I just spent four days in Rome with my 9-year-old daughter, Béatrice. For her, it was a long-awaited glimpse of the breadth and length of European history. For me, it was a much-needed break after the hard work of January and the rigors of winter in London. Mostly we walked together for hours, simply enjoying the raw, decaying beauty of the city of (almost) a thousand churches.
To get back on track with this newsletter, I thought I’d elaborate on some news that is now more than 10 days old: the announcement that Amazon, Berkshire Hathaway and JP Morgan will partner to design and pioneer a new kind of healthcare system for Americans.
I’ve already , especially in the US: it’s about sustaining consumers’ purchasing power instead of having it all swallowed by one industry; it’s about switching jobs and founding startups more easily; and it’s about caring for people and society.
I’ve long wondered why entrepreneurs were seemingly unworried by the shortcomings of healthcare as we know it. They’re more prone to reflecting on eternal life and touting simplistic basic income than fixing the actual safety net that millions of their fellow citizens rely on every day.
But now it seems that Jeff Bezos has heard the call. He’s found the right partners in this venture: Berkshire Hathaway is one of the major global players in the insurance industry; as for JPMorgan, it can provide the necessary expertise in financial engineering, as well as a very large cohort of employees to be covered. What we don’t know, however, is what exactly those three are up to. And so I’d like to put forward the four ideas that I think will shape the healthcare system of the future.
1/ For individuals, the key is the exceptional experience made possible by technology. Up to now, the healthcare system has been designed and managed under the old rules of Fordist bureaucracy. You needed to reach critical mass in order to make an average, standardized experience affordable for the masses. We all count on the healthcare system to be treated when we need it. But we also hate it for the complexity and endless frictions of its user experience.
Many startups, notably in the US, are trying to make a difference. A first generation, among them Oscar, has been lifted by the regulatory disruption of Obamacare. But now that the US has become Trumpland, the new generation will have to be even more radical. Fortunately, it doesn’t look as if the tech industry has renounced tackling that challenge. You should read this story by Q, an Andreessen-Horowitz-backed startup that aims at reinventing preventive medicine in the age of ubiquitous computing and networks. You should also look at Watsi, a Y Combinator-backed non-profit organization whose mission is to deploy the infrastructure to operate universal health insurance in less developed countries.
2/ From an insurance point of view, the bet is that network effects trump selection effects. The main imperfection of the health insurance market is adverse selection. When enabled to do so, insurers tend to exclude from the market all those who present signs of possible future health problems—or to impose high, unbearable premiums on them to cover the cost.
Technology, however, radically changes the equation. A traditional approach to health insurance invites selection based on signal: it leads to tense discussions of pre-existing conditions and a premature elimination process. Conversely, a technology-driven approach triggers some different dynamics: it makes it possible to collect more data from new insurees and to enroll them in peer-to-peer experiences when it comes to practicing preventive care or following a complicated treatment.
Thus in the new world of health insurance, a customer is not only a potential loss that you need to exclude or rob with high premiums so that they cover the cost of future treatments. It’s a new node in a network that over time will create value for the entire community of insurees through aggregated data, behavioral influence, and peer-to-peer work.
3/ When it comes to providers, the power of a healthcare insurer allied with a multitude of insurees will make it possible to retrofit the legacy industry. Professor Clayton Christensen, of Harvard University, has worked a great deal on how to make healthcare more welcoming for disruptive innovation. You can watch an inspiring conference here on YouTube or read his book The Innovator’s Prescription.
But to keep it short: we have to get rid of general hospitals. As Christensen wrote here, “Hospitals have become extraordinarily capable of dealing with very complicated problems. But in the process of adding all of that capability and its attendant costs, the hospital has overshot what patients with straightforward disorders can utilize when they are admitted.”
I regret that in a country such as France, the drive to reform healthcare always takes the form of concentrating more and more resources in oversized hospitals. Sadly we’re employing recipes from the age of mass production when we’re already deep into the new age of networks.
4/ Somehow the system will be rebuilt from the bottom up. It happened many times in the past. One well-documented episode is when those who were dying of AIDS in the 1980s and 90s hacked a system that ignored and rejected them. They eventually forced healthcare professionals to make the patient an active player in their own treatment, thus imposing a paradigm shift that had an impact way beyond that particular disease. Another, less known story is that of the Black Panthers. I highly recommend watching this breathtaking conference by Professor Alondra Nelson of Columbia University on how the Black Panthers took charge of providing affordable healthcare to African-American families instead of waiting for the government to overcome racial and social prejudice. (You can also read the entire book.)
We can already guess how the Amazon-Berkshire Hathaway-JP Morgan consortium will make it possible to accelerate building things from the bottom up. Once their product is up and running for their own employees, it will only be a matter of years before it’s all turned into a platform which others on the outside will be able to use. Amazon did it once with Amazon Web Services. I don’t see why they wouldn’t do it a second time with healthcare. This will be a nice twist, in that a system in which healthcare coverage is provided by employers could reach a universal breadth by having one of those employers make its resources available for third parties: first other employers (probably SMBs), then individuals purchasing health insurance on the market, then society as a whole.
It doesn’t mean that government doesn’t have a role to play. But my overall impression is that we’re witnessing a sharp reversal in terms of who has the capacity to deliver. In the past, only the government could pull it off at a large scale. Now it looks like governments are stuck in bureaucratic inertia and partisan gridlock, at the very moment when entrepreneurs can harness the power of ubiquitous computing and networks to solve long-standing problems. This is an idea that I’ll discuss in the last part of my coming book HEDGE. What do you think?
Warm regards (from Paris, France),