Aetna and Costco have expanded into nine states with their cobranded health plan. Two additional states will be added pending state regulatory review.
The Costco Personal Health Insurance program offers five Aetna health plans with major medical benefits and dental coverage in Arizona, Connecticut, Georgia, Illinois, Michigan, Nevada, Pennsylvania, Texas, and Virginia.
The partnership between the giant health insurer and the major warehouse merchandiser establishes a beachhead for Aetna to a "nice cross-section of individual and small business customers," says Tory Wolff, a partner at Recon Strategy, a Cambridge, MA-based consulting firm focused on healthcare strategy.
He sees the partnership as one more indication of the movement taking place in the health insurance industry. "There's a lot of experimentation taking place right now as insurers test different channels to bring their products to customers."
As health insurance sales shift from B2B to direct-to-consumer models, the Costco deal means Aetna can tap into the company's successful retail strategy. Meanwhile Costco, which has wanted to expand its health insurance business line in a big way, has gained a well-established national player for its efforts.
Barbara DeMaio, who heads individual business at Aetna, says the Costco membership base has been very strong for Aetna. She notes that the typical Costco member is similar to Aetna's existing book of business. They tend to be value-based shoppers, have families, and be sole proprietors or business owners. While declining to cite sales figures, DeMaio says Costco's reputation as a first-class retailer and its loyal customer following are helping sell the insurance products.
DeMaio reports that feedback received so far indicates a "very high level" of customer satisfaction, with about 86% of members enrolled in these products reporting that they are very satisfied with their purchase. "We see this as a huge opportunity to service these customers over the long term," she says.
This is not the first time Aetna has sought to expand its brand by partnering with a major retailer. In January it announced a pilot program with Chicago-area Best Buy stores to sell online wellness programs in the retailer's health technology department. The programs from Aetna's LivingWell line focus on fitness, smoking cessation, stress management, and weight management. The line also includes products such as pedometers and blood pressure cuffs.
The Aetna-Costco health insurance products vary slightly from state to state but are based on five comprehensive offerings: a health savings account model, two traditional high-deductible plans, and two value plans. A dental option is also available. Deductibles range from $3,000 to $7,500. Costco personnel were very involved in the product development, says John Conlon, its director of insurance services. "This isn't a typical affinity relationship like some businesses might offer. Costco is involved in the [insurance] product and we're careful about what we offer."
From Costco's perspective, he says, the goal of the partnership is to enhance the value of the Costco membership. DeMaio refers to "integrated points of value" available at Costco, such as pharmacies, that make it easy for people access their health insurance services.
The average Costco-Aetna policy has two members and is priced at about $350 per month. Typical benefits include a discount when members fill their prescriptions at a Costco pharmacy, unlimited lifetime coverage, and online interactive wellness programs. The nationwide provider network includes more than 921,000 healthcare professionals, more than 528,000 primary care physicians and specialists, and more than 5,100 hospitals.
The insurance policies aren't sold through on-site kiosks. Instead in-store signage refers customers to the Costco-Aetna website. Other marketing includes e-mails, ads in Costco's Connection magazine, direct mail, and advertising inserts. Conlon says it expensive to sell health insurance on-site. "It's hard to demo a health insurance policy," he laughs, referring to the common practice of food vendors of providing free samples to warehouse customers. Furthermore, selling insurance requires a license.
Conlon says "several thousand" policies have been sold and sales are "meeting expectations." He says many of the policies are for what he calls "micro groups" of two to three employees.
Costco has made previous forays into health insurance sales. Conlon says several years ago the company recognized the potential of the individual market and signed with what was then PacifiCare to sell individual health insurance policies in California. Costco enjoyed some success in the market and began looking for a single partner to develop a national product. Aetna had been though a similar experience with AARP, where it offered a custom program. "We saw a lot of similarities and a good fit,"DeMaio says.
The two companies have been rolling out their health insurance program for two years. Conlon admits that expansion is slow as Costco waits for approval to act as an insurer in various states. The company collects commissions on the health insurance policy sales.
Costco is interested in continuing to expand its competitive position in the insurance and healthcare business. It has a laundry list of possibilities, including the potential to develop a private health insurance exchange.
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
