Costco partners with not-for-profit SCAN Group for a Medicare Advantage plan, starting in two states. The move builds on existing healthcare services and could strengthen membership renewal rates.
Costco is moving deeper into healthcare. On Tuesday, the retailer announced a partnership with SCAN Group, a not-for-profit health insurer on the West Coast, to launch a Costco-branded Medicare Advantage plan.
The product still needs regulatory clearance. It will initially roll out in two states, SCAN Group CEO Dr. Sachin Jain said in an interview. The companies also plan a Medigap plan – covering copays and coinsurance – for a third state.
Costco became a preferred pharmacy for SCAN's Medicare Advantage members last year. The new plan builds on that. “You can understand the clear alignment between Costco and us in that regard,” Jain said. He described health insurance as a “broken industry” and said the partnership aims to “redesign the Medicare Advantage experience” with a focus on member value.
SCAN Group currently serves about 460,000 members across California, Arizona, Nevada, Texas, New Mexico and Washington. Its not-for-profit structure fits with Costco's low-margin, high-volume model.
The Medicare Advantage market has turned tougher for private insurers. Rising medical costs and tighter government reimbursement have squeezed margins. Humana and UnitedHealth both pulled back on their plans. Cigna sold its Medicare business last year. Costco is entering during that pullback.
Costco already sells hearing aids, runs pharmacies and offers vision care in its warehouses. Adding an insurance plan could strengthen membership renewal, which drives the company's profits. “Do you really want to go up against Costco if they decide to have Medicare Advantage?” Jim Cramer said Tuesday.
The financial impact on Costco is uncertain. The plan is limited to two states initially, and regulatory approval is not guaranteed. Costco did not provide financial projections. Jain said the company is “working through the regulatory process” and declined to specify launch timing.
Costco has a history of experimenting with member perks. It opened a standalone gas station this summer in Mission Viejo, California, separate from its warehouses. A second gas station is planned for Honolulu. Both are small experiments, similar to the insurance plan.
On Tuesday, Costco shares rose more than 1% even as the broader stock market fell. The S&P 500 lost 0.5%, with AI-related names like Intel (Alpha Score 41) and Eaton (Alpha Score 52) dropping 5% to 8%, according to proprietary AlphaScala data.
If the Medicare Advantage plan wins regulatory approval and attracts members, it could pressure legacy insurers to compete harder on price and service. For now, the scope is small. The next milestone is regulatory sign-off. No date has been set.
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