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Why Costco Is Walking Into the Market Health Insurers Are Fleeing

UnitedHealth, Humana, and Aetna are cutting Medicare Advantage by the hundreds of counties. Costco just entered the $500 billion market — with a deal structured so the retailer can't lose.

Alpha One

23 Aug 2026 • 7 min read

On Monday, the two most important stories in American senior healthcare ran in opposite directions.

UnitedHealthcare, Humana, and Aetna — the three companies that built the modern Medicare Advantage industry — are spending 2026 in retreat: exiting states, dropping counties by the hundred, and shedding members by the half-million. And Costco, a company whose core competencies are rotisserie chicken and bulk paper towels, announced it is walking in.

The warehouse retailer's new partnership with SCAN Health Plan — the first time Costco has ever attached its name to a Medicare plan — will put Medicare Advantage coverage on offer where 80 million–plus paid member households already shop. Plans will launch in two states initially, with a Medicare supplement product in a third, pending federal approval, and they'll be sold through Costco warehouses, online, and via insurance agents. Notably, you won't need a Costco membership to buy one.

It would be easy to file this under retail gimmickry. That would be a mistake. The interesting question is not whether Costco can sell insurance. It's why a disciplined, famously conservative retailer is entering a $500 billion market at the exact moment the industry's giants are running out of it — and what that tells you about where the senior-care economy goes next.

The Market Everyone Is Leaving

Medicare Advantage — the program that lets private insurers administer Medicare benefits — covers roughly 35.5 million Americans in 2026, about 55% of eligible Medicare beneficiaries. For fifteen years it was the growth engine of the entire managed-care sector. That engine is now sputtering.

Enrollment growth decelerated to about 3% this year, down from 4%, and nearly all of the net growth came from special needs plans rather than the mainstream products most seniors buy. The reason is simple: the economics broke. Federal reimbursement tightened just as seniors — many of whom deferred care during the pandemic years — started using their benefits far more heavily than actuaries priced for.

The response from the industry's largest players has been unambiguous:

UnitedHealthcare, the largest Medicare Advantage carrier in the country, stopped offering plans in 109 counties for 2026, affecting roughly 180,000 members, and pulled almost entirely out of Vermont's individual market.
Humana, the number two, cut its service area from 89% of U.S. counties to 85%, exited three states outright, and expects to lose around 550,000 Medicare Advantage members this year as it abandons unprofitable markets.
Aetna discontinued roughly 90 plans across 34 states — mostly the flexible PPO products seniors prefer — and withdrew from about 100 counties.

As UnitedHealth's government programs executive put it: "The combination of CMS funding cuts, rising healthcare costs and increased utilization have created headwinds that no organization can ignore."

Into this environment steps a grocery chain. Deliberately.

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What Costco Actually Announced

The details matter, because they reveal a business model that is nothing like the retail-healthcare experiments that came before it.

SCAN Health Plan is a nonprofit Medicare Advantage organization — one of the largest in the country — serving roughly half a million members, with a service footprint spanning California, Arizona, Nevada, Texas, New Mexico, and Washington. Under the partnership, SCAN designs and underwrites the insurance; Costco provides the storefront, the pharmacy counter, the optical center, the hearing-aid department, and — most valuable of all — the trust.

The planned product suite, pending regulatory review, includes what the companies call a "re-invented pharmacy experience," over-the-counter benefit allowances, vision, and audiology — all wired into services Costco already operates inside more than 600 U.S. warehouses.

SCAN's CEO, Dr. Sachin Jain, framed the logic plainly: older adults want healthcare that is "easier to navigate, more responsive to their needs and rooted in organizations they trust."

That last clause is the entire strategy. Costco's U.S. and Canada membership renewal rate is 92.2%. There is arguably no consumer brand in America with deeper credibility among the demographic that buys Medicare plans. Seniors already fill prescriptions at Costco because its pharmacy routinely undercuts insurance copays on generics. They already buy hearing aids there — Costco is one of the largest hearing-aid dispensers in the United States. The insurance product simply completes a loop the members built themselves.

Why This Isn't Walmart Health

Retail healthcare has a graveyard, and it's worth walking through it.

Walmart signed off on a plan in 2018 to build as many as 4,000 primary-care clinics. It opened 51, struggled with billing, staffing, and reimbursement, and shut the entire division in 2024. Walgreens poured more than $6 billion into VillageMD, took the losses on its own income statement, and has been closing clinics and retreating ever since. CVS bought Aetna and Oak Street to become a vertically integrated healthcare company — and its Medicare business spent the last two years as the biggest drag on the stock.

The common thread in every failure: the retailer took on the cost of delivering or underwriting care. Clinics mean doctors, nurses, real estate, and billing infrastructure. Insurance means actuarial risk. Both are low-margin, capital-hungry businesses that punished every retailer that touched them.

Costco is doing neither. It is not building clinics. It is not taking underwriting risk — SCAN carries that. Costco is renting out the two assets it already owns and that cost it nothing incremental: foot traffic and trust. If the plans succeed, Costco deepens senior loyalty, drives pharmacy and optical volume, and adds another reason for the most valuable retail membership in America to auto-renew. If they fail, Costco has lost a signage budget.

That asymmetry is the story. This is the first retail-healthcare play structured so that the retailer cannot meaningfully lose.

What It Means for the Money

For the incumbent insurers, the threat isn't competition — it's distribution repricing. UnitedHealth, Humana, and CVS spend enormous sums acquiring Medicare members through brokers, call centers, and television. Broker commissions are CMS-capped but substantial, churn is endemic, and acquisition cost is one of the largest controllable expenses in the business. If seniors begin buying coverage where they buy groceries — from a brand they already pay to belong to — the traditional acquisition machine gets repriced. The publicly traded insurance brokers built on Medicare enrollment volume are the most directly exposed businesses in this scenario.

For SCAN, this is a scale play that mid-size plans everywhere will study. Regional nonprofit plans have been squeezed between the vertically integrated giants and rising medical costs. Partnering with a national retail brand is a third path: borrowed distribution, borrowed trust, near-zero customer-acquisition cost. If SCAN grows meaningfully through Costco, expect every regional plan in the country to go shopping for a retail partner.

For Costco, the near-term financials are a rounding error — the strategic value is not. Nobody should model insurance commissions moving Costco's earnings. The value runs through the membership flywheel: health services are a primary reason seniors visit, and seniors are the stickiest members a subscription business can have. Costco has been methodically assembling a senior-health stack — $29 telehealth visits through Sesame, cash-pay GLP-1 programs, low-cost hearing aids, and now insurance. Each piece raises switching costs on a membership that already renews at 92%.

For the Medicare Advantage market itself, this marks a phase change. The era of competing on ever-richer benefits is over — benefits are shrinking industry-wide as reimbursement tightens. The next phase will be fought on cost of acquisition and member experience. Costco's entry is the clearest signal yet that the winners of that phase may not be the companies that own the doctors or the claims systems, but the ones that own the customer relationship.

The Caveats

The plans still need CMS approval, and the companies won't even name the launch states yet. Medicare Advantage margin pressure applies to SCAN exactly as it does to Humana — a partnership with Costco doesn't repeal medical cost trend. And there is brand risk in attaching the Costco name to a product category where the customer experience includes prior authorization and claim denials; the first viral story about a Costco-branded plan refusing a scan will test how much of that 92% trust is transferable.

But the structure of the deal — risk on the nonprofit, distribution on the retailer — is precisely the shape the failed experiments lacked. The giants aren't leaving Medicare Advantage because seniors stopped needing coverage. They're leaving because their cost structures can't make the math work. Costco's bet is that the math looks very different when the storefront is already built, the pharmacist is already staffed, and the customer already walked in for something else.

The insurers spent twenty years buying doctors, pharmacies, and each other to control the senior healthcare dollar. It's possible the most important asset was a $65 membership card all along.

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