Earlier this month, the long anticipated joint venture between Amazon, JP Morgan and Berkshire Hathaway – a collaborative employer based health plan called “Haven” – ended. Recognizing that health care is complex, one must still wonder why three of the world’s most powerful companies were unable to achieve their goal improving the complex, and moreover, if they can’t, who could?
Solutions to health care continue to be a daunting task for our nation, and costs related to health care continue to spiral out of control. For most companies, health insurance is among their top 5 expenses, and for many families it tends to be a large expense item as well (either through premium contributions or accessing the health care system itself,)
So when Haven was announced, aimed at lowering costs through technology and free-market forces, the country took notice. With 1.5 million employees spread across these big three, the joint project would affect potentially billions of dollars in expenditures per year. Additionally, if successful, Haven could provide a blueprint to be marketed, ultimately creating a new revenue vertical as well.
In early 2018 when the three business giants announced this venture, the markets reacted sharply. JP Morgan has the financial power to impact global currency, Berkshire-Hathaway has the investment power to move entire stock markets, and Amazon has the infrastructure to cause a paradigm shift in how consumer goods are bought and distributed worldwide, thus upon Haven’s announcement, major health care company stocks saw quick losses as it appeared that the combined might of these three could show a new way to approach the health care sector, a sixth of the U.S. economy.
Health care, however, is not a one-size-fits-all solution. The specific medical (and insurance) needs of a financier are different from the needs of a warehouse worker. Additionally, there are many moving parts in health care: geographical barriers, numerous hospital and delivery systems, pharmacy benefit managers, network contracts to consider, and so much more. Likely all things the leadership of Haven was challenged to address but unable to effectively do. This is a parallel story to the potential dangers and fallacy of a Medicare-For-All solution.
At its core, however, Haven likely tried to do too much. It could have been successful if it honed the basics of expenditure: to reduce cost, one must reduce the number of units purchased or the price of those units. By pooling together resources and business acumen, Haven certainly could have effected change in both the health care delivery system and insurance markets, but they tried to invent from the ground up, and failed. Turns out, this was unnecessary, as there are already groups succeeding where they failed; insurance collaborations called Captives.
Groups like Pareto Health have seen great success adopting those same economic principles to save their members money. Pareto’s program pools the purchasing power of over 1,400 companies and insures nearly half a million lives.
Captive programs allow mid-sized employers to self-insure with less risk. The average employer working with Pareto has seen health care costs dramatically reduced and inflating at a much slower pace than the market average. The philosophy of their approach isn’t complex. Participating employers (averaging between 100 and 200 employees each) are able to join forces, increase their buying power and gain access to resources within the health care space.
Additionally, they are also able to share claims and market data, which allows them to better manage health-related spending and negotiate better contracts with various insurers and providers. However, the biggest reason for their success is that these captive programs themselves are employer-owned, and managed by a board of the employer members.
No big insurance company CEO and no profits baked in for shareholders, rather a higher level of engagement by employers who are ultimately paying the bill. In these captives, the employers are the shareholders and health care becomes a zero sum game.
Our health care system is complex and difficult, which is why many of us recognize the need for Uncle Sam to avoid the reins. If these three titans of industry couldn’t get it done, bureaucrats likely won’t be able to either. Nevertheless, that doesn’t mean there aren’t things we need from the government.
Citizens need transparency, and better access to data. We need to be free of surprise billing, and out-of-network doctors operating at in-network hospitals. Hospital consolidation is occurring at a rapid pace and the monopolization of hospitals is occurring under the guise of saving us money, but in reality costs us more as there is no competition to keep the prices down. Prescription drug costs are out of control, and legal loopholes continue to extend the patents which prevent generics from being available.
We certainly need health care to have governance; however, we don’t need to change our system to one controlled, run and paid by the government. Our recent ability to develop a vaccine in record time in order to rid the world of a vicious disease is a testament to the innovative abilities of our capitalistic system.
The United States continues to be the beacon of hope for innovation and advancement of medicine – something that would all but end if run by the government. The lessons of Haven shouldn’t be missed; if a Biden Administration intends to address health care, they should recognize the challenges that lie ahead.
Seth Denson is a Business & Market Analyst, Author, and Entrepreneur. He co-founded one of the nation's most successful consulting firms and authored the best-selling book, The Cure: A Blueprint for Solving America's Healthcare Crisis which takes a deep dive into the business structure of our U.S. healthcare system and how we can reform it while maintaining our free-market. As a regular on-camera contributor, Seth has garnered a national presence discussing a range of topics including business and economics, politics, faith, and fatherhood. Originally from West Texas but with international business experience, Seth's "no-bull" approach blends metropolitan thinking with good old-fashioned Texas straight-talk. Reads Seth Denson's Reports — More Here.
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