A direct quote from their press release: “free from profit-making incentives and constraints.” Let me say that again for added emphasis: “FREE FROM PROFIT-MAKING INCENTIVES AND CONSTRAINTS.” In and of itself, this could be the most frightening aspect of it all. Amazon knows one thing and that is how to own the customer. Since the beginning, it is one of the only things that has remained consistent (besides climbing growth and valuation, of course). Jeff Bezos’ manic obsession with customer service is well documented through articles and employee interviews.

So, on to the Trio – where will Amazon play? Easy. The only touch-point and therefore control that the consumer has is choosing their benefit plan. With the Healthcare Marketplace (“Obamacare”), there has been an important shift in how the American public chooses their healthcare. Americans are now freer than ever to “shop” insurance; in fact, many employers are foregoing elaborate Employer-Based Coverage in favor of providing a higher salary and pushing towards Individual Coverage. With this new trend, the Amazon Trio is in a great position to open its platform to the American public, potentially even on the Marketplace. As a platform, I see Amazon thriving. They are the powerhouse in cloud computing and, at the end of it, insurance is just calculating risk by running numbers (admittedly, impressively complex numbers but Amazon is not short on talent).

CVS made an overall good move in acquiring Aetna as it solidified being a top 3 player through the pharmaceutical vertical, from distribution to insurance. However, it was profit-maximizing. They forgot the key piece that has the potential to undo all their hard work: owning the customer. Although they might be the strongest, it will be Amazon that owns the platform – on Amazon’s platform, profit will be driven lower as they are forced to commoditize their services.

Express Scripts purchased eviCORE, essentially staying with what they know – managing pharmacy and medical benefits.

In the next three to five years, I would expect Merger and Acquisition activity in the Benefit Administrator sector to explode. Potential players could include insurance companies, PBMs, and even providers trying to establish a true vertical as they try to play catch up and maybe even try to beat the Amazon Trio at their own game.

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