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5 Takeaways From JPM-Amazon-Berkshire Health Venture

If it were anybody else, it would be easy to say this idea is overly vague, idealistic and too good to be true: a health company that relies on the latest technology, makes workers happy, saves employers money, and, oh, is completely free of the constraints of profit motive.

But the protagonists here are three of the biggest, most successful U.S. companies: JPMorgan Chase, Amazon and Warren Buffett’s Berkshire Hathaway. For that reason alone, it has to be taken seriously. Just ask the health care industry. Even though the companies avoided any language that said they are going to go into the health insurance or pharmacy businesses, for instance, stocks in those sectors fell quickly on the announcement Tuesday.

[…]“This is one of the first truly new and radically interesting announcements coming out of the banking industry in some time,” said Kevin Travis, a partner with Novantas, describing his initial reaction to the news. “If you think about banks and the challenges they’re facing, it’s about relevance and, if they have consumer trust, how do they use it?”

For instance, if  JPMorgan succeeds at shaving off costs in its annual employee health care bill, it would give the company a major competitive advantage over its primary competitors. At most retail banks, compensation and “people” costs account for about 60% of direct operating expenses, according to Travis.

At JPMorgan, compensation expenses accounted for 51% of total noninterest expense in the fourth quarter.

“The idea that you could even get a 5% cost advantage, scaled over many years, that’s pretty significant,” Travis said, noting that competitors such as Bank of America and Wells Fargo “would have to react.”

More broadly, the news sends a clear message to smaller and regional peers: Big banks are getting bigger, and they are playing a more significant role in markets that are central to nation’s economic health.

Read the full article on American Banker

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