Why would Amazon choose this strategy?

The Medicare Advantage market continues to be very profitable for primary care and digital health businesses. This is certainly true for Amazon One Medical. According to a recent article in The New England Journal of Medicine, “about half of One Medical’s 2021 net revenue came from its Medicare Advantage members, who made up only 5% of its patient population.” So if Amazon were to expand its MA footprint, where would it look? The two charts below highlight the largest counties by enrolled Medicare Advantage populations.

What to watch for:

From this analysis, there are two clear markets for Amazon to target if they are hoping to increase their MA business — South Florida and Southern California. Interestingly, One Medical does not currently operate in Florida at all, while they already have existing One Medical facilities in the Los Angeles area. Iora does not currently operate in either market. These markets represent two different growth options:

Expand into new markets

Expansion into South Florida would be an immediate signal that Amazon One Medical is interested in the MA market. One Medical had previous plans to open Miami facilities that did not materialize, so this could represent a clear signal as to the impetus behind the move.

Grow business in One Medical markets

New facilities or Iora-specific facilities in Southern California could signal that Amazon wants to grow their MA business in markets they already operate in. One other market to watch for in this example would be New York City, as three adjacent counties (Queens, Kings, and Bronx) are all in the top 20 for largest enrolled MA populations and would be the second largest area by enrolled MA population behind Los Angeles County if they were combined.

Why would Amazon choose this strategy?

Amazon has shown a desire to reduce spending on employee healthcare for years, all the way back to their failed Haven Healthcare joint venture which disbanded in 2021. In 2022, Amazon shuttered AmazonCare, a virtual care service offered to employees, leaving the company with no major products in this space. With the addition of a hybrid primary care service in One Medical and an asynchronous telehealth offering in Amazon Clinic, we could see Amazon make a third attempt at creating an employee-focused healthcare offering. After the AmazonCare experiment into virtual care, we expect this offering would be based on a hybrid model, which would likely require an expansion of facilities near Amazon’s employee base. The chart below highlights the five states with the most Amazon employees per One Medical location.

What to watch for:

Given Amazon’s previous failures in successfully reducing employee health care costs, we would expect Amazon to start with a pilot in a market with existing One Medical locations. If those pilots are successful, the next step would likely involve expanding into new markets.

Pilots in existing markets

Washington, Texas, and California are all prime locations for Amazon to pilot a new employee offering. The tech giant may choose between these states based on the type of employee they are interested in targeting. A pilot in Washington would be more likely targeted at corporate and tech employees, while a pilot in Texas would be aimed at warehouse and delivery employees.

Expansion into new markets

If Amazon saw early success in these pilots, Florida and New Jersey are prime targets for expansion, particularly if these pilots are successful with warehouse and delivery employees. One other wild card to watch here is if Amazon were able to secure a contract with another organization to manage employee healthcare cost, as the location of that organization could dictate expansion.

Why would Amazon choose this strategy?

Amazon has millions of consumers shopping on its platform or in Whole Foods (a subsidiary grocery chain) daily. A significant percentage of those consumers have some level of brand loyalty incentive to Amazon via Prime membership and/or an Alexa speaker. Pursuing this strategy would allow Amazon to continue its mission of cross-sell and integration by converting these consumers of their other services into patients.

Amazon does not publicly release data on the markets with the most Prime members, so as a proxy for existing Amazon consumers we have pulled the cities with the most Whole Foods locations, listed below:

What to watch for:

One Medical already has facilities in all 10 of the cities listed above, so look for expansion in these areas as a potential signal. Amazon also recently announced a new prescription service, RxPass, that is directly tied to Amazon Prime. This is the first time Amazon has directly linked healthcare services to Prime, and its success in different markets could provide key data on markets with consumer bases open to using Amazon for healthcare. RxPass is currently offered in 42 states, with California, Texas, and Washington representing the biggest states where it is not offered. As these states could be considered key to a long-term consumer strategy, this could be severely limiting to Amazon’s future plans.