Costco sets its sights on a new kind of product: Medicare Advantage
Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Stocks are lower Tuesday, with the S & P 500 down more than 0.5% and the tech-heavy Nasdaq dropping more than 1%, putting both indexes on track for a third straight losing session. The pullback comes after the S & P 500 closed at a record high last Thursday. AI-related stocks are feeling the brunt of the pain. Semiconductor stocks like Micron and Intel , component and materials names such as Corning and Qnity Electronics , and infrastructure buildout companies including GE Vernova and Eaton all fell between 5% and 8%. As AI names pulled back, enterprise software and our big pharma stocks jumped about 3%. While there was no specific fundamental catalyst for this rotation, climbing bond yields and oil prices may have spooked some traders out of momentum names. We added to our position in GE Vernova earlier Tuesday. Costco is embarking on another venture that takes the retail giant deeper into healthcare and could eventually make a warehouse membership even more appealing to shoppers. On Tuesday, the company and SCAN Group, a not-for-profit health insurer on the West Coast, announced a partnership to launch a Costco-branded Medicare Advantage plan. The forthcoming product, which is still working its way through the regulatory process, is planned to initially launch in two states, said Dr. Sachin Jain, the CEO of SCAN Group, in an interview. Jain said they’re also working on a Medigap plan — supplemental insurance to help cover out-of-pocket Medicare expenses, such as copays and coinsurance — that will be available in a third state. SCAN Group currently offers its own Medicare Advantage plan in counties across five states — California, Arizona, Nevada, Texas, New Mexico, and Washington — serving nearly 460,000 members. Costco became a preferred pharmacy for SCAN’s Medicare Advantage members last year, so Tuesday’s announcement builds on that relationship. “Being a not-for-profit provider of insurance services, our goal is to provide as much value as we can to the Medicare beneficiaries that we serve. You can understand the clear alignment between Costco and us in that regard,” said Jain, who added that he’s a longtime Costco shopper himself. Jain said SCAN Group believes health insurance is a “broken industry” in need of fixing, and working with Costco can help accomplish that. “Part of the work that we’re trying to do is really redesign the Medicare Advantage experience, and do it in the same way that Costco knows how to do it, which is an exquisite focus on member value.” Medicare Advantage is the privately run version of the U.S. government’s senior health insurance program, typically bundling together hospital, medical and prescription drug insurance, as well as extra benefits not available under so-called original Medicare. For many years, insurers such as Humana and UnitedHealth aggressively pursued growth in the Medicare Advantage market. It had been a boon until recent years , when insurers saw their profits squeezed by rising medical costs, members using more of their services, and the government tightening its purse strings on reimbursement. In response, some insurers have scaled back their Medicare Advantage ambitions, leaving certain markets; Cigna sold its Medicare business last year. Against this backdrop, Costco is leaning into Medicare. Of course, Costco is no stranger to healthcare, offering hearing aids and pharmacy and vision care services to members in its warehouses. But this represents a whole new way to help members get medical care. Costco’s reputation for offering high-quality products at fair prices should carry water with potential enrollees. “Do you really want to go up against Costco if they decide to have Medicare Advantage?” Jim Cramer said Tuesday. It’s difficult to predict the long-term financial impact on Costco because much remains unknown, including details about the partnership’s structure. Considering its limited scope to start, this is unlikely to be an immediate needle-mover. Nevertheless, as investors, we appreciate what this says about Costco’s willingness to try new things to better serve its members and keep them renewing at high rates — remember, membership fees make up the majority of Costco’s profits. It echoes Costco’s decision to experiment with building standalone gas stations, detached from its warehouses; the first one opened this summer in Mission Viejo, California, and at least one more is currently planned in Honolulu, Hawaii. Both of these endeavors aren’t thesis-changing right away. But down the road, they could represent more meaningful sweeteners to attract new Costco members and keep existing members around. Costco shares are up over 1% Tuesday, bucking the broader market declines. After the closing bell on Tuesday, homebuilder Toll Brothers and Keysight Technologies , a test and measurement company, report earnings. We’ll see earnings from TJX Companies before the opening bell Wednesday. The LSEG consensus for the top and bottom lines is $15.17 billion and $1.19, respectively. Analog Devices , Target , Estee Lauder , Lowe’s and Viking Holdings also report on Wednesday. In terms of economic releases, on Wednesday we’ll see the minutes from the Fed’s July FOMC meeting, which may provide some clues about how the committee views monetary policy ahead of next week’s Jackson Hole Economic Policy Symposium. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
