Correction: an earlier version of this piece stated that most Blue-Cross-Blue Shield plans converted into for-profit entities. The situation is more complicated and amended language better reflects the reality.
Last week, Amazon, Berkshire Hathaway and JPMorgan Chase announced they would form an independent health-care company to serve their combined 1.2 million employees. Most commentators focused on the futuristic aspects of the project: “Technology solutions” that might, someday, help control the spiraling health-care costs Berkshire Hathaway Chairman and chief executive Warren Buffett described as “a hungry tapeworm on the American economy.”
Techno-utopian visions of algorithm-driven health-care apps and artificial medical intelligence robots aside, the most important components of the still-theoretical project are actually deeply rooted in the history of health care, both in the United States and around the world. This history illustrates the potential promise of the new initiative: It might provide cheaper, better care for all Americans while facing fewer political hurdles and requiring fewer jarring changes to the system.
Notably light on details, the announcement offered two specific components beyond its emphasis on technology. (Amazon chief executive Jeffrey P. Bezos also owns The Washington Post.) First, the new company would be “free from profit-making incentives and constraints.” Second, the overall goal would be “improving employee satisfaction and reducing costs.”
This first component is the more newsworthy one, as well as the one most likely to revolutionize American health care. Abandoning the profit motive in health insurance would be a notable break — by three of America’s leading companies no less — from nearly a half-century of corporate and conservative ideology that has maintained that free-market profit incentives are the best means of achieving efficiency and cost reductions in health care (and most other economic spheres).
The three companies seem to envision a private, nonprofit insurance company for their employees. Radical as that may sound, the idea reflects a concept that actually has a long history in the United States.
Throughout the early decades of the 20th century, a wide range of consumer and labor cooperatives, prepaid physician groups and corporate welfare programs offered basic health-care coverage without seeking to profit from financing care. During the New Deal and World War II, for example, industrialist Henry Kaiser worked with physician Sydney Garfield to develop a nonprofit, prepaid medical system. Kaiser sought to attract employees to Kaiser Industries (and then to keep them healthy and working) rather than earn a profit from the health-care coverage itself.
After the war, the company opened the plan to the public. Because of its generous benefits and relatively low costs, it became popular with both labor unions and employers and developed into one of the dominant health-care systems on the West Coast. It survives today as Kaiser Permanente, which operates a not-for-profit insurance and hospital system as well as for-profit physician groups.
Kaiser’s success was emblematic of American health insurance provision until the 1950s. In 1929, the hospital industry had begun marketing nonprofit Blue Cross plans that provided basic hospital coverage. A decade later, state medical associations founded the Blue Shield system to cover doctors’ bills. The early nonprofit version of the Blues offered coverage to individuals and employee groups at community rates, charging all purchasers the same premium without regard to individual risk. Blue Cross and Blue Shield dominated the U.S. health insurance market into the 1950s.
Beginning in the 1950s, however, for-profit commercial insurers pounced on an economic weak point in the Blues’s model: the community rating. They employed experience rating, which took the health-care risk of an individual or group into account in setting the premium. This allowed them to offer cheaper plans to companies with relatively young, healthy employee pools — although it also had the effect of driving up costs for companies whose employees tended to be older.
Special state charters that gave the Blues tax-favored status (on the grounds they served a community purpose by offering coverage to all regardless of risk) prevented them from matching this maneuver. Eventually, this newfound competition drove some Blue Cross-Blue Shield plans to convert into for-profit entities, while critics charge that others, though technically non-profits, behave in ways more akin to for-profit health insurers.
Yet over time, the for-profit health insurance industry has proved ineffective at controlling costs for employers. In particular, it has largely failed to challenge either fee-for-service medicine (with its incentives for the oversupply of medical care) or the prices set by health-care providers.
As the Amazon-Berkshire Hathaway-Chase project suggests, employers no longer have an economic reason to be committed to for-profit coverage. In trying to devise an alternative, they can look not only to America’s past, but also to Europe and Asia for ideas. Contrary to hysterical conservative portrayals of socialized medicine, in Europe and Japan, nonprofit models broadly similar to the early American efforts have long formed the backbone of high quality, cost-effective universal coverage systems.
Beginning with Otto von Bismarck’s Sickness Insurance Law of 1883, nonprofit sickness funds — or Krankenkassen — have been the core structure for providing universal coverage in Germany. Employer and employee contributions finance these plans through a system of payroll withholding similar to that used in the United States for Social Security and Medicare. A mandate requires all Germans to have coverage (with the option of purchasing private insurance from for-profit carriers). The sickness funds themselves are private; although they are nonprofit, they compete on quality and range of services and their executives’ salaries depend on whose funds attract more members.
France’s coverage model has much in common with its German counterpart, while Japan’s system operates on similar principles, but relies heavily on nonprofit insurers established by large corporate employers (employees of smaller companies receive government subsidies). In Switzerland, health-care nonprofits are so popular that when commercial insurers bought up the country’s nonprofit insurance funds and converted them into for-profit operations during the 1980s, voters revolted. In 1994, they passed a referendum returning basic health insurance to a nonprofit basis (insurers can still sell supplemental packages for a profit).
All of these systems offer dramatically lower costs and equal or (usually) better health outcomes than the United States. They demonstrate that private, nonprofit insurance funds can be the basis for a universal coverage system — one that takes U.S. health insurance back to its roots, while addressing the problems plaguing our current system.
Most important, perhaps, such a system might be achievable politically. Health-care politics remain highly fraught, with Democrats deriding Republican proposals as likely to strip millions of quality care, and Republicans trashing the left’s preferred Medicare-for-all single-payer proposal as likely to provoke a parade of horribles including rationing, high taxes and the inability to choose one’s doctors.
This is where the Amazon-Chase-Berkshire Hathaway model could be significant. If the move to a nonprofit approach proved successful at cutting costs without lowering quality, an obvious next step would be for Amazon, Berkshire Hathaway and JPMorgan Chase to contract the model out to other employers, or for other corporations or independent groups such as unions and consumer cooperatives to develop similar nonprofit coverage systems. The resulting plans could even be offered as a subsidized option on the Affordable Care Act insurance exchanges.
Such steps could create a path to some approximation of the nonprofit sickness funds used in Europe. If meshed with expansions of Medicare or Medicaid to cover the remaining uninsured, such steps would offer a pathway to nonprofit or government-provided coverage for all Americans — creating a universal coverage system without the stigmas and political challenges of an entirely government-run system.
For employers, the nonprofit coverage model potentially offers key advantages over existing, for-profit health insurance, including lower administrative costs, lower executive salaries and, most significant, no need to supply a return to shareholders.
Potentially, it would also allow the development not just of coverage systems, but of independent health-care delivery systems including physicians, pharmaceuticals and even hospitals. This would address the core source of the cost problem in the U.S. health-care system: the high prices charged by providers, which far exceed those in other countries.
Most of those systems rely on some form of health-care price controls. Large as they are, employers such as Amazon, Berkshire Hathaway and JPMorgan Chase are unlikely to have the bargaining power to significantly reduce such prices. Nor is the U.S. government likely to introduce price controls on health care. A partial or full-fledged delivery system linked to a nonprofit insurance fund would operate as a single entity, needing only to meet its costs while reducing the health-care burden on the sponsoring employers.
For now, the Amazon-Berkshire Hathaway-JP Morgan Chase health-care partnership remains highly theoretical. What we do know, though, is to work, the new project has to change key elements of the health-care cost structure — including both how care is financed and how it is delivered.
Yet if they choose to look, the companies have extensive historical precedents, both in the United States and abroad, for how to build such a system.