Costco (NASDAQ:COST) has partnered with Aetna, one of the world’s largest managed health care services company, to offer health insurance services. The Costco Personal Health Insurance program offers five Aetna health plans with major medical benefits and dental coverage. We believe this partnership would benefit from several synergies associated with Costco’s affluent customer profile and Aetna’s expertise in the health insurance industry. Costco traditionally competes with warehouse club operators including BJ’s Wholesale Club (NYSE:BJ) and Sam’s Club, which is part of Wal-Mart (NYSE:WMT), in addition to other retailers such as Best Buy (NYSE:BBY) and Target (NYSE:TGT).
Since a majority of Costco’s members belong to the affluent demographic group and hence have a low-risk profile, it becomes easier for Aetna to provide insurance services to these customers. At present, the program is available in Arizona, Connecticut, Georgia, Illinois, Michigan, Nevada, Pennsylvania, Texas and Virginia. It will extend its offerings to more states later this year. All newly introduced plans include lower monthly premiums and low cost pharmacy services for Costco members in addition to other special features.
Costco is looking to leverage its customer base and reach to sell different products and expand its portfolio to newer segments. It recently partnered with banks to offer mortgage services to its members. We believe Costco is strategically trying to enter other market segments by partnering with strong existing players in the industry.
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We believe the partnership with Aetna will help Costco in building its brand in the health care market. This could be as a stepping stone to other such future partnerships for the company.