Amazonian Health Care

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anonymous_coward
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Amazonian Health Care

https://www.axios.com/amazon-berkshire-hathaway-jpmorgan-form-health-car...

I generally favor a private non-profit solutions over a public single payer mess, but the conflicts of interest are pretty obvious (how many AWS cloud instances are required to support all the records?)

Also, this does nothing to fix the system (owner-agent conflict between insurance companies and patients, with the patients winning and ultimately extorting healthy patients).

Nonetheless, it's certainly an interesting idea and certainly provides something for existing private and potential public providers to measure themselves against.

mainemom
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Yes, it's interesting, and I

Yes, it's interesting, and I think your points are well-taken: they may get the technology right, but how do they solve the third party payer problem?

For me this collaboration highlights the fact that under current law, entities that want to band together and do something similar for people who are NOT their employees can't do so. Crazy for that to be prohibited.

Example: Imagine credit unions getting together and establishing a medical cost-sharing association available to all their members?

Economike
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Interesting.

Interesting.

For me, too, the key point of the story is that the new company will provide (only) employer-based coverage. That's part of the problem, not the solution.

anonymous_coward
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Yeah I wonder why that is?

Yeah I wonder why that is? Maybe they only want to provide services for self-funding companies? (I.e. they only want to take on the tech/operational side, not the fiscal side?)

Unfortunately there aren't a lot of details at this point, maybe they'll come out as things progress.

Ugenetoo
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They'll probably make it work

They'll probably make it work the same way Amazon is making Whole Paycheck Foods successful

Empty Shelves Drive Boston Shoppers Away From Whole Foods.

https://www.bisnow.com/boston/news/retail/whole-foods-stocking-woes-have...

Economike
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Yeah I wonder why that is?

Yeah I wonder why that is? Maybe they only want to provide services for self-funding companies?

I suspect it's due to the difference between employer-purchased and individual-purchased health insurance markets. The former is highly subsidized, with the subsidy skewing toward more comprehensive and expensive coverage. It's the market with the low-hanging fruit.

mainemom
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This about those corporations

This about those corporations trying to reduce their own employment costs.

Economike
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This about those corporations

This about those corporations trying to reduce their own employment costs.

Yes. This is more incisive than my roundabout comment.

anonymous_coward
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Well it's really the same

Well it's really the same model as the Kindle. The kindle was a device sold at cost (i.e. profitless) so that you could more easily buy eBooks.

In this case, it sounds like Amazon wants to use profitless healthcare as a vehicle to sell prescription drugs (which presumably have a high mark up, though I am not a health care expert).

So, while again this doesn't solve the underlying problem of how health care works, it does completely cut out an entire profit taking industry out of the middle of the chain.

If I were a health insurance company shareholder I would certainly be worried.

anonymous_coward
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"This about those

"This about those corporations trying to reduce their own employment costs."

Well, for very large corporations, they can provide better health care for cheaper just because they have better bargaining power against providers (in the same way that single payer nations can get cheaper drugs b/c of their buying power).

Don't get me wrong, I agree that it's perverse that you get health insurance from your employer and know that it is an artifact of the post war wage controls, but I don't think corporations provide health care to cut employment costs, they just do it because everyone else is doing it and they need to offer it to compete for workers.

In any event, if you believe in market economics, it should all come out in the wash - i.e. it wouldn't matter if they offered health care or not, individuals would still end up with the same level of compensation (and conversely, companies would have the same employment costs) since it wouldn't affect the supply or demand of workers.

Economike
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anon -

anon -

I'm not sure I understand you, so forgive me if I'm off the mark.

Yes, corporations offer health insurance to compete for labor, but it's still in their interests to reduce costs. As I think you know, the cost to the corporation of employee health insurance is not taxed, but it remains a cost paid out of revenue. This cost, if paid to the employee instead, would become taxable income to the employee, without changing the employer's net. Thus, the nominal value of the tax subsidy (of employer-provided insurance) to the employee is the difference between his tax liability and his additional liability if paid the cost of his insurance.

So it's not market economics and it doesn't come out in the wash. The results are (1) higher-income workers (in higher tax brackets) collect much of the subsidy (2) workers tend to get higher-cost "bells-and-whistles" coverage (driven by subsidy) they wouldn't choose as individuals (3) job mobility is reduced, creating rigidity within the labor market and (4) the unsubsidized individual health insurance market can't compete with the subsidized employer-paid market.

This does affect the supply of workers. Suppose I'm offered a job at Megagizmo for salary plus health insurance. Let's say that the cost of Megagizmo's health insurance is $9K, but that insurance is worth only $4K to me. In this case the gap between Megagizmo's cost of compensation and the value of what I receive is $5K. Spread throughout the labor market, this phenomenon represents a significant deadweight cost of employment. Think of the government's subsidy of employer-provided insurance as a wedge between what businesses are willing to pay and what employees actually receive.

anonymous_coward
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Ah, good point. I totally

Ah, good point. I totally missed taxability angle.

In your example, though (and maybe I'm misunderstanding), wouldn't the cost to Megagizmo be 4k and the value to the employee be 9k (since the employee cannot deduct that cost like the corporation can)?

So it would cost Megagizmo 4k to buy the insurance, but if the individual bought it by themselves they would have to receive 9k worth of income (or whatever) since a chunk of that goes to taxes.

mainemom
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To be clear, I welcome the

To be clear, I welcome the news that these smart people are entering the health care financing fray, regardless of their motivations. Something useful to the rest of us may trickle out of it.

Economike
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anon -

anon -

I intended my example as I wrote it.

Megagizmo pays $9K per employee. Every employee gets the same benefit, as required by law. (The company's cost reflects its employee retention calculation.)

However, not every employee wants such costly coverage. In my example, I prefer less coverage; health insurance is worth $4K to me. That Megagizmo will pay $5K more is of no value to me. If I end up working there, the value of my compensation will cost the business $5K more to employ me than I'm willing to accept. Or maybe I'll take a job at a company that offers cheaper health insurance and therefore can pay me a greater salary out of a smaller total compensation cost.

In either case, the implication is the same: the subsidy for employer-provided health insurance leads to costly inefficiences in the labor market. Due to skewed incentives, people who otherwise would match their talents to a higher-value opportunity are paid to make lower-value job choices. As I wrote, the government policy drives a wedge between what businesses pay as compensation and what employees actually receive.

mainemom
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the government policy drives

the government policy drives a wedge between what businesses pay as compensation and what employees actually receive.

But it's for our own good, darn it!

Economike
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And good for our children,

And good for our children, too!

taxfoe
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I think they're smart, too.

I think they're smart, too. I also think that, between them, they have access to lots of empirical data which paints a very clear picture of healthcare cost, distribution and use.

One of my former employers has good data, too. They self insure their federally mandated liability coverage along with a few other companies in the same business. They know their exposure and they own the insurance company. They build their costs into every unit of production. In anticipation of big ticket exposure they can't predict, they also buy reinsurance and fold that cost in, too. I'm sure some years are better than others but the members consistently get back a lot of their contributions.

In my case, I have never had an insurable claim. My healthcare needs have always fallen beneath the deductible threshold. Using the $9k example and near 15 years in my current trade, that's $135k in premiums with no benefit to me or my employer . . well, it might make a little difference with my employer's underwriters . Warren, Bill and Jeff have probably seen some modeling that suggests there is a better way.

anonymous_coward
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@Economike: "However, not

@Economike: "However, not every employee wants such costly coverage. In my example, I prefer less coverage; health insurance is worth $4K to me. That Megagizmo will pay $5K more is of no value to me. If I end up working there, the value of my compensation will cost the business $5K more to employ me than I'm willing to accept. Or maybe I'll take a job at a company that offers cheaper health insurance and therefore can pay me a greater salary out of a smaller total compensation cost.

In either case, the implication is the same: the subsidy for employer-provided health insurance leads to costly inefficiences in the labor market. Due to skewed incentives, people who otherwise would match their talents to a higher-value opportunity are paid to make lower-value job choices. As I wrote, the government policy drives a wedge between what businesses pay as compensation and what employees actually receive."

Ah I see - sorry I was conflating your first argument (that the difference in taxation skews the value between individually purchased insurance and employee purchased) and the second argument (that an employer essentially provides a one-size-fits all insurance option) as two facets of the same thing, when you were actually offering two separate arguments.

In response, I would say that the effect is probably muted, since many employers (speaking anecdotally, I don't have any hard data) offer a choice of high deductible vs. low deductible plans. And every employer I've worked for allows you to opt out (say if your spouse or domestic partner is covering you).

Economike
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anon -

anon -

Employer-provided health insurance is part of the compensation offered for every worthwhile job in the United States . It follows that its marginal value is a nearly universal consideration for job seekers.

Yes, this effect is muted by a few exceptions. And no opt-out amount I've ever seen approached the putative value of insurance, and it's taxable besides.

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