eHealth: Improving Fundamentals, Difficult Industry Economics – Seeking Alpha

by | Nov 12, 2022 | Financial

JimVallee/iStock via Getty ImagesMedicare’s open enrollment season has recently started for 2023, extending from mid October to the first week of December, which has big implications for some health insurance companies. When you see the television ads featuring celebrities of a certain age encouraging viewers to sign-up for Medicare plans start to play more frequently, you know the season is here, though some of that marketing practice is getting a dose of scrutiny. Over the span of a few weeks, Medicare-eligible Americans can make multiple changes to their coverage for next year. The biggest fundamental choice is whether to use traditional Medicare or Medicare Advantage, which delivers Medicare benefits through private insurers. There are range of factors that Medicare participants might weigh in their decisions, such the potential for broader coverage (for example, basic dental) in some Advantage plans, versus the possible provider network restrictions in those plans. So how does a typical Medicare customer come to a decision? The Difficult Business Model Of The Brokers Stepping into the middle of this open-enrollment process are insurance brokers, who help consumers find a good fit within the Medicare Advantage options. The brokers do this by offering a range of channels for people to enroll, from completely unassisted online enrollments to having live agents available to walk people through the process over the phone. Regardless of how a customer elects to enroll, the broker who signs up the customer receives a commission from the insurance companies based on enrollments that they generate. The major brokers include SelectQuote (SLQT), GoHealth (GOCO), and eHealth (NASDAQ:EHTH), with the acknowledgment that there is more to these brokers than purely Medicare Advantage enrollments, though it is a highly significant part of their businesses. In terms of market value, all three are relatively comparable: SelectQuote has a market cap of $101 million, GoHealth’s is $158 million, and eHealth is at $110 million. Each company has reported third quarter results since the beginning of November, all of them reporting losses per share, though somewhat less severe than anticipated, while generally reaffirming their guidance. The business model for these brokers is not an easy one, with high customer acquisition costs and difficulty predicting the lifetime value of each enrollment earned. The uncertainty over exactly how much a customer will be worth to a broker over his or her lifetime has made for accounting difficulties, as the ultimate value to the brokers is the accumulated future commissions they will earn. As a result, the assets on these brokers’ balance sheets are dominated by commissions receivable. Proportion of Total Assets As Commissions Receivable (Author’s Spreadsheet) In simple terms, it costs the brokers large sums up front in marketing to reach customers, as well as the labor costs of agents to assist in the enrollment process for those who do not take care of the process fully online. A hypothetical enrollee during this open enrollment season t …

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