It’s Insurance a la Cart: Costco Stores to Market Health Plans

Costco Wholesale Corp., the low-cost bulk supplier of breakfast cereal, motor oil and diamond rings, is adding health insurance to its warehouse shelves.

In a pilot program to be launched next month in Southern California, Costco will offer family and individual coverage to its customers who pay $100 a year for “executive” membership, company officials said. The insurance is aimed at people such as contractors, waiters and students who are self-employed or cannot sign up for plans at work.

Although other discount stores such as Wal-Mart and Target have begun offering limited health services in their stores, Costco says it will be the first to offer insurance to members. About 18 million households nationally belong to Costco, including 3.4 million who pay for executive membership.

Company officials would not quote premiums but said the insurance would be 5% to 20% cheaper than policies individuals could buy on their own. Costco expects to offer coverage statewide by the end of the year and may eventually make it available to regular members, said Dellanie Fragnoli, assistant vice president of insurance services at Issaquah, Wash.-based Costco.

“It’s one of the more requested services by our members,” Fragnoli said.

Since 2003, Costco has offered group health insurance to its small-business members in the West through Cypress-based PacifiCare Health Systems Inc., said Cheryl Randolph, spokeswoman for PacifiCare.

The new program, also offered through PacifiCare, will be different in that it is tailored to individuals and families.

The preferred-provider plan, also known as a PPO, which encourages members to see participating doctors, will come in two forms offering similar benefits. One option will have a $1,500 annual deductible for individuals and a $3,000 deductible for families. The other, with lower premiums, will have deductibles twice as high, Costco said.

Coverage for both plans will include prescription drugs; co-payments for most office visits will be $35. Premiums will vary depending on age, location and health status.

Initially available only through Costco’s 34 warehouses in Los Angeles, Orange and parts of Riverside and San Bernardino counties, the plan will be sold over the Internet and through a call center.

Costco can offer a discount in part because of lower administration, advertising and brokerage costs, Randolph said.

“They believe they can be cheaper than everyone else, not because of the bulk or the [lack of] frills, but because they are cutting out the middlemen, the broker,” said J.D. Kleinke, a healthcare economist in Portland, Ore.

Costco is licensed to sell health insurance and receives a commission, but it “is significantly lower than what is generally paid,” Fragnoli said.

Kleinke said consumers didn’t really care who their health insurance provider was.

“They just want the cheapest way to see their doctor,” Kleinke said.

Although discount retailers selling health insurance may seem like an odd mix, it points out the need consumers have for alternatives, given the rising costs of health insurance, Kleinke said.

Other major retailers including Target Corp. and Longs Drug Stores Corp. also have moved into the healthcare arena. At some Target stores in Minneapolis, shoppers can visit walk-up clinics staffed mostly by nurse practitioners for minor ailments, such as a bladder infection or seasonal allergies, with no appointment and little or no waiting. Target is contracting with Minneapolis-based MinuteClinic Inc. to run the clinics.

In Davis, Calif., this year, Longs unveiled its own in-store clinic. And also this year, the Wal-Mart Stores Inc.-operated Sam’s Club began offering a discount program to members that cuts by as much as 50% the cost of some health services not covered by insurance, such as laser eye surgery and dental care.

This area is going to continue to grow, predict healthcare specialists like Kleinke, as rising costs push people to find new ways to insure themselves.

“We’re not going to solve this problem,” Fragnoli said. But “there is some value in Costco being in the arena. It keeps the providers on their toes.”