Amazon Health
stratechery.com
stratechery.com
The goal will be keep the cost of insurance the same for the employees, while eliminating the cost for the companies entirely, which is why this will take off.
It’s crazy to have employers paying for healthcare, this I believe will be the beginning of the end of employer paid healthcare. It won’t happen overnight but it will go fast because every employer wants to drop that overhead cost.
Considering the three companies have about 1M stuff in total, that represents ~$20B in annual recurring costs.
This effort combined with accelerating automation will lead to a much better capital:labor cost ratio (and, depending on who you ask, reduction in labor costs is massively bad for wealth equality).
About 10-25% of this is what employees pay as their part of the premium normally, the rest is employer paid. Stingier companies cover 75% of the employee cost and 50% of dependents cost.
http://www.ncsl.org/research/health/health-insurance-premium...
"According to the KFF 2016 survey, the average family coverage premium is $18,412 per year and single coverage is $6,435 per year."
https://www.groupmgmt.com/blog/post/2017/09/05/How-Group-Hea...
BTW, I think that the 19k/year is not representative of very large companies, which usually negotiate better terms. Still, your point stands.
https://kaiserfamilyfoundation.files.wordpress.com/2016/02/8...
So I don't think your premise is realistic. These billion dollar companies self insure and Buffet's companies offer reinsurance for the most costly million dollar claims. Even though they self insure, they will pay a company like Cigna a percentage to manage the claims and get access to their negotiated prices. All I can think of is that this is a play to get Cigna and other insurance companies to lower their management fees.
Companies have to offer insurance and pay it because no one will work for them otherwise. And companies of a certain size have to offer health care by law so it's not going away.
If you remove the profit motive prices will drop down towards something more reasonable, in this situation it's not unreasonable to expect that the system could be maintained with employee premiums.
The cost of initialisation of services will be huge however, it will be interesting to see how they spread it out - they may bear the costs for now, and seek to recoup them providing excess capacity for service to other companies.
Being largely for-profit is part of the problem with healthcare in the United States, but plenty of other countries have privatized healthcare that works, Japan being the first that comes to mind.
The difference being that, in the US, the long-term dysfunction of our political system has allowed the regulatory framework for healthcare to be built to service its own industry, rather than the needs of individual citizens or society at large.
As one example, regional hospitals used to band together in groups to bargain collectively when purchasing supplies. This arrangement was formalized, legislated, and then warped, so that rather than the hospitals controlling the organization, it was instead controlled by the suppliers, driving the cost to the patient up, rather than down.
There is no easy solution here, without first fixing our broken political system, and I see no evidence of that happening.
You can templateize that statement, inserting pretty much any aspect of life in place of healthcare and it will still be true.
This is why Larry Lessig was right when he kept saying that this is the root cause that needs to be fixed before anything else. People should be supporting such "single issue" politicians that want to reform this system all over, because this is what will fix everything else in the long term, whether it's economic, healthcare, or even social issues (which tend to be turned into issues to distract from the real harm they're doing somewhere else).
Cynically, because both the current system in general and the current administration in particular is perfect for billionaires. They have everything they could ever want, so why risk that? Don't fix what ain't broken.
The problem with US healthcare isn't profit seeking, it's that years of regulatory technical debt starting with the employer tax deduction totally broke the market and the incentives to control costs are shattered like most things our interests-captive government pays for anymore.
I for one am cheering on the capitalists trying to come and do an end run around this political mess. There's no reason healthcare can't be like buying anything else in a competitive market other than the legal complexity dealing with it and daunting capital required to over come that.
I'm an immigrant so I'm not clear it it ever did this: it hasn't in the 20+ years I've been here. Things I hear on the motivations of the founding fathers and the resulting deliberate dysfunctionality they introduced into the system of government suggests to me that the goal was never to respond to the needs and wants of the people.
The US system is more expensive due to weird interactions of profit seeking and regulations, and idiosyncratic local systems, all exacerbated by lobbying and political issues (like hospitals being major employers in most counties). Arguably another part of the US healthcare cost premium is that the US invests the most in innovation
It's simply not true either that healthcare is cheaper by orders of magnitude than other countries. Using health care expense as % of GDP as a metric of comparison, the US is at 17-18% while France / U.K. / Germany are around 10-12%
Attributing the high cost of healthcare in the US is a bit facile and simplistic
One has to consider that many people in the US don't consume healthcare because they can't afford it (hence the lower life expectancy), whereas in other countries everybody who needs it can access it, with almost no limit.
So the part of GDP represented by healthcare in the US is much lower than it "should" be; or, to put it another way, there's a huge growth opportunity if one can lower prices.
Incumbent actors may prefer profits over volume, but they're vulnerable.
And other single payer countries certainly don't offer limitless levels of care. The gov't determines what it will pay for and nothing else. For Americans with generous insurance coverage, the care is much more limitless when you look at things like experimental treatments and the latest drugs.
That said, it doesn't matter which metric you choose, US healthcare does poorly in almost all of them.
If you have a suspicious mole, or a woman reports pain in the uterus, in Europe you might wait one or two years before a doctor sees you. And then you might get just an "everything looks fine" or a mild painkiller, and start again to look for another specialists or just go to the private health. It's known, but somewhat silenced, that a significant number of heart/liver/kidney patients just die before they get to see the specialist because the system is overloaded. This payment-by-queue drives costs down, but is obviously a bad thing.
It's also known that the public health in Europe just don't cover some treatments, depending on the country. Or they are so overloaded that they just don't work. Think about that: you pay for a supposedly full health insurance, but if you're so unlucky to catch a Hepatitis C that it's not covered because the treatment is expensive, you just wait for your death. Costs are lowered, for sure.
Another side effect is that the top notch specialists in Europe earns about the same money as an average or a bad doctor working for the public health. This causes some of the said top notch to go to greener pastures: the US. It's very typical that the (rich) Europeans go to the US to receive cancer treatments. Thus the US costs are driven up and the Europe costs down.
> If you have a suspicious mole, or a woman reports pain in the uterus, in Europe you might wait one or two years before a doctor sees you.
If we ever came across a situation like that, we'd scream bloody murder to the nearest national newspaper. Maybe it happens some places, but my experience with healthcare in European countries does not in any way reflect what you describe. I'm in the UK now, and when I want to see a doctor, my experience is that I have never needed to wait more than a couple of days - most cases I've gotten an appointment same day. It's what I expect. If my GP can't see me fast enough, I have a number of walk-in centres I can go to (caveat is 2-3 hour waits). Out of hours or for something more serious but not an emergency, I can go to the nearby hospitals out of hours service. If I freak out, A&E will never turn you away (though they might scold you if you show up with something that you should know better about). If I'm unsure, there's a non-emergency number where an nurse will triage and either get a doctor lined up or tell you to get yourself to A&E.
Basically, if I have a concern that I think merits immediate attention, it will get immediate attention.
On the occasions I've needed to see specialists or have tests one, I've gotten it done within a week or two.
Yes, there are queues for some services, and especially surgeries, but after you've been triaged by primary care.
If it was like what you suggested most places, you'd expect takeup of private health insurance to be much higher, yet e.g. in the UK it hovers around 10%, most of which are employers offering it as a benefit whether or not you care about it (e.g. I have private insurance now; it made absolutely no difference to my evaluation of my employment offer, same for my ex). It's offered because it is dirt cheap (because most of them cover "add-ons" like seeing a specialist faster, and rely on the public system for most routine stuff) and perceived as worth more than it actually is.
> This payment-by-queue drives costs down, but is obviously a bad thing.
Queues are there because you are triaged by doctors, and clinical needs rather than ability to pay is what determines who gets treated first.
While mistakes happen, overall the high life expectancy in most European countries show that it's for the most part working very well. E.g. 2015 WHO data shows a life expectancy for the UK about 2 years higher than the US - in total 21 European countries in 2015 data had higher life expectancy than the US, including all of West / North Europe. The ones falling behind are the poorer Eastern European countries.
I'm sure there's room for improvement, and I'm sure occasionally people die because they wait too long, but the life expectancy shows the priorities largely work.
Another point is that the lack of queues in the US to a large extent is fiction: The queues are not there because a lot of people can't afford to use healthcare more. Even with insurance, if you have large co-pays etc., it doesn't take much before you use healthcare services less than you should. What a system that is free at the point of service does is give a full picture of the actual demand and ability to actually make decisions of funding and prioritisation based on clinical need. You don't have that in the US system.
> Another side effect is that the top notch specialists in Europe earns about the same money as an average or a bad doctor working for the public health.
I don't now of any place in Europe other than possibly Norway where this would be the case unless they themselves don't care to earn more, as most places top doctors can easily mix and match public and private services, and often do. E.g. in the UK a lot of consultants will do private surgeries, and will do so in NHS hospitals, as NHS hospitals can rent out spare capacity (and some run their own private clinics), and can earn a lot extra that way.
Esoteric or non-physical things, mostly. The NHS really sucks at trans issues, for example, where a two year waiting list is not unusual. It's one of the few areas that US healthcare sometimes does better in, where the state is one which permits informed consent care.
Life expectancy is higher in most of Europe than in the US, which would be pretty hard to achieve if people died because of "death panels" and waiting lists to see a specialist. Plus prevention is actually a thing.
Elective surgery has a waiting list that can be weeks or months, but this doesn't translate to everything else. If it takes months to get an NMR, probably it was the patient that insisted to get a useless one. If your GP marks an exam as urgent you can get it within a few days.
There most certainly is. Look at what the UK's cancer fund is going through. It's not unusual for NICE to say "we're not paying for that". For people with generous insurance in the US it's much more typical for the insurance company to roll over and pay for the latest and greatest due to public pressure.
https://politica.elpais.com/politica/2017/02/22/actualidad/1...
People died because the treatment was delayed for budget causes.
Sorry but that's wrong. I've only used the health systems in the UK and Germany but in both countries, you can get an appointment either directly (if you're flexible with time) or within a few weeks. In urgent cases, all hospitals have specialised staff and will see you immediately.
That's disproven by the fact that for decades premiums were extremely reasonable. In fact, premiums roughly tripled in just 20 years. That increase is radically beyond cost inflation in most everything else except university tuition costs. That spike wasn't caused by healthcare being for-profit, it was for-profit in the decades prior to that cost explosion too. You'll have to actually explain the specific cause for why costs suddenly exploded higher in such a short span of time. Compare premiums in 2015 vs 1995, on a per capita income basis, the difference is extreme. Why weren't they always so high?
Here's a hint: the same exact thing happened at the same exact time in the university education system as well. Previously, before 2000 roughly, US university costs were far more modest. You could go to a top tier university in the 1970s and 1980s and pay for it entirely with a part-time job. Student loan debt went up five fold in ten years, at the exact same time healthcare costs exploded higher.
Want to guess which entity caused both cost inflation outcomes?
I don't know all of the ins-and-outs of funding, but this[0] study says that there are other countries developing NMEs at a proportionately faster rate than the US.
From the discussion section:
>Pharmaceutical innovation is an international enterprise. Although the United States is an important contributor to pharmaceutical innovation, we found that more than 20 countries contributed to the development of the 288 NMEs with patents at the time of approval. More than 171 companies were involved in the development of these NMEs, and the vast majority of companies were multinationals with facilities located in more than 2 countries. We also found that the United Kingdom, Switzerland, Belgium, and a few other countries innovated proportionally more than their contribution to the global GDP or prescription drug spending, whereas Japan, Spain, Australia, and Italy innovated less.
Granted I know that GDP isn't the end-all be-all for determining how drugs can be financed, but I think there is something to learn from the study and how other countries do business while continuing to innovate.
Contrast infrastructure and public health measures.
https://object.cato.org/sites/cato.org/files/wp-content/uplo...
On a side note, over treatment seem a real threat.
Christian Health Ministries - http://www.chministries.org/ Medi-Share - https://mychristiancare.org/medi-share/ Kaiser Permanente - https://healthy.kaiserpermanente.org/
Taylor University is self-insured.
Similarly, costs are high because pharma and healthcare companies can charge that much. An insured patient, past a certain point, is price insensitive, since their insurance pays the bill. So why wouldn’t healthcare providers charge as much as possible? Raising price does not lower demand. The worst that happens is the insurance company disputes it, but that process is post-facto and there is no mechanism to punish providers for overcharging, so they have an incentive to “shoot first, ask questions later” when setting prices.
As an anecdote, I knew a guy who ran a “compounding pharmacy” business. Basically he mixed together multiple prescriptions into one or a few pills, for e.g. elderly people who would rather take one pill than twenty. When the insurance companies asked him to price each pill, they had no reference for how much it cost — each compound drug he made was effectively a “new drug.” The insurance companies asked him how much it cost and he was literally able to name his price.
Hospitals charge $500 for saline solutions - literally $1 bags of salt water. All so insurers can charge customers premiums based on those high prices and simultaneously ensure anyone without insurance is f*ed. Its a joke.
https://news.ycombinator.com/item?id=16274478g
https://share.kaiserpermanente.org/article/history-of-kaiser...
Also, they are required to provide coverage under the ACA.
One thing I've always wondered is why aren't the large unionized companies heavily lobbying for socialized healthcare and pensions, with a clause sneaked in there absolving them of their preexisting liabilities?
These are all very smart people, so I have to assume that they have realized that insurance is a fundamentally flawed mechanism for providing the kind of health care we want, without a universal mandate - which, as private companies, they're not able to issue.
If they instead tackle health care via some other mechanism than insurance - say trying to drive down prices to make it more affordable via transparent pricing in a competitive marketplace (e.g., like the diagram in the article where doctors, pharmacies, etc, list their services) then that has a potential to be a huge, positive change.
That said, they're still operating in our regulatory framework, so they still do need to provide insurance to their employees. So I hope they're able to dual-band it - provide a high-deductible, low-premium HSA with contributions from the company, and let the employees shop on this marketplace from their HSA, while still being covered in the catastrophic case by the insurance plan.
1. Amazon, Berksire, JP Morgan and others create a large "payer" of healthcare.
2. There are no shareholders or other parties interested in making a profit off of this payer because it is a cost center for the big (or small) companies using it.
3. Wait for the current iteration of the Republican party to lose influence and single-payer to gain more traction politically.
4. When politicians are looking for a way to create a single-payer system, Amazon and friends offer to hand over their large payer to join Medicare, Medicaid and VA systems to form one large government payer, effectively nationalizing the healthcare for Amazon and co.
BCBS Michigan isn't the biggest one and has 4.3 million members.
amazon and berkshire are in the top 10 employers, and JPM is in the top 25. while most of the talk around improving healthcare cost / quality in the US centers around technology, value based care, etc, the real economics, and company's strategies, are largely driven by scale. this collaboration is a way to immediately get a strong negotiating position in any discussion and to provide a sizable test bed for various initiatives
Also given the scale of these companies, wouldn't this raise healthcare costs for all others who don't work for one of them?
Not to say that drug prices aren't too high but they are just one piece of the puzzle
here are the CMS stats for 2016: https://www.cms.gov/research-statistics-data-and-systems/sta...
Interesting point re increasing costs for other companies, seems like it could certainly happen and maybe even lead to an arms race of employer consolidation. This phenomenon has happened in the hospital-insurance area, where a big hospital will buy up smaller providers and negotiate higher rates from insurers. The insurers then either have to consolidate and grow themselves or decrease rates to smaller providers, thus incentivizing smaller providers to join the big ones.
This is a vicious cycle and I believe one of the main reasons for higher cost healthcare in the US. that said, healthcare is very local, so not sure if this new effort will impact local payer provider dynamics as much as it will increase more national scale issues like PBM and purchasing
But you missed another: their cap on profit is percentage based. This disincentivizes the insurer from truly attempting to contain costs, because while the percentage of income they can take as profit is capped, the absolute value is not. This leads to underinvestment in attempting to contain costs except to the level that they can retain as overhead and a cycle of ever increasing premiums ensue.
It's also a reason for insurers to vertically integrate and getting their hands in the PBM business and offering telemedicine services and whatnot. Doing so allows the insurance arm to "pay out" to non-insurance subsidiaries, where they can both count that as a medical cost from the insurance arm yet still capturing profit from the non-insurance arm. In which case, it's beneficial to have inefficient contracts that give the non-insurance subsidiary a lot of leeway to run efficiently and generate solid profits.
There are plenty of ways to align the incentives of insurance companies with those of the insured. But a static max ratio between medical expenses and overhead is not one of them. Because then there is literally no upside to reigning in medical expenses, as every effect of doing so is negative to the insurer.
So instead of trying to make their medical spending more effective, they focus on
1) Making their operations as lean as possible (so they can squeeze as much profit out of that allowable overhead percentage as possible), and
2) Vertically integrate so they're on the other side of that medical spending where that cap doesn't apply any more.
It is my underatanding however that a lot of providers have payers under their thumb. A great example of this is the UCLA vs blue shield (or blue cross?) of CA a few years back. Another commenter here mentioned UPMC, another example of a mammoth local provider dictating what payers do. Sutter health in the Bay Area is a similar Goliath, and the publicly traded hospital systems (community health, HCA, etc) have made a business model out of exploiting local hospital monopolies to extract money from payers.
Payers definitely don't like this, and if they start getting squeezed on the other side from employers, it could really squeeze some payers
I've been watching this play out in my state for years, but never quite realized the full impact of this until a recent Guardian article mentioned UPMC by name as why single-payer/medicare-for-all could fail.
>Who would blink first if the government threatened to exclude UPMC from its healthcare plan, which under a “Medicare for All” system, would be the only one available? Without access to the UPMC system, the region would face an instant healthcare crisis.
As someone that watched a state government blink first and change insurance providers, this really drove the point home.
https://www.theguardian.com/commentisfree/2017/oct/28/big-me...
If the 3 are going to do their own insurance, all that has to happen is that the gains of cutting out a for-profit middleman need to exceed the losses of reduced economies of scale (compared to the insurance giants).
Based on some quick Google searches (queries like "amazon number of employees"), it seems like the 3 together have a total of over 1 million employees. That seems like a large enough risk pool to me.
The negotiating leverage piece is a more acheivable near term benefit. Creating their own insurance company would be complicated and actually maybe not the best idea. There are tons of regulations that would hinder this, but also the local nature of healthcare markets dilutes the power of their scale if the try to start an insurance company
Amazon, Berkshire and JPM have employees scattered all across the country. However, they'd likely not have greater leverage than a given payer or provider in any specific locality as they wouldn't be a major employer in most areas. If they want to own physicians, in order to attract more physicians than the most locally powerful provider, they'd have to pay above market rates and would not have a large enough patient pool in most areas to justify this. In order to create a network as a payer, they'd need to spend a lot of money getting providers onboard but won't have a local network as large as that of leading payers, so they won't be able to reimburse at competitive rates.
So arguably the biggest challenge to the uber aggregator model laid out in the article is that they have lots of national power but dilute local power in most markets, and since healthcare delivery is local, they can't win
Edit: conciseness
How so? How could they create a large pool? They can't force individuals to choose their company.
> None of the large insurers also seem effective in price controlling via pooling drug purchases of their customers either
How do you know what your insurance is paying vs what individuals pay?
This may be true from the perspective of the insurance companies, but it does not mean that premiums will be lower with a larger risk pool. The global risk pool includes elderly and disabled people whose risk is paid for by healthy people. Smaller risk pools of more homogenous populations can result in lower overall premiums since they do not need to cover the highest risk individuals. For example, a corporation is comprised of employees almost entirely under retirement age, many age 20-30, and in relatively good health. This is why companies are able to offer HMO plans, because by isolating their risk pool they can more precisely model actuarial risk and thus save on premiums.
It’s not how large a risk pool is that determines premiums, but rather the distribution of risk within that risk pool.
CVS dropped by just over 4 percent by midday, UnitedHealth plunged a whopping 11.5 percent, Express Scripts was off by 3.6 percent, Cigna was down by just under 7 percent and Walgreens fell by 2.6 percent.
https://techcrunch.com/2018/01/30/cvs-other-health-stocks-do...
Alternatively, they could pool funds and create an actual insurer.
The trouble with Amazon trying to become THE payer or TPA is that insurance is highly variable across the country. There are many different laws governing insurance in each state, and you need to strike business agreements with literally countless small practices, hospital systems, lab service providers, drug companies, outpatient clinics, etc. It would actually be a massive administrative feat for Amazon to provide solid coverage across the US.
It's possible to start small, no? One metropolitan area at a time, make deals with local orgs, slowly transition local employees over to the new plan. The 75 employees working at the Iowa datacenter may stay on their current insurance for a while, but I don't think that's a terribly difficult obstacle for the idea.
This is why the aggregator model described in the article is relevant - the small practices will come to Amazon to plug into their aggregator and access their customers.
In that scenario, Amazon opens up shop in a state, provides cookie cutter TOS agreements to providers that mesh with the state's regulations, and providers on-board themselves in order to access the customer base.
Nothing is decided. Everything currently being discussed is speculation. That said, the article addresses this:
"Amazon doesn’t create an insurance company to compete with other insurance companies (or the other pieces of healthcare infrastructure); rather, Amazon makes it possible — and desirable — for individual health care providers to come onto their platform directly, be that doctors, hospitals, pharmacies, etc."
The author envisions a souped up ZocDoc. It doesn't just help you find providers. You buy your insurance through it; when you book an appointment Amazon handles logistics, billing and payment; as you walk out, your prescription auto-fills or shows you your options, which you (or your insurance provider) pay for through Amazon, and which are delivered to your door--on schedule--by Amazon, et cetera.
What a piece of bull c* article.. Amazon tax amazon this amazon that and I predicted that. Really you need to get back into your complete senses that there are limits to what can be achieved by any organization. Its for articles like this that paint a rosy picture and contribute to a bubble like stock price. Can you also predict the collapse if that happens.
And to you all intelligent readers this is gonna take a long long time to change the current system. For heavens sake don't fall for this guys crap.