Wholesalers seek underserved insurance markets

June 1, 2005

As healthcare becomes more and more retail-oriented, and as consumers seek new ways to cover healthcare costs, wholesalers such as Costco and Sam's Club are entering the health insurance market.

NATIONAL REPORTS-As healthcare becomes more and more retail-oriented, and as consumers seek new ways to cover healthcare costs, wholesalers such as Costco and Sam's Club are entering the health insurance market.

"The fact that some health insurance companies are beginning to use non-traditional distribution channels such as Costco or Sam's Club to sell individual insurance lets them control operating expenses while simultaneously offering a more affordable product to an underserved market," according to Jay Cook, CEO at Westwood, Mass.-based MIB Group Inc., provider of impairment data to detect and deter fraud at initial underwriting. "Keeping health insurance affordable is of the utmost importance."

Costco currently offers small business health insurance in four states: California, Washington, Oregon and Nevada, and anticipates launching a family and individual health insurance program in California sometime this summer.

"There is a limited selection of plan designs, usually two to three in each state, that are tailored to meet the needs and budgets of small businesses. They are underwritten by one leading carrier in each state-PacifiCare in California, HealthNet in Washington and Oregon, and NevadaCare in Nevada. The plans are sold online, in most states and through a licensed call center," Fragnoli adds.

Health insurance is one of the most requested services by Costco's small business members. "This interest on the part of small business owners reflects their frustration with the availability and affordability of health insurance, a frustration that has grown with the ever-increasing cost of health insurance and health services. Members' interest in Costco's programs and the proliferation of new products, including SDHP [Self Directed Health Plan], HDHP [High Deductible Health Plan] and HSA, signals their willingness to embrace non-traditional alternatives," Fragnoli says.

Costco started offering the small business health insurance in Washington in 1997 as part of its initial entry into the services arena. "Health insurance was-and remains-one of the most-requested services by our small business members," Fragnoli says. "Many of Costco's business members are 'micro' businesses with five or fewer employees. This is one of the most challenging and underserved segments of the health insurance market. Costco is attempting to create an efficient means of reaching and serving this market segment."

While one of Costco's competitors offers a more traditional multi-carrier brokered program, Fragnoli says she has not seen a proliferation of these types of programs among retailers or wholesalers. "However, a new trend that appears to be developing is in-store medical clinics. These clinics typically are staffed by RNs or nurse practitioners who patients on a walk-in basis for limited conditions. Managed healthcare executives could view this as an opportunity to experiment and develop creative alternatives," she says.

"Costco is a single data point, but it is intriguing that they believe they can beat the entire market by knocking out the agents," according to MHE Advisor J.D. Kleinke, executive director of the Omnimedix Institute, a non-profit, advocacy-based healthcare research and information technology development organization in Portland, Ore. "Costco can get away with what the traditional carriers cannot because they do not have legacy broker relationships they need to protect."

MORE MARKET MUSCLE Similarly, Sam's Club "brings the benefits of market buying power to consumers and small businesses," according to Andy Slavitt, managing director of UnitedHealth Group's Center for Affordable Consumer Health, and COO at Ingenix.

Sam's Club will offer members 50% off certain health services, such as home care and laser eye surgery. It's offering the program in conjunction with UnitedHealth Group affiliate HealthAllies.

The membership in HealthAllies is included at certain levels of Sam's Club membership and there is a small monthly fee at other levels.