc. (NYSE: UNH) were down more than 6%, as were shares in CVS Health Corp. (NYSE: CVS). Aetna Inc. (NYSE: AET) traded down more than 2.5%.

Details are scarce and the management team, headquarters location and operational details of the new company will be revealed as they become known.

Berkshire Hathaway CEO Warren Buffett  said:

The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.

Jeff Bezos, CEO at Amazon, added:

The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty. 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 to require talented experts, a beginner’s mind, and a long-term orientation.

JPMorgan CEO Jamie Dimon gave a bit of scope:

Our people want transparency, knowledge and control when it comes to managing their healthcare. The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans.

The three companies combined employ nearly a million people.

Jefferies analyst Jared Holz told CNBC:

If this winds up being the low cost provider to make insurance more affordable at employer level, it could wind up being a real disruptive competitor to an industry that has not seen any new players in years/decades. Not going to call this [a] black swan event yet because there are few details and would be making too many assumptions but it has potential to be.

One look at the tumbling share prices of some of the country’s biggest insurers underscores Holz’s comment about the potential of the effort.