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How Amazon Could Benefit from Its Healthcare Partnership

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Feb. 7 2018, Updated 10:30 a.m. ET

Disrupting the healthcare sector with lower costs

Amazon’s (AMZN) agreement with Berkshire Hathaway (BRK) and JPMorgan Chase (JPM) to create an independent healthcare company for their employees could yield several gains for the e-commerce and cloud computing giant.

The basis of the partnership among Amazon, Berkshire Hathaway, and JPMorgan Chase is to offer more affordable and transparent healthcare services for their employees in the US (SPY).

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Businesses shouldered 20% of healthcare burden

On the basis of the cost of services, there seems to be a potential for Amazon to reduce its healthcare financial burden. Data from the CMS (Centers for Medicare & Medicaid Services) show that spending on healthcare by private businesses grew 5.0% in 2016, indicating acceleration from 4.4% growth in 2015.

As a result, companies that pay health insurance premiums for their employees shouldered 20.0% of the $3.3 trillion healthcare spending in the US in 2016.

Improving employee retention

Coming up with a way to offer more transparent and affordable healthcare services to its employees could also help Amazon improve its employee retention. Increased employee retention is instrumental in reducing the company’s costs associated with recruiting and hiring new employees. The company anticipates that an improved healthcare plan could help it attract and retain top talent.

Amazon’s operating expenses totaled $131.8 billion in 2016 compared with $104.8 billion in 2015.

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