At the center of this 1918 picture is John Pierpont Morgan, JP Morgan, the founder of the eponymous firm (now JPMorgan Chase & Co.) who helped bail out the US government during the panic of 1893. I wish I could say the photobombing kid was my grandpa. That would be a great family story. Today the company is run by acclaimed CEO, Jamie Dimon, who’s linked with Warren Buffett and Jeff Bezos on the Haven healthcare initiative to improve healthcare outcomes and lower costs for the firms and their employees. Mr. Dimon recently posted a 50 page letter to shareholders in which he discusses the bank’s results, challenges, healthcare, wages, tax reform, regulations, and the role of government. Maybe the pain of the length is warranted. These letters are now must-reads for investing groupies.
JPMorgan Chase (JPM) is yuge! The company boasts $100B in revenue, a $360B market cap, $2.6T in assets and $32B in earnings. Their net margin gains are America’s gains. If over 100,000,000 people in America own stock (as Jamie points out–we’re not on a first name basis but I’ll call him Jamie), tens of millions own JPM stock either directly or through index funds.
I read the letter and skimmed the 40 page “Highlights of the 2019 JPMorgan Chase U.S. Benefits Program”, with an eye for healthcare, views on the state of the economy, and nuggets on wages. The firm has announced big pay increases: $4,500, or over 10% for those making less than $40,000 per year, a company 401k match up to 5%, an average benefit package of $12,000 for lower wage workers–that’s ~$6 more per hour. They have dynamic deductibles by wage levels–with incentives they can reach zero. However, the core healthcare benefits are average relative to its large financial peers. 80% is the average employee cost sharing for a large financial services company (my analysis of industry data from the Kaiser Employer Healthcare Survey). An example of an 80% plan value (a gold plan), or actuarial value in industry-speak, is one with a $1,500 deductible, 20% cost share, and a maximum out-of-pocket of $2,500. JPM’s is shy of 80% on an equally-weighted basis across its two plans and 3 income tiers. Benefits of course extend to parental leave, time off, personal development, ancillary insurance, and more, but we’ll stick to the core health benefits for this.
The company, net of employee contributions, spends $1.3B per year on healthcare–total spend is likely $1.6B or $5,400 per person, $11,500 per US employee. It also spends a lot on direct employee payments for wellness: “$100 million…for completing wellness activities.” That’s $725 per employee per year–not counting the cost of running the programs. JPM likes wellness so much, it’s mentioned 123 times in the shareholder letter. Fresh in the news is wellness and a new study to counter those who stretch the rules of arithmetic to show savings. A lack of control groups was something they always bent around but a big Illinois study last year added this, and a new one in the news yesterday showed wellness programs don’t lower healthcare use or spending.
Two big things mentioned in JPM’s programs are biometric screenings and health risk assessments. One issue with the biometric screenings is most healthy adults should have their cholesterol checked every 4 to 6 years per the CDC, further guidelines are here from the USPSTF. JPM and its healthcare helpers are nudging people to get them yearly. It must be pressure from the $80M+ brokers and consultants are collecting. They have to recommend something. As Alfred Montepert said: “Do not confuse motion and progress. A rocking horse keeps moving but does not make any progress.” Wellness can be that rocking horse.
As part of the impetus behind Haven, the Atul Gawande-led company, you’d hope JP Morgan would lead in prudence with healthcare dollars, and in promoting screening guidelines. They may be slow to change, especially if they keep their current consultants, unless they read the latest research. Inertia is powerful and employees get used to their incentive checks.
$100 million is $100 million. Let’s stretch for a minute. What would happen if JPM shaved 20% off the cost of healthcare and wellness? For a company its size, that’s $280M/year (total firm costs plus $100M in incentives), or .09 per share, and with a 12x earnings multiple, $1.03/share, or a ~1% increase in share price. Not much, but something. Meanwhile, they keep getting photobombed and pick-pocketed by the helpers in the healthcare systems. They could use the savings to lower deductibles, to make the core health benefits more competitive. Like modest inflation, in the short-run, it’s not immediately felt, but if they want to be a beacon for healthcare and control long-term costs, they need to watch their pockets. It’ll benefit employees, shareholders, and the nation as a whole.