The “Hungry Tapeworm” in the American Economy


Bob_circleOn January 30th three leading companies – Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. – announced they will join forces to form a new entity to improve their employees’ health care, with a goal to increase satisfaction while reducing costs. This news rocked Wall Street, driving down stock prices of insurance companies, pharmacy benefit managers, and drug distributors. The story was front page news on every major national paper. Kaiser Health News quickly compiled reactions and advice from experts across the health sector. Health economists and those with experience in the field were quick to point out the many challenges this effort faces, even before the details of this new entity have been developed. Yet others welcomed this potentially “disruptive” effort. I’d like to reflect not on what this group of successful businesses may do in the future, but on what their action means in the broader context of addressing health care costs in the U.S.

Americans are deeply frustrated with our health care system: it costs too much, it is a nightmare to navigate, and the complexity of paying for care seems to be getting worse (which is almost unfathomable). For patients and their families, dealing with the health care system often produces stress and anguish that lingers long after the presenting health problem has been treated. “Health care costs” is frequently the shorthand term to capture this problem. But costs to patients are often profits for companies.

Much of our health care system at the point of delivery – via doctor offices, hospitals, and clinics – has historically been enveloped in nonprofit, professional, or altruistic norms. But after decades of rising prices the public is becoming aware of the vast network of business interests that are at the root of these high costs. Economists realize higher prices are at the heart of the problem. I’ve written previously about the greed that underlies the challenges we face in improving our health care system.

The announcement signals that leading private sector actors plan to bring their significant resources and expertise to bear on these issues for their employees. Yet they recognize these problems affect the entire country. Warren Buffett describes health care costs as the, “hungry tapeworm on the American economy,” Jamie Dimon, CEO of JPMorgan Chase, said their “goal is to create solutions [… for] employees, their families, and, potentially, all Americans.”

The irony is that so much public discourse over the past decade has focused on public health programs like Medicare and Medicaid, which have seen price increases more in line with other countries, while the private sector’s increasing consolidation and payments which drive the system have gotten less attention. Not anymore. But a further irony is the only institutions in our society in a position to effectively address this issue are public – federal and state governments – by setting the rules through their regulatory power and influencing prices through their purchasing power. Until our governments, elected by voters, act to address health care costs, this “tapeworm” will continue to weaken our economy and distort investments away from where our societal resources should be going – to infrastructure, education, economic mobility for those in poverty, and the health and social safety net.