After Amazon (AMZN  ), JPMorgan Chase (JPM  ), and Berkshire Hathaway (BRK.A  ) announced their plans to enter the insurance business, stock market shares of leading insurers and drug stores dropped significantly. These three corporate behemoths failed to give a detailed plan of action, but investors nonetheless reacted conservatively in the markets. The three corporations' stated intent is to help lower the rising healthcare costs by starting a new company that will offer lower rates and remain free of profit incentives and similar constraints. Their first step is to formulate an insurance product for their own employees.

Their actions have given rise to a great fear of pending disruption to the healthcare industry, and potential restructuring. The stocks affected included UnitedHealth (UNH  ), which dipped by 3%, equating to a 300 point drop in the Dow), Cigna (CI  ), and Anthem (ANTM  ), which dropped over 5%. Aetna (AET  ) and Humana (HUM  ) were also down by roughly 3%. Furthermore, drug stores like CVS (CVS  ) and Walgreens (WBA  ) each dropped by over 4%. Express Scripts (ESRX  ), a pharmacy benefits manager, dropped by roughly 7%.

© Random Retail / Flickr

The rise in the price of healthcare insurance in America has exceeded the pace of annual raises across American workers. Average individual annual premiums are almost $7,000, up from under $2,500 seventeen years ago. Companies have historically paid most of this bill, although in recent years employees are paying higher percentages. The three big corporations are focusing first on increasing efficiency and transparency by providing more information to employees. They hope this will positively impact healthcare cost and quality.

With respect to the stock drops following the news, it's easy to wonder if investors are merely overreacting. After all, experts say, new entrants into the healthcare space are disadvantaged by virtue of the regulatory burdens they will experience. Likewise, healthcare insurance provider markets are highly consolidated, and opaque with respect to availability of information. Furthermore, existing healthcare giants like insurance companies, pharmacies, and drug distributors already have large scales, and the advantages that come with such scales, like the ability to better negotiate for drug prices with pharmaceutical giants. On top of all this, the trend of pharmacies merging with insurers (e.g. the CVS-Aetna merger of 2017) could mean that healthcare behemoths will be fewer and larger than ever.

Experts conclude that a potential competitive threat from a partnership between Berkshire-Amazon-JPMorgan may indeed be in the future, but the effects may not be as drastic as many fear. The recent drop in healthcare stocks is predicted to be short-lived. In the long-term, it is possible that existing healthcare giants may actually come to embrace the competitive stimulus of having a powerful new company on the scene.