Costco is known as the place to go when you want bulk paper towels, produce, and snacks at a reasonable price.
But anyone who pays for a Costco membership knows that the company offers a lot more than just giant packages of household goods and food staples.
The warehouse club has steadily built a much broader business around its members, offering everything from gasoline to travel to optical services.
Now, Costco is taking another major step into an area that could become increasingly important as its customer base ages — health insurance.
The retailer is partnering with nonprofit insurer SCAN Health Plan to offer Costco-branded Medicare Advantage plans in two states, along with a Medicare supplement plan in a third state, pending regulatory approval.
That makes this more than just another perk designed to get Costco members through the front door. It’s a potentially meaningful expansion of the company’s relationship with older Americans.
Costco makes a strategic jump into Medicare
Medicare Advantage has become a major part of the U.S. healthcare system. As of earlier this year, an estimated 35 million Americans were enrolled in a Medicare Advantage plan, according to KFF.
Medicare Advantage plans commonly offer benefits beyond what original Medicare offers, covering dental services, eye exams, hearing aids, and fitness club memberships.
The plans also cap annual out-of-pocket spending, which can give retirees on a budget more peace of mind.
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Costco’s entry into the Medicare Advantage market gives the company a chance to apply something it understands extremely well — making complicated consumer decisions feel relatively simple while emphasizing value.
The partnership with SCAN is particularly important because Costco is not trying to become an insurance company overnight.
SCAN already operates Medicare Advantage plans and serves nearly 460,000 members across six states. Costco can bring its brand, customer relationships, and physical locations to the partnership, while SCAN provides the insurance expertise.
“For more than 40 years, Costco has consistently listened to our Members and earned their trust delivering consistent value on essential goods and expanding our health service offerings,” CEO Ron Vachris said.
“Selecting SCAN as our partner to deliver a better healthcare experience for seniors is an extension of that commitment.
The companies are also looking at integrating the plans with services Costco already offers. Those could include a revamped pharmacy experience, over-the-counter benefits, and audiology services.
Costco is already a major destination for prescriptions and other health-related purchases, making the connection fairly logical.
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Costco’s latest move could grow its membership base even more
Costco’s Medicare Advantage move fits neatly into the company’s larger strategy of becoming more than a warehouse retailer.
The company has spent years building an ecosystem around its membership. Healthcare is a natural extension of that strategy, particularly as Costco looks for ways to remain relevant to an aging customer base.
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But the biggest opportunity may not be selling insurance itself. It may be using healthcare to deepen the relationship between Costco and older Americans.
An older customer who doesn’t need bulk groceries every week now has additional reasons to walk through the doors and keep their Costco membership. And for a retailer built around membership fee revenue, giving customers more reasons to come back is a smart business move.
The Medicare partnership is still in its early stages, and the exact markets and timing remain to be determined. But Costco has already shown that its definition of a warehouse club is much broader than it once was.
Maurie Backman owns shares of Costco.
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