Full Press Release Details
eHealth, Inc., or eHealth, is filing this Current Report on Form 8-K to revise the "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements and Supplementary Data" comprising Items 6, 7, 7A, and 8, respectively, of its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission, or the SEC, on March 19, 2018 (the "2017 Form 10-K"). These sections have been recast to reflect eHealth's adoption of the Financial Accounting Standard Board's Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers", or Topic 606, as of January 1, 2018 using the full retrospective transition method. The revised Items 6, 7, 7A, and 8 have been updated in compliance with generally accepted accounting principles to reflect the retrospective adoption of Topic 606 for the respective periods noted.
This Form 8-K, with the exception of the foregoing and the subsequent event described in the last paragraph of Note 11 of Item 8, does not reflect events occurring after the date of filing of the 2017 Form 10-K or update disclosures to already disclosed subsequent events or that are affected by any further subsequent events. Consequently, all other information not affected by the revisions described above is unchanged and reflects the disclosures and other information made at the date of the filing of the 2017 Form 10-K and should be read in conjunction with our filings with the SEC subsequent to such date, including amendments to such filings, if any.
Effective January 1, 2018, we adopted the requirements of Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), as discussed in detail in Note 1 Summary of Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements of this Exhibit 99.1 of Form 8-K using the full retrospective approach, which requires adjusting prior periods as if Topic 606 had been in effect as of the beginning of the earliest period presented. Thus, the following selected consolidated financial data for the years ended December 31, 2015, 2016, and 2017, which has been adjusted to reflect the adoption of Topic 606 as of January 1, 2018, should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with our consolidated financial statements and accompanying notes included in this Exhibit 99.1 of Form 8-K. See Note 1 Summary of Business and Significant Accounting Policies for additional information on ASU 2014-09 and Note 10 "Adoption Impact of New Revenue Standard" for further discussion of the adoption and the impact on our previously reported historical results in the Notes to Consolidated Financial Statements of this Exhibit 99.1 of Form 8-K.
| Consolidated Statements of Operations Data (in thousands, except per share amounts): | Year Ended December 31, | ||||||||||||||||||
| 2013 (2) | 2014 (2) | 2015 (3) | 2016 (3) | 2017 (3) | |||||||||||||||
| Revenue: | |||||||||||||||||||
| Commission | $ | 153,383 | $ | 158,626 | $ | 184,933 | $ | 177,234 | $ | 176,883 | |||||||||
| Other | 25,797 | 21,051 | 18,414 | 16,090 | 13,823 | ||||||||||||||
| Total revenue | 179,180 | 179,677 | 203,347 | 193,324 | 190,706 | ||||||||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Cost of revenue | 5,461 | 4,494 | 1,947 | 862 | 582 | ||||||||||||||
| Marketing and advertising (1) | 71,660 | 69,732 | 75,571 | 72,213 | 65,874 | ||||||||||||||
| Customer care and enrollment (1) | 35,099 | 42,745 | 43,159 | 48,718 | 59,183 | ||||||||||||||
| Technology and content (1) | 32,579 | 40,390 | 36,351 | 32,749 | 32,889 | ||||||||||||||
| General and administrative (1) | 29,235 | 27,549 | 30,239 | 35,216 | 39,969 | ||||||||||||||
| Acquisition costs | - | - | - | - | 621 | ||||||||||||||
| Restructuring (1) | - | - | 4,541 | (297 | ) | - | |||||||||||||
| Amortization of intangible assets | 1,414 | 1,529 | 1,153 | 1,040 | 1,040 | ||||||||||||||
| Total operating costs and expenses | 175,448 | 186,439 | 192,961 | 190,501 | 200,158 | ||||||||||||||
| Income (loss) from operations | 3,732 | (6,762 | ) | 10,386 | 2,823 | (9,452 | ) | ||||||||||||
| Other income (expense) net | (92 | ) | (98 | ) | 1,285 | 1,149 | 1,182 | ||||||||||||
| Income (loss) before provision (benefit) for income taxes | 3,640 | (6,860 | ) | 11,671 | 3,972 | (8,270 | ) | ||||||||||||
| Provision (benefit) for income taxes | 1,917 | 9,345 | 7,707 | 3,668 | (33,696 | ) | |||||||||||||
| Net income (loss) | $ | 1,723 | $ | (16,205 | ) | $ | 3,964 | $ | 304 | $ | 25,426 | ||||||||
| Net income (loss) per share: | |||||||||||||||||||
| Basic | $ | 0.09 | $ | (0.88 | ) | $ | 0.22 | $ | 0.02 | $ | 1.37 | ||||||||
| Diluted | $ | 0.09 | $ | (0.88 | ) | $ | 0.22 | $ | 0.02 | $ | 1.33 | ||||||||
| Weighted average number of shares used in per share amounts: | |||||||||||||||||||
| Basic | 19,145 | 18,367 | 18,008 | 18,272 | 18,512 | ||||||||||||||
| Diluted | 19,846 | 18,367 | 18,086 | 18,314 | 19,047 |
| Year Ended December 31, | |||||||||||||||||||
| 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||
| Marketing and advertising | $ | 2,112 | $ | 1,692 | $ | 1,950 | $ | 1,237 | $ | 1,033 | |||||||||
| Customer care and enrollment | 342 | 386 | 477 | 497 | 418 | ||||||||||||||
| Technology and content | 1,641 | 1,611 | 1,728 | 1,836 | 1,410 | ||||||||||||||
| General and administrative | 3,707 | 2,188 | 2,734 | 3,696 | 6,833 | ||||||||||||||
| Restructuring | - | - | 113 | - | - | ||||||||||||||
| Total | $ | 7,802 | $ | 5,877 | $ | 7,002 | $ | 7,266 | $ | 9,694 |
| As of December 31, | |||||||||||||||||||
| 2013 (2) | 2014 (2) | 2015 (3) | 2016 (3) | 2017 (3) | |||||||||||||||
| Consolidated Balance Sheet Data (in thousands): | |||||||||||||||||||
| Cash and cash equivalents | $ | 107,055 | $ | 51,415 | $ | 62,710 | $ | 61,781 | $ | 40,293 | |||||||||
| Working capital | $ | 97,220 | $ | 39,738 | $ | 148,509 | $ | 146,794 | $ | 130,294 | |||||||||
| Total assets | $ | 166,426 | $ | 106,664 | $ | 353,545 | $ | 357,674 | $ | 359,118 | |||||||||
| Deferred income taxes - non-current | $ | - | $ | - | $ | 80,491 | $ | 75,403 | $ | 45,089 | |||||||||
| Other non-current liabilities | $ | 6,165 | $ | 6,449 | $ | 6,257 | $ | 4,253 | $ | 1,920 | |||||||||
| Retained earnings | $ | 30,466 | $ | 14,261 | $ | 169,252 | $ | 179,298 | $ | 204,724 | |||||||||
| Total stockholders' equity | $ | 133,017 | $ | 73,478 | $ | 236,178 | $ | 252,280 | $ | 286,664 |
| Revenue By Segment Data (in thousands): | Year Ended December 31, | ||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Commission revenue: | |||||||||||
| Medicare | $ | 92,383 | $ | 116,226 | $ | 135,010 | |||||
| Individual, Family and Small Business | 92,550 | 61,008 | 41,873 | ||||||||
| Total commission revenue | 184,933 | 177,234 | 176,883 | ||||||||
| Other revenue: | |||||||||||
| Medicare | 5,655 | 5,930 | 7,438 | ||||||||
| Individual, Family and Small Business | 12,759 | 10,160 | 6,385 | ||||||||
| Total other revenue | 18,414 | 16,090 | 13,823 | ||||||||
| Total revenue | $ | 203,347 | $ | 193,324 | $ | 190,706 |
We are a leading private health insurance exchange for individuals, families and small businesses. Through our website addresses (www.eHealth.com, www.eHealthInsurance.com, www.eHealthMedicare.com, www.Medicare.com, www.PlanPrescriber.com and www.GoMedigap.com), consumers can get quotes from leading health insurance carriers, compare plans side-by-side, and apply for and purchase Medicare-related, individual and family, small business and ancillary health insurance plans. Our ecommerce technology also enables us to deliver consumers' health insurance applications electronically to health insurance carriers. As a result, we simplify and streamline the complex and traditionally paper-intensive health insurance sales and purchasing process.
On January 22, 2018, we completed our acquisition of Wealth, Health and Life Advisors, LLC, more commonly known as GoMedigap, a technology-enabled provider of Medicare Supplement enrollment services. GoMedigap has built a leading consumer acquisition and engagement platform focused on meeting the Medicare Supplement insurance needs of its individual customers with a technology-enabled, consumer-centric approach that aligns with our mission and operations. This strategic acquisition significantly enhances our growing presence in the Medicare Supplement market, puts us in a stronger position with carriers and strategic partners and allows us to accelerate our projected Medicare plan enrollment growth in 2018 and beyond. For more information on our acquisition of GoMedigap, see Note 11-Subsequent Events in the Notes to Consolidated Financial Statements of this Exhibit 99.1 of Form 8-K.
We have invested heavily in technology and content related to our ecommerce platforms. We have also invested significant time and resources in obtaining licenses to sell health insurance in all 50 states and the District of Columbia, developing member acquisition programs, obtaining necessary regulatory approvals of our websites and establishing relationships and appointments with leading health insurance carriers, enabling us to offer thousands of health insurance plans online. Our ecommerce platforms can be accessed directly through our websites as well as through our network of marketing partners.
We operate as two distinct reporting segments:
Individual, Family and Small Business.
For more information on segment and geographic information, see Note 1-Summary of Business and Significant Accounting Policies and Note 9-Operating Segments, Geographic Information and Significant Customers in the Notes to Consolidated Financial Statements of this Exhibit 99.1 of Form 8-K.
Adoption of Accounting Standard Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard is a comprehensive new revenue recognition model requiring an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. Effective January 1, 2018, we adopted Topic 606 using the full retrospective method, which required us to revise our historical financial information to be consistent with the new standard. The adoption had a material impact on our consolidated financial statements. The most significant impact of the standard was on our commission revenue. We now recognize revenue based on an estimate of the lifetime value of commissions we expect to collect from Medicare-related, individual and family and ancillary health insurance plans at the time the carrier approves the plans, and for small business health insurance plans, the estimated commissions we expect to collect from the plan over the following 12 months. For additional information on the change in our revenue recognition policy and the related impact to our previously reported results, see Note 1 - Summary of Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements of this Exhibit 99.1 of Form 8-K.
In March 2010, the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act were signed into law. These health care reform laws contain provisions that changed and will continue to change the health insurance industry in substantial ways. We have described various aspects of health care reform in
Part I, Item 1, Business - Health Care Reform and Part I, Item 1A, Risk Factors - Risks Related to Our Business of our Form 10-K filed on March 19, 2018. Various aspects of health care reform may impact our business positively. For instance, the mandate that individuals and families have qualified health insurance or face a tax penalty and the government providing individuals and families' subsidies in the form of premium tax credits and cost sharing reductions are provisions in the law that could benefit our business. The penalty for violating the mandate has been reduced to zero effective in 2019, and notwithstanding these aspects of health care reform, the implementation of health care reform has significantly reduced our individual and family health insurance membership and commission revenue and could continue to have a material adverse effect on our business and results of operations.
The Trump administration and Republican leadership have repeatedly communicated their intention to alter or repeal the Affordable Care Act, but their efforts to do so have so far been unsuccessful. As a part of the tax reform law that came into effect in December 2017, the tax penalty for violating the individual mandate to have qualifying health insurance was reduced to zero effective in 2019, essentially repealing it. The essential repeal of the individual mandate could have a further adverse impact on the individual and family health insurance market. In addition to the repeal of the mandate, the Trump administration issued an executive order in October 2017 that directed the executive branch of the government to consider proposing regulations and revising guidance to expand access to association health plans, expand the availability of short term health insurance and increase the usability of health reimbursement arrangements. As a result of the executive order, new regulations have been proposed that would facilitate association-based health insurance plans and promote the sale of more short term health insurance. The expansion of the use of short term health insurance may cause individuals and families to purchase short term health insurance instead of individual and family health insurance. If adopted, the proposed regulations relating to association health plans would allow small businesses to join industry or geographically-based associations and collectively purchase large group health insurance plans. Large group health insurance is not subject to many of the provisions of the Affordable Care Act, including the requirement that health insurance plans cover all of the essential health benefits defined under the Affordable Care Act. The goal of the proposed regulation is to reduce the cost of insurance for individuals who receive their health insurance under associations. The proposed regulations relating to association-based health insurance and short term health insurance could present new business opportunities for us, but also may reduce the size of the individual, family and small business health insurance markets that we address.
Summary of Selected Metrics
In addition to traditional financial metrics, we rely upon certain metrics to estimate and recognize commission revenue, evaluate our business performance and facilitate strategic planning. Our commission revenue is influenced by a number of factors including:
Submitted Applications
Applications are counted as submitted when the applicant completes the application and either clicks the submit button on our website or provides verbal authorization to submit the application. The applicant may have additional actions to take before the application will be reviewed by the insurance carrier, such as providing additional information. In addition, an applicant may submit more than one application.
The following table shows submitted applications by product for the years ended December 31, 2015, 2016 and 2017:
| Year Ended December 31, | ||||||||
| 2015 | 2016 | 2017 | ||||||
| Medicare (1) | ||||||||
| Medicare Advantage | 96,235 | 121,101 | 125,989 | |||||
| Medicare Supplement | 11,543 | 17,976 | 21,401 | |||||
| Medicare Part D | 24,514 | 33,913 | 42,805 | |||||
| Total Medicare | 132,292 | 172,990 | 190,195 | |||||
| Individual and Family (2) | ||||||||
| Non-Qualified Health Plans | 160,576 | 78,822 | 40,274 | |||||
| Qualified Health Plans | 140,322 | 59,265 | 27,154 | |||||
| Total Individual and Family | 300,898 | 138,087 | 67,428 | |||||
| Ancillary (3) | ||||||||
| Short-term | 145,874 | 121,109 | 93,445 | |||||
| Dental | 136,600 | 98,338 | 70,452 | |||||
| Vision | 49,424 | 35,759 | 29,468 | |||||
| Other | 10,095 | 15,443 | 34,788 | |||||
| Total Ancillary | 341,993 | 270,649 | 228,153 | |||||
| Small Business (4) | 4,011 | 5,908 | 6,458 | |||||
| Total | 779,194 | 587,634 | 492,234 |
| (1) | Medicare-related health insurance applications submitted on our website or through our customer care center during the period, including Medicare Advantage, Medicare Part D prescription drug and Medicare Supplement plans. |
| (2) | Major medical Individual and Family plan ("IFP") health insurance applications submitted on our website during the period. An applicant may submit more than one application. We define our IFP offerings as major medical individual and family health insurance plans, which does not include Medicare-related, small business or ancillary plans. |
| (3) | Ancillary Plans consists primarily of short-term, dental and vision insurance plans submitted on our website during the period. |
| (4) | Applications for small business health insurance applications are counted as submitted when the applicant completes the application, the employees complete their applications, the applicant submits the application to us and we submit the application to the carrier. |
2017 compared to 2016 - Medicare submitted applications grew 10% for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was primarily due to our investment in Medicare platforms and call center capabilities. Individual and family plan submitted applications declined 51% for the year ended December 31, 2017 compared to the year ended December 31, 2016, due to the continuing turmoil in the individual and family plan market as a result of the Affordable Care Act, including the establishment of government-run health insurance exchanges and the continuing rise in individual and family health insurance premiums and the reduced availability of individual and family health insurance that occurred after its passage. The decline in individual and family plan submitted applications has also limited our ability to cross-sell ancillary plans, resulting in a decline of 16% in submitted applications for all ancillary products combined for the year ended December 31, 2017 compared to the year ended December 31, 2016. Small business submitted applications grew 9% for the year ended December 31, 2017 compared to the year ended December 31, 2016, due to progress in implementing a focused marketing strategy for this market, technology enhancements and an increased conversion rate.
2016 compared to 2015 - Medicare submitted applications grew 31% for the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase was primarily due to our investment in Medicare platforms and call center capabilities. Individual and family plan submitted applications declined 54% for the year ended December 31, 2016 compared to the year ended December 31, 2015, due to the continuing turmoil in the individual and family plan market as a result of the Affordable Care Act. The decline in individual and family plan submitted applications limited our ability to cross-sell ancillary plans, resulting in a decline of 21% in submitted applications for all ancillary products combined for the year ended December 31, 2016 compared to the year ended December 31, 2015.
Approved Members represents the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period. The applications may be submitted in either the current period or prior periods. Approved members may not pay for their plan and become paying members.
The following table shows approved members by product for the years ended December 31, 2015, 2016 and 2017:
| Year Ended December 31, | ||||||||
| 2015 | 2016 | 2017 | ||||||
| Medicare: | ||||||||
| Medicare Advantage | 94,725 | 116,681 | 118,055 | |||||
| Medicare Supplement | 8,811 | 12,314 | 15,992 | |||||
| Medicare Part D | 25,864 | 32,968 | 41,618 | |||||
| Total Medicare | 129,400 | 161,963 | 175,665 | |||||
| Individual and Family: | ||||||||
| Non-Qualified Health Plans | 205,282 | 97,983 | 50,111 | |||||
| Qualified Health Plans | 122,747 | 77,865 | 28,442 | |||||
| Total Individual and Family | 328,029 | 175,848 | 78,553 | |||||
| Ancillary: | ||||||||
| Short-term | 122,280 | 100,319 | 85,106 | |||||
| Dental | 142,927 | 95,137 | 67,924 | |||||
| Vision | 58,245 | 38,942 | 31,360 | |||||
| Other | 11,658 | 15,422 | 26,485 | |||||
| Total Ancillary | 335,110 | 249,820 | 210,875 | |||||
| Small Business | 7,031 | 8,744 | 15,302 | |||||
| Total | 799,570 | 596,375 | 480,395 |
2017 compared to 2016 - Medicare approved members grew 8% for the year ended December 31, 2017 compared to the year ended December 31, 2016. The increase was primarily due to 10% growth in Medicare submitted applications mainly driven by our investment in Medicare platforms and call center capabilities. Individual and Family Plan approved members declined 55% for the year ended December 31, 2017 compared to the year ended December 31, 2016, due to the state of the individual and family health insurance plan market. The decline in Individual and Family Plan approved members has also limited our ability to cross-sell ancillary plans, resulting in a decline of 16% in approved members for all ancillary products combined for the year ended December 31, 2017 compared to the year ended December 31, 2016. Small business approved members grew 75% for the year ended December 31, 2017 compared to the year ended December 31, 2016, due to improved focus on key partnerships, technology enhancements and an increased conversion rate.
2016 compared to 2015 - Medicare total approved members grew 25% for the year ended December 31, 2016 compared to the year ended December 31, 2015. The increase was primarily due to 31% growth in Medicare submitted applications mainly driven by our investment in Medicare platforms and call center capabilities. Individual and Family Plan approved members declined 46% for the year ended December 31, 2016 compared to the year ended December 31, 2015, due to the state of the individual and family health insurance plan market. The decline in Individual and Family Plan approved members has also limited our ability to cross-sell ancillary plans, resulting in a decline of 25% in approved members for all ancillary products combined for the year ended December 31, 2016 compared to the year ended December 31, 2015.
Constrained Lifetime Value of Commissions Per Approved Member
The following table shows our estimated constrained lifetime value of commissions per approved member by product for the years ended December 31, 2015, 2016 and 2017:
| Year Ended December 31, | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Medicare | |||||||||||
| Medicare Advantage (1) | $ | 806 | $ | 829 | $ | 903 | |||||
| Medicare Supplement (1) | $ | 1,052 | $ | 939 | $ | 965 | |||||
| Medicare Part D (1) | $ | 264 | $ | 268 | $ | 266 | |||||
| Individual and Family | |||||||||||
| Non-Qualified Health Plans (1) | $ | 143 | $ | 134 | $ | 136 | |||||
| Qualified Health Plans (1) | $ | 148 | $ | 134 | $ | 131 | |||||
| Ancillary | |||||||||||
| Short-term (1) | $ | 64 | $ | 73 | $ | 65 | |||||
| Dental (1) | $ | 73 | $ | 70 | $ | 68 | |||||
| Vision (1) | $ | 44 | $ | 52 | $ | 51 | |||||
| Small Business (2) | $ | 163 | $ | 159 | $ | 169 |
| (1) | Constrained lifetime value of commissions per approved member represents commissions estimated to be collected over the estimated life of an approved member's policy after applying constraints in accordance with our revenue recognition policy. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, expected policy churn and applied constraints. These factors may result in varying values from period to period. For additional information on constraints see Note 1 - Summary of Business and Significant Accounting Policies in the Notes to Consolidated Financial Statements . |
| (2) | For small business the amount represents the estimated commissions we expect to collect from the plan over the following 12-months. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, expected policy churn and applied constraints. These factors may result in varying values from period to period. |
2017 compared to 2016 - The constrained lifetime value of commissions per approved member improved 9% and 3% for Medicare Advantage and Medicare Supplement, respectively, for the year ended December 31, 2017 compared to the year ended December 31, 2016. The improvement in constrained lifetime value per approved member for Medicare Advantage was driven by higher commission rates and customer retention, and the improvement in constrained lifetime value for Medicare Supplement was driven by an improvement in commission rates. The constrained lifetime value of commissions per approved member for Medicare Part D, Non-Qualified and Qualified Health Plans, Dental and Vision remained relatively unchanged for the year ended December 31, 2017 compared to the year ended December 31, 2016. The constrained lifetime value of commissions per approved member decreased 11% for Short-term for the year ended December 31, 2017 compared to the year ended December 31, 2016, mainly driven by a regulatory change that reduced the maximum length of a short-term policy from one year to 90-days. The constrained lifetime value of commissions per approved member improved 6% for Small Business for
the year ended December 31, 2017 compared to the year ended December 31, 2016 due to improved customer retention and higher commission rates.
2016 compared to 2015 - The constrained lifetime value of commissions per approved member improved 3% and 2% for Medicare Advantage and Medicare Part D, respectively, for the year ended December 31, 2016 compared to the year ended December 31, 2015. The improvement in constrained lifetime value of commissions per approved member for Medical Advantage and Medicare Part D was driven by an improvement in commission rates and customer retention. The constrained lifetime value of commissions per approved member for Medicare Supplement decreased 11% for the year ended December 31, 2016 compared to the year ended December 31, 2015 due to lower commission rates from a change in carrier mix. The constrained lifetime value of commissions per approved member decreased 6% and 9%, respectively, for Non-Qualified and Qualified Health Plans for the year ended December 31, 2016 compared to the year ended December 31, 2015 due to lower customer retention. The constrained lifetime value of commissions per approved member improved 14% for Short-term for the year ended December 31, 2016 compared to the year ended December 31, 2015 driven by higher commission rates. The constrained lifetime value of commissions per approved member for Small Business for the year ended December 31, 2016 compared to the year ended December 31, 2015 remained relatively unchanged.
Estimated Membership
Estimated membership represents the estimated number of members active as of the date indicated based on the number of members for whom we have received or applied a commission payment during the month of estimation.
The following table shows estimated membership by product as of December 31, 2015, 2016 and 2017:
| As of December 31, | ||||||||
| 2015 | 2016 | 2017 | ||||||
| Medicare (1) | ||||||||
| Medicare Advantage | 146,314 | 191,904 | 236,857 | |||||
| Medicare Supplement | 17,966 | 23,356 | 33,635 | |||||
| Medicare Part D | 64,621 | 89,597 | 114,362 | |||||
| Total Medicare | 228,901 | 304,857 | 384,854 | |||||
| Individual and Family (2) | 503,327 | 360,634 | 224,396 | |||||
| Ancillary (3) | ||||||||
| Short-term | 40,501 | 27,703 | 16,771 | |||||
| Dental | 223,689 | 184,073 | 170,078 | |||||
| Vision | 98,958 | 85,126 | 80,738 | |||||
| Other | 21,426 | 23,271 | 28,356 | |||||
| Total Ancillary | 384,574 | 320,173 | 295,943 | |||||
| Small Business (4) | 27,684 | 29,542 | 31,702 | |||||
| Total Estimated Membership | 1,144,486 | 1,015,206 | 936,895 |
| (1) | For Medicare-related health insurance plans, we take the sum of (i) the number of members for whom we have received or applied a commission payment for a month that is up to two months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated); and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy from the same month of the previous year and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. Estimated number of members active on Medicare-related health insurance as of the date indicated based on the number of members for whom we have received or applied a commission payment during the month of estimation. |
| (2) | To estimate the number of members on Individual and Family health insurance plans ("IFP"), we take the sum of (i) the number of IFP members for whom we have received or applied a commission payment for a month that is up to six months prior to the date of estimation after reducing that number using historical experience for assumed member cancellations over the period being estimated; and (ii) the number of approved members over that period (after reducing that number by the percentage of members who do not accept their approved policy from the same month of the previous year for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. For IFP health insurance plans, a member who purchases and is active on multiple standalone insurance plans will be counted as a member more than once. For example, a member who is active on both an individual and family health insurance plan and a standalone dental plan will be counted as two continuing members. |
| (3) | For ancillary health insurance plans (such as short-term, dental and vision insurance), we take the sum of (i) the number of members for whom we have received or applied a commission payment for a month that is up to three months prior to the date of estimation (after reducing that number using historical experience for assumed member cancellations over the period being estimated); and (ii) the number of approved members over that period (after reducing that number using historical experience for an assumed number of members who do not accept their approved policy from the same month of the previous year and for estimated member cancellations through the date of the estimate). To the extent we determine we have received substantially all of the commission payments related to a given month during the period being estimated, we will take the number of members for whom we have received or applied a commission payment during the month of estimation. The one to three-month period varies by insurance product and is largely dependent upon the timeliness of commission payment and related reporting from the related carriers. |
| (4) | For small business health insurance plans, we estimate the number of members using the number of initial members at the time the group is approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier in the period it is reported. However, groups generally notify the carrier directly of policy cancellations and increases or decreases in group size without informing us. Health insurance carriers often do not communicate policy cancellation information or group size changes to us. We often are made aware of policy cancellations and group size changes at the time of annual renewal and update our membership statistics accordingly in the period they are reported. |
Health insurance carriers bill and collect insurance premiums paid by our members. The carriers do not report to us the number of members that we have as of a given date. The majority of our members who terminate their policies do so by discontinuing their premium payments to the carrier and do not inform us of the cancellation. Also, some of our members pay their premiums less frequently than monthly. Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date.
After we have estimated membership for a period, we may receive information from health insurance carriers that would have impacted the estimate if we had received the information prior to the date of estimation. We may receive commission payments or other information that indicates that a member who was not included in our estimates for a prior period was in fact an active member at that time, or that a member who was included in our estimates was in fact not an active member of ours. For instance, we reconcile information carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have underestimated membership. Conversely, carriers may require us to return commission payments paid in a prior period due to policy cancellations for members we previously estimated as being active. We do not update our estimated membership numbers reported in previous periods. Instead, we reflect updated information regarding our historical membership in the membership estimate for the current period. As a result of the delay in our receipt of information from insurance carriers, actual trends in our membership are most discernible over periods longer than from one quarter to the next. As a result of the delay we experience in receiving information about our membership, it is difficult for us to determine with any certainty the impact of current conditions on our membership retention. Health care reform and its impacts as well as other factors could cause the assumptions and estimates that we make in connection with estimating our membership to be inaccurate, which would cause our membership estimates to be inaccurate.
2017 compared to 2016 - Medicare estimated membership grew 26% as of December 31, 2017 compared to December 31, 2016 primarily due to our continued investment in the Medicare market. Individual and Family Plan estimated membership declined 38% as of December 31, 2017 compared to December 31, 2016 due to the state of the Individual and Family Plan market as a result of health care reform. Ancillary plan estimated membership declined 8% as of December 31, 2017 compared to December 31, 2016 as a result of the decline in our ability to cross-sell dental and vision plans as a result of the decline in Individual and Family Plan membership. Small Business estimated membership grew 7% as of December 31, 2017 compared to December 31, 2016 due to improved focus on technology enhancements and an increased conversion rate.
2016 compared to 2015 - Medicare estimated membership grew 33% as of December 31, 2016 compared to December 31, 2015 primarily due to 25% growth in total Medicare approved members. Individual and Family Plan estimated membership declined 28% as of December 31, 2016 compared to December 31, 2015 due to the state of the Individual and Family Plan market as a result of health care reform. Ancillary plan estimated membership declined 17% as of December 31, 2016 compared to December 31, 2015 as a result of the decline in our ability to cross-sell dental and vision plans as a result of the decline in Individual and Family Plan membership.
Marketing initiatives are an important component of our strategy to increase revenue. Our marketing initiatives are focused on three primary member acquisition channels: direct, marketing partners and online advertising and are primarily designed to encourage consumers to complete an application for health insurance. In addition, we incur customer care and enrollment expenses in assisting applicants during the enrollment process.
The following table shows the variable marketing cost per approved member and the customer care and enrollment expense per approved member metrics for the years ended December 31, 2015, 2016 and 2017:
| Year Ended December 31, | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Variable marketing cost per approved member | |||||||||||
| Medicare variable marketing cost per approved Medicare Advantage ("MA")-equivalent member (1) | $ | 286 | $ | 372 | $ | 337 | |||||
| Individual and Family Plan ("IFP") variable marketing cost per approved IFP-equivalent member (2) | $ | 85 | $ | 55 | $ | 50 | |||||
| Customer care and enrollment ("CC&E") expense per approved member | |||||||||||
| Medicare CC&E expense per approved MA-equivalent member (3) | $ | 297 | $ | 288 | $ | 330 | |||||
| IFP CC&E expense per approved IFP-equivalent member (4) | $ | 23 | $ | 32 | $ | 74 |
| (1) | Variable marketing cost per approved MA-equivalent member represents direct costs incurred in member acquisition for Medicare Advantage, Medicare Supplement and Medicare Part D plans from our direct, marketing partners and online advertising channels divided by MA-equivalent approved members in a given period. MA-equivalent members is a derived metric and is equal to the sum of (i) the number of Medicare Part D approved members divided by 6, (ii) the number of Medicare Advantage approved members and (iii) the number of Medicare Supplement approved members in the given period. |
| (2) | Variable marketing cost per approved IFP-equivalent member represents direct costs incurred in member acquisition for IFP plans from our direct, marketing partners and online advertising channels divided by IFP-equivalent approved members in a given period. IFP-equivalent approved members is a derived metric and is equal to the sum of (i) the number of short-term approved members divided by 3 and (ii) the IFP approved members in the given period. |
| (3) | Medicare CC&E expense per approved MA-equivalent member is equal to the CC&E expense of our Medicare business included in our operating costs and reported in our consolidated statements of comprehensive income divided by MA-equivalent approved members in a given period. MA-equivalent approved members is a derived metric and is equal to the sum of (i) the number of Medicare Part D approved members divided by 6, (ii) the number of Medicare Advantage approved members and (iii) the number of Medicare Supplement approved members in the given period. |
| (4) | IFP CC&E expense per approved IFP-equivalent member is equal to the CC&E expense of our IFP business included in our operating costs and reported in our consolidated statement of comprehensive income divided by IFP-equivalent approved members in a given period. IFP-equivalent approved members is a derived metric and is equal to the sum of (i) the number of short-term approved members divided by 3 and (ii) the IFP approved members in the given period. |
2017 compared to 2016 - Medicare CC&E expense per approved MA-equivalent member increased 15% for the year ended December 31, 2017 compared to the year ended December 31, 2016 due to increased sales agent and training costs. Variable marketing cost per approved MA-equivalent member decreased 9% for the year ended December 31, 2017 due to our focus on marketing optimization efforts to enhance the quality of demand we generate and enhance conversions through our direct and paid search advertising channels while reducing marketing spend with certain marketing partners. Variable marketing cost per approved IFP-equivalent member decreased 9% for the year ended December 31, 2017 compared to the year ended December 31, 2016 due to lower marketing spend. IFP CC&E expense per approved IFP-equivalent member increased 131% for the year ended December 31, 2017 compared to the year ended December 31, 2016 due to continuing adverse market conditions in the Individual and Family Plan market.
2016 compared to 2015 - Medicare CC&E expense per approved MA-equivalent member remained relatively unchanged for the year ended December 31, 2016 compared to the year ended December 31, 2015. Variable marketing cost per approved MA-equivalent member increased 30% for the year ended December 31, 2016 due to our focus on marketing optimization efforts to increase the quality of demand we generate and enhance conversions through our direct and paid search advertising channels. Variable marketing cost per approved IFP-equivalent member decreased 35% for the year ended December 31, 2016 compared to the year ended December 31, 2015, due to lower marketing spend. IFP CC&E expense per approved IFP-equivalent member increased 39% for the year ended December 31, 2016 compared to the year ended December 31, 2015 due to declines in approved members resulting from the continuing adverse market conditions in the Individual and Family Plan market.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and the accompanying notes. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future consolidated results of comprehensive income may be affected.
An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the effect of the estimates and assumptions on financial condition or operating performance. The accounting policies we believe to reflect our more significant estimates, judgments and assumptions and are most critical to understanding and evaluating our reported financial results are as follows:
During the year ended December 31, 2017, there were no significant changes to our critical accounting policies and estimates other than the adoption of Accounting Standards Codification Topic 606 - "Revenue from Contracts with Customers" ("ASC 606") using the full retrospective transition method.
We are compensated by the receipt of commission payments from health insurance carriers whose health insurance policies are purchased through our ecommerce platforms or our customer care centers. We may also receive commission bonuses based on our attaining predetermined target sales levels for Medicare, individual and family, small business and ancillary health insurance products, or other objectives, as determined by the health insurance carrier, which we recognize as commission revenue when we achieve the predetermined target sales levels or other objectives. In addition, we also generate revenue from non-commission revenue sources, which include online sponsorship and advertising, technology licensing and lead referrals.
The core principle of Topic 606 is to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Accordingly, we recognize revenue for our services in accordance with the following five steps outlined in Topic 606:
Our commission revenue is primarily comprised of commissions paid to us by health insurance carriers related to insurance plans that have been purchased by a member through our health insurance exchange service. We define a member as an individual currently covered by an insurance plan, which include Medicare-related, individual and family, small business and ancillary plans. We are compensated by the health insurance carrier, which we define as our customer.
We typically enter into contractual agency relationships with health insurance carriers that are non-exclusive and terminable on short notice by either party for any reason. In addition, health insurance carriers often have the ability to terminate or amend our agreements unilaterally on short notice, including provisions in our agreements relating to the commission rates paid to us by the health insurance carriers. The amendment or termination of an agreement we have with a health insurance carrier may adversely impact the commissions we are paid on health insurance plans purchased from the carrier by means of our health insurance exchange services.
For both Medicare Advantage and Medicare Part D prescription drug plans, we receive a fixed, annual commission payment from insurance carriers once the plan is approved by the carrier and either a fixed, monthly or annual commission payment beginning with and subsequent to the second plan year. Additionally, commission rates may be higher in the first twelve months of the plan if the plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member. In the first plan year of a Medicare Advantage and Medicare Part D prescription drug plan, after the health insurance carrier approves the application but during the effective year of the plan, we are paid a fixed commission that is prorated for the number of months remaining in the calendar year. Additionally, if the plan is the first Medicare Advantage or Medicare Part D plan issued to the member, we may receive a higher commission rate that covers a full twelve-month period, regardless of the month the plan was effective. We earn commission revenue for Medicare Advantage and Medicare Part D prescription drug plans for which we are the broker of record, typically until either the policy is cancelled or we otherwise do not remain the agent on the policy.
For individual and family, Medicare Supplement, small business and ancillary plans, our commissions generally represent a flat amount per member per month or a percentage of the premium amount collected by the carrier during the period that a member maintains coverage under a plan. Premium-based commissions are reported to us after the premiums are collected by the carrier, generally on a monthly basis. We generally continue to receive the commission payment from the relevant insurance carrier until the health insurance plan is cancelled or we otherwise do not remain the agent on the policy.
We utilize a practical expedient to estimate commission revenue for each insurance product by applying the use of a portfolio approach to group approved members by the effective month of the relevant policy (referred to as a cohort). This allows us to estimate the commissions we expect to collect for each approved member cohort by evaluating various factors, including but not limited to, contracted commission rates, carrier mix and expected member churn.
For Medicare-related, individual and family and ancillary health insurance plans, our services are complete once a submitted application is approved by the relevant health insurance carrier. Accordingly, we recognize commission revenue based upon the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an
application, net of a constraint. We refer to these estimated and constrained lifetime values as the constrained LTV for the plan. We provide annual services in selling and renewing small business health insurance plans; therefore, we recognize small business health insurance plan commission revenue at the time the plan is approved by the carrier, and when it renews each year thereafter, equal to the estimated commissions we expect to collect from the plan over the following 12 months. Our estimate of commission revenue for each product line is based on a number of assumptions, which include, but are not limited to, estimating conversion of an approved member to a paying member, forecasting member churn and forecasting the commission amounts likely to be received per member. These assumptions are based on historical trends and incorporate management's judgment in interpreting those trends and in applying constraints discussed below. To the extent we make changes to the assumptions, we will recognize any material impact of the changes to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTV recognized as revenue.
For Medicare-related, individual and family and ancillary health insurance plans, we apply constraints to determine the amount of commission revenue to recognize per approved member. The constraints are applied to help ensure that the total estimated lifetime commissions expected to be collected for an approved member's plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved. We evaluate the appropriateness of these constraints on at least an annual basis, including assessing factors affecting our estimate of the estimated lifetime value of commissions per approved member based on current trends impacting our business and assessing whether any adjustment to those constraints should be made. We update the assumptions when we observe a sufficient level of evidence that would suggest that the long term expectation of the assumption has changed.
Our sponsorship and advertising program allows carriers to purchase advertising space in specific markets in a sponsorship area on our website. In return, we are typically paid a monthly fee, which is recognized over the period that advertising is displayed, and often a performance fee based on metrics such as submitted health insurance applications, which is recognized when control has been transferred. We also offer Medicare advertising services, which include website development, hosting and maintenance. In these instances, we are typically paid a fixed, up-front fee, which we recognize as revenue as control is transferred ratably over the service period.
Our commercial technology licensing business allows carriers the use of our ecommerce platform to offer their own health insurance policies on their websites and agents to utilize our technology to power their online quoting, content and application submission processes. Typically, we are paid a one-time implementation fee, which we recognize as control is transferred on a straight-line basis over the estimated term of the customer relationship (generally the initial term of the agreement), commencing once the technology is available for use by the third party, and a performance fee based on metrics such as submitted health insurance applications. The metrics used to calculate performance fees for both sponsorship and advertising and technology licensing are based on performance criteria that are either measured based on data tracked by us, or based on data tracked by the third party. In instances where the performance criteria data is tracked by us, we recognize revenue in the period of performance and when all other revenue recognition criteria has been met. In instances where the performance criteria data is tracked by the third party, we recognize revenue when reversal of such amounts is not likely to occur. Typically, this occurs through our receipt of a cash payment from the third party along with a detailed statement containing the data that is tracked by the third party.
Deferred revenue includes deferred technology licensing implementation fees and amounts billed for performance obligations, including professional services, in arrangements with multiple performance obligations that do not have stand-alone value from other, undelivered performance obligations, as well as amounts billed or collected from sponsorship or technology licensing customers in advance of our performing our service for such customers. It also includes the amount by which both unbilled and billed services provided under our technology licensing arrangements exceed the revenue recognized to date.
Some of our contracts with customers contain multiple performance obligations. We allocate revenue to all performance obligations within an arrangement with multiple performance obligations at the inception of the arrangement using the relative standalone selling price method.
Stock-Based Compensation
We recognize stock-based compensation expense in the accompanying Consolidated Statements of Comprehensive Income based on the fair value of our stock-based awards over their respective vesting periods, which is generally four years. The estimated grant date fair value of our stock options is determined using the Black-Scholes-Merton pricing model and a single option award approach. The weighted-average expected term for stock options granted is calculated using historical option exercise behavior. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date stock price. Through December 31, 2017, we had not declared or paid any cash dividends, and we do not expect to pay any in the foreseeable future. We base the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of our stock options. Expected volatility is determined using a combination of the implied volatility of publicly traded options in our stock and historical volatility of our stock price. The estimated attainment of performance-based awards and related expense is based on the expectations of revenue and earnings target achievement. The estimated fair value of performance awards with market conditions is determined using the Monte-Carlo simulation model. The assumptions used in calculating the fair value of stock-based payment awards and expected attainment of performance-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. We will continue to use judgment in evaluating the expected term and volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the model. Changes in key assumptions could significantly impact the valuation of such instruments.
Business Combinations
We include the results of operations of acquired businesses prospectively from the acquisition date. We allocate the fair value of the purchase consideration of our acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions. When provisional amounts are recorded in the reporting period in which a business combination occurs, adjustments to the provisional amounts may be subsequently recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date that would have affected the measurement of the amounts recognized at the acquisition date. Adjustments to the provisional amounts identified during the measurement period, which is a period not to exceed one year from the acquisition date, are reported in the period the adjustment is identified by means of an adjustment to goodwill, with the effect on earnings measured as if the provisional amounts had been completed at the acquisition date. Adjustments to amounts recognized in a business combination that occur after the end of the measurement period are recognized in current period operations.
Realizability of Long-Lived Assets
We assess the realizability of our long-lived assets, including intangible assets and goodwill, whenever events or changes in circumstances indicate the carrying value of such assets may not be recoverable. Factors that we consider in deciding when to perform an impairment review include significant negative industry or economic trends or significant changes or planned changes in our use of the assets. Additionally, we test goodwill and our other indefinite-lived intangible assets for impairment on an annual basis on or about November 30 of each year. When performing the annual goodwill impairment test we first assess qualitative factors to determine whether it is "more likely than not" that the fair value of our reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. When performing the annual impairment test for indefinite-lived intangible assets other than goodwill we first assess qualitative factors to determine whether it is "more likely than not" that the indefinite-lived intangible is impaired.
If events or changes in circumstances indicate the carrying value of such assets may not be recoverable, for long lived assets other than goodwill, including intangible assets with finite useful lives, which include purchased technology, pharmacy relationships, trade names, and trademarks, we measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows. If an asset grouping's carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is considered to be impaired. The impairment charge is calculated as the amount by which the asset grouping's carrying value exceeds its fair value, which is defined as the price that would be received from selling an asset in an orderly transaction between market participants at the measurement date.
We must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings. In addition, we must make subjective judgments regarding the remaining useful lives of assets with finite useful
lives. When we determine that the useful life of an asset is shorter than we had originally estimated, we accelerate the rate of amortization over the new remaining useful life of the asset.
Accounting for Income Taxes
We account for income taxes using the liability method. Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities, using enacted statutory tax rates in effect for the year in which the differences are expected to reverse.
Since tax laws and financial accounting standards differ in their recognition and measurement of assets, liabilities, equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income and pretax financial income for a year and between the tax bases of assets or liabilities and their reported amounts in our financial statements. Because we assume that the reported amounts of assets and liabilities will be recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related liabilities are settled or the reported amounts of the assets are recovered, which gives rise to a deferred tax asset or liability. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery does not meet the more likely than not criteria, we must establish a valuation allowance. Management judgment is required in determining any valuation allowance recorded against our net deferred tax assets.
As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes. This process involves estimating our actual current tax expense together with assessing temporary differences that may result in deferred tax assets.
Assessing the realizability of our deferred tax assets is dependent upon several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those temporary differences become deductible. We forecast taxable income by considering all available positive and negative evidence, including our history of operating income and losses and our financial plans and estimates that we use to manage the business. These assumptions require significant judgment about future taxable income. As a result, the amount of deferred tax assets considered realizable is subject to adjustment in future periods if estimates of future taxable income change.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017, or the "Jobs Act", was signed into law resulting in significant changes to the Internal Revenue Code. The Jobs Act reduces the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, changes U.S international taxation from a worldwide tax system to a territorial system, and implements a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. While we are able to make reasonable estimates of the impact of the reduction in corporate rates and other changes, the final impact of the Jobs Act may differ from these estimates, as a result of, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the internal revenue service and resulting actions we may take.
Future changes in various factors, such as the amount of stock-based compensation we record during the period and the related tax benefit we realize upon the exercise of employee stock options, potential limitations on the use of our federal and state net operating loss credit carry forwards, pending or future tax law changes including rate changes and the tax benefit from or limitations on our ability to utilize research and development credits, the amount of non-deductible lobbying and acquisition-related costs, changes in our valuation allowance and state and foreign taxes, would impact our estimates, and as a result, could affect our effective tax rate and the amount of income tax expense we record, and pay, in future periods.
Results of Operations
The following table sets forth our operating results and related percentage of total revenues for the years ended December 31, 2015, 2016 and 2017 (dollars in thousands):
| Year Ended December 31, | ||||||||||||||||||||
| 2015 | 2016 | 2017 | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Commission | $ | 184,933 | 91 | % | $ | 177,234 | 92 | % | $ | 176,883 | 93 | % | ||||||||
| Other | 18,414 | 9 | % | 16,090 | 8 | % | 13,823 | 7 | % | |||||||||||
| Total revenue | 203,347 | 100 | % | 193,324 | 100 | % | 190,706 | 100 | % | |||||||||||
| Operating costs and expenses: | ||||||||||||||||||||
| Cost of revenue | 1,947 | 1 | % | 862 | - | % | 582 | - | % | |||||||||||
| Marketing and advertising | 75,571 | 37 | % | 72,213 | 37 | % | 65,874 | 35 | % | |||||||||||
| Customer care and enrollment | 43,159 | 21 | % | 48,718 | 25 | % | 59,183 | 32 | % | |||||||||||
| Technology and content | 36,351 | 18 | % | 32,749 | 17 | % | 32,889 | 17 | % | |||||||||||
| General and administrative | 30,239 | 15 | % | 35,216 | 18 | % | 39,969 | 21 | % | |||||||||||
| Acquisition costs | - | - | % | - | - | % | 621 | - | % | |||||||||||
| Restructuring charge (benefit) | 4,541 | 3 | % | (297 | ) | - | % | - | - | % | ||||||||||
| Amortization of intangible assets | 1,153 | 1 | % | 1,040 | 1 | % | 1,040 | 1 | % | |||||||||||
| Total operating costs and expenses | 192,961 | 96 | % | 190,501 | 99 | % | 200,158 | 105 | % | |||||||||||
| Income (loss) from operations | 10,386 | 5 | % | 2,823 | 1 | % | (9,452 | ) | (5 | )% | ||||||||||
| Other income, net | 1,285 | 1 | % | 1,149 | 1 | % | 1,182 | 1 | % | |||||||||||
| Income (loss) before provision (benefit) for income taxes | 11,671 | 6 | % | 3,972 | 2 | % | (8,270 | ) | (4 | )% | ||||||||||
| Provision (benefit) for income taxes | 7,707 | 4 | % | 3,668 | 2 | % | (33,696 | ) | (18 | )% | ||||||||||
| Net income | $ | 3,964 | 2 | % | $ | 304 | - | % | $ | 25,426 | 13 | % |
Operating costs and expenses include the following amounts of stock-based compensation expense (in thousands):
| Year Ended December 31, | |||||||||||
| 2015 | 2016 | 2017 | |||||||||
| Marketing and advertising | $ | 1,950 | $ | 1,237 | $ | 1,033 | |||||
| Customer care and enrollment | 477 | 497 | 418 | ||||||||
| Technology and content | 1,728 | 1,836 | 1,410 | ||||||||
| General and administrative | 2,734 | 3,696 | 6,833 | ||||||||
| Restructuring charges | 113 | - | - | ||||||||
| $ | 7,002 | $ | 7,266 | $ | 9,694 |
Years Ended December 31, 2015, 2016 and 2017
The following table presents our commission revenue, other revenue and total revenue for the years ended December 31, 2015, 2016 and 2017 and the dollar and percentage changes from the prior year (dollars in thousands):
| Year Ended | Change | Year Ended | Change | Year Ended | |||||||||||||||||||
| December 31, 2015 | $ | % | December 31, 2016 | $ | % | December 31, 2017 | |||||||||||||||||
| Commission | $ | 184,933 | $ | (7,699 | ) | (4)% | $ | 177,234 | $ | (351 | ) | (0.2)% | $ | 176,883 | |||||||||
| Percentage of total revenue | 91 | % | 92 | % | 93 | % | |||||||||||||||||
| Other | 18,414 | (2,324 | ) | (13)% | 16,090 | (2,267 | ) | (14)% | 13,823 | ||||||||||||||
| Percentage of total revenue | 9 | % | 8 | % | 7 | % | |||||||||||||||||
| Total revenue | $ | 203,347 | $ | (10,023 | ) | (5)% | $ | 193,324 | $ | (2,618 | ) | (1)% | $ | 190,706 |
2017 compared to 2016 - Commission revenue decreased $0.4 million, or 0.2%, in 2017, due to a $19.1 million, or 31%, decrease in Individual, Family and Small Business commission revenue, partially offset by an $18.7 million, or 16% increase in Medicare commission revenue. The decrease in Individual, Family and Small Business commission revenue was primarily due to a 55% decline in individual and family health insurance approved members as of December 31, 2017 compared to December 31, 2016 due to the state of the individual and family health insurance plan market as a result of health care reform. The increase in Medicare commission revenue was primarily attributable to the increase in lifetime value of commissions per Medicare Supplement and Medicare Advantage approved members and an 8% increase in Medicare approved members as of December 31, 2017 compared to December 31, 2016, in part due to growth in our sale of Medicare Advantage and Medicare Supplement plans.
Other revenue decreased $2.3 million, or 14%, in 2017 due primarily to decreases of $1.5 million in online sponsorship and advertising revenue, $0.5 million in lead generation revenue and $0.3 million in licensing fees.
2016 compared to 2015 - Commission revenue decreased $7.7 million in 2016, due to a $31.5 million, or 34%, decrease in Individual, Family and Small Business commission revenue, partially offset by a $23.8 million, or 26%, increase in Medicare commission revenue. The decrease in Individual, Family and Small Business commission revenue was primarily due to a 46% decrease in individual and family health insurance approved members as of December 31, 2016 compared to December 31, 2015. The increase in Medicare commission revenue was primarily due to a 25% increase in Medicare approved members as of December 31, 2016 compared to December 31, 2015.