Amazon.com Inc., Berkshire Hathaway and JPMorgan Chase & Co. are forming a company to figure out how to reduce health-care costs for their hundreds of thousands of U.S. employees, the three companies said Tuesday.
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"The ballooning costs of health care act as a hungry tapeworm on the American economy," Berkshire Chief Executive Warren Buffett said in prepared remarks. "Our group does not come to this problem with answers. But we also do not accept it as inevitable."
The new company will focus on technological solutions that can provide simplified and transparent health care for the three companies' U.S. employees at a lower cost.
The three companies together have more than a million employees, though not all of them work in the U.S. The companies didn't say how much money was earmarked for the initiative or whether it would grow to include other employers. They also said the new entity will be "free from profit-making incentives and constraints."
Amazon has already triggered concerns for the broader health-care industry due to its as-yet unclear ambitions in the space, factoring into CVS Health Corp.'s $69 billion bid last year for insurance giant Aetna Inc. Specifically, Amazon has been eyeing an entry into the pharmacy-services industry and has added health-care supply options to its business-to-business marketplace offering.
Shares of companies across the health-care industry including pharmacy-benefit managers, health-insurance companies and drugmakers dropped sharply in premarket trading Tuesday following the announcement.
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CVS shares dropped 7.6% in premarket, while Aetna shares dropped 3%.
Todd Combs, an investment officer at Berkshire Hathaway, Marvelle Sullivan Berchtold, a managing director of JPMorgan and Beth Galetti, a senior vice president at Amazon, are overseeing the company's formation. Mr. Combs joined JPMorgan's board of directors in 2016.
A longer-term management team, headquarters location and operational details of the new company will be announced later, the companies said.
Amazon had more than 540,000 employees globally as of October as it acquired grocery chain Whole Foods. The company offers full-time warehouse employees health-care benefits.
The company has said it is adding 100,000 full-time jobs in the U.S. through mid-2018, most in warehouses, and it is adding 50,000 corporate jobs over 10 to 15 years at its planned second North American headquarters.
Berkshire, which had 367,671 employees at the end of 2016, allows its 60-odd operating businesses to run independently, and it is rare for the company to mandate anything for all employees at its subsidiaries. Only about 25 people work in the company's Omaha, Neb., headquarters.
Mr. Buffett, a longtime Democrat, has criticized U.S. health-care costs in the past and said he supports a single-payer system. At Berkshire's annual meeting last year, he noted that medical costs had increased as a percentage of U.S. GDP in recent decades, while taxes as a percent of GDP had fallen.
The rising cost of health care "is a problem the society is having trouble with and is going to have more trouble with, regardless of which party is in power," he said at the May annual meeting. "If you talk about world competitiveness of American industry, it's the biggest single variable, where we keep getting more and more out of whack with the rest of the world."
Health-care spending in the U.S. grew 4.3% to $3.3 trillion in 2016, accounting for an 18% share of the nation's gross domestic product, according to the U.S. Centers for Medicare and Medicaid Services.
The announcement is part of a larger trend of companies -- particularly tech giant CEOs -- taking it upon themselves to work on bigger societal projects, like sending people to space. Amazon Chief Executive Jeff Bezos founded Blue Origin LLC a decade ago to make reusable rockets and to lower launch costs. Tesla Inc. Chief Executive Elon Musk has also formed a space company and has been working on a so-called hyperloop, a system for high-speed transportation in a near-vacuum state that takes place in miles-long tubes.
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(END) Dow Jones Newswires
January 30, 2018 09:32 ET (14:32 GMT)