Health Insurance Innovations Poised to Takeoff in 2019

As an individual investor, my eyes are always open for stock recommendations and I’m constantly looking for undervalued companies. Open enrollment recently passed and while researching for up and coming healthcare stocks to buy, I stumbled upon the insurtech Health Insurance Innovations, (Nasdaq: HIIQ), after they were listed on Fortune.com as the #1 fastest growing company for 2018. Despite HIIQ stock reaching a record high at $63.13 in September, it has recently come down to the mid 20s. This comes amid a roller coaster news cycle for Health Insurance Innovations that included the conclusion of a 42 state market conduct examination which recently settled without any fines or penalties. What really caught my attention, besides their bottom line increasing 35% year over year, is that HIIQ is in a unique position to capitalize on the growing Short Term Medical (STM) market due to recent changes to insurance regulation, but they’re under a barrage of bearish attacks from short sellers who are feverishly manipulating the stock price. Let’s take a look at the HIIQ business model and financial guidance, analyze the Bear argument and their strategy to manipulate the stock, and then we’ll see why Health Insurance Innovations is a top stock pick in 2019.

1. Health Insurance Innovations Revenue Model

Based on most articles and reviews written on the company, there’s a fundamental misconception about their business model, so let’s start by clearing a few things up.

HIIQ is not an insurance company.

I repeat, Health Insurance Innovations is NOT an insurance company.

At their core, HIIQ is a tech company with multiple channels generating revenue underneath a cloud-based software platform where licensed independent agents and brokers can sell insurance products from different carriers like AFLAC, Chubb, UnitedHealth, etc. Distributors have a login portal for the agents to track sales and commissions.

HIIQ maintains huge business development and compliance departments that have extensive relationships with large distributors and carriers alike to develop and launch different insurance products through their platform.

Third Party Distribution

HIIQ has a massive network of distributors from eHealth, to GoHealth, to Assurance, just to name a few. They have been rumored to administer over 70% of short term health insurance available on the market. takes a percentage of the premiums sold and administered on the proprietary cloud-based software platform they created and maintain.

Agents and brokers who partner with HIIQ to sell on their platform must undergo an extensive licensing process that starts with them obtaining all their state mandated insurance licenses that we discuss in detail later.

This gives HIIQ an advantage in the industry because they don’t take on the risk of insurance claims and can be product agnostic, meaning they aren’t beholden to any one particular health insurance product, and their product line is vast and diverse….the platform offers ACA compliant major medical insurance, short term health insurance, hospital and doctor plans, dental insurance, life insurance, even telemedicine.

Because they don’t pay for leads and take on risk by underwriting insurance policies, their subscription based model of monthly billing gives them a prodigious ability to generate large amounts of cash.

Agile Health Insurance

Their direct to consumer channel, Agile Health Insurance, specializes in selling affordable health insurance plans online. They have hundreds of products with plans as low as $60 a month available in almost every state.

The Agile Health Insurance Learning Center has in depth answers to questions and problems, like their recent article 6 Effective Strategies for Lowering Your Medical Bills.

Up until October 2018, short term medical products were capped at 3 month durations, but the new “Trumpcare” insurance rules intended to break the ACA extended this duration to up to 36 months in some states, which exponentially increases the average life value of a customer and this will have a positive material impact on their future earnings.

It should be noted that Agile is not an insurance company themselves either — but is an ecommerce channel for HIIQ to assist individuals in buying insurance. Their technology curates insurance products from other companies and allows consumers to compare and purchase the plans directly through the website.

Health Pocket

In 2015, HIIQ acquired HealthPocket.com, a website that allows you to search and compare health insurance plans available in all 50 states. This property functions as an organic lead generation channel for Health Insurance Innovations along as well as providing thought leadership, research and analysis about the health industry for consumers and academics.

The founders of Agile and HealthPocket made a planned exit in the summer of 2018 and the companies are now owned and operated as a branch of Health Insurance Innovations.

MyBenefitsKeeper

MyBenefitsKeeper is a website and a mobile app that gives members a way to review and download documents, cancel/renew/update policies, change payment information, and understand plan benefits while driving user retention. Everything is accessible in one, easy to use portal, and it’s optimized for desktop and mobile devices.

With this latest release, the company is expanding their own ecosystem to be like the Apple of insurtech. 2. Favorable Regulatory Conditions

Republicans have been trying to break Obamacare for years and they may finally have succeeded. Their argument was that the ACA severely limited the choice of healthcare options available to many Americans and has produced large premium increases in many State individual markets for health insurance.

The average exchange premium in the 39 States that are using www.healthcare.gov in 2017 is more than double the average overall individual market premium recorded in 2013.

The ACA failed to provide enough competition between insurers to keep premium costs down, resulting in one-third of America’s counties having only one insurer offering coverage on their applicable government-run exchange in 2017.

New rules were then implemented around short term medical plans. Previously, the Obama administration sought to restrict their attractiveness by limiting them to 3 months only and instituting a penalty for not having ACA compliant insurance. This was to prevent young, healthy people from leaving the ACA risk pool and seeking out cheaper short term plans.

Today, there are no such restrictions and these short term plans can be had without a penalty for as long as 36 months in some states.

For over 30 years, Short term health insurance has provided coverage for a defined period of time and generally includes a much lower premium than other types of major medical coverage.

Until April of 2017, the coverage period was determined by state law, with the majority of states permitting terms of 364 days or less.

However, the outgoing Obama administration made a significant change, issuing a regulatory final rule which cut the maximum duration term limit of short term health insurance from 12 to less than three months.

However, this limit was changed on August 1, 2018 by another regulation designed to expand access to short term health coverage.

The rule reinstates the 364 day maximum term limit and allows carriers to offer reapply options for up to 36 months.

The changes officially took effect on October 2, 2018.

This is good for consumers seeking more health care options that fit their lifestyle and budgetary needs.

Short term health insurance policies are available year-round; there are no application blackout periods.

However, they do not cover pre-existing conditions and are better suited for those with no chronic conditions or consistent medical needs.

The new change is in response to an executive order issued on October 12, 2017 which stated, “To the extent permitted by law and supported by sound policy, the Secretaries should consider allowing such insurance to cover longer periods and be renewed by the consumer.”

Some consider this, and other executive orders and regulations, to be part of a new era of healthcare reform dubbed “Trumpcare.”

Please note that while “Obamacare” is a nickname for a real federal statute, “Trumpcare” is merely a nickname for the collective changes to U.S. health care that have been made since the Trump administration took office in 2017.

The Rule Before the New Legislative Changes

Before 2017, federal regulations limited the duration of all short term plans to 364 days or less, though some states restricted these plans to six months.

Short term health insurance plans offer major medical services in case of injury and illness, but they are not required to offer the 10 essential health benefits as defined by the ACA.

They do, however, typically cover many common benefits like doctor/specialist visits, hospitalization and emergency care, lab tests, x-rays and more.

Short term insurance coverage was originally designed to fill gaps between other forms of major medical coverage.

Many people opted for a short term plan when transitioning between jobs and losing employer-provided coverage for a set period of time. Short term health insurance also appeals to small business owners or self-employed workers who don’t have employer-provided coverage; and individuals losing coverage under their parents or spouse’s health insurance.

The 2017 restriction limiting the duration of short term health insurance plans had an unfortunate and unintended consequence — many Americans, specifically those that didn’t qualify for subsidies (or tax credits) on ACA-compliant coverage, were left to choose between paying for the ever-increasing premiums offered by ACA-compliant plans or risk going uninsured for the next year.

Legislative Changes Allow Longer Periods of Short Term Health Coverage

Now in effect, the final rule extends the duration of short term coverage from 3 months to 12 months (364 days) depending on state availability and limitations.

It also allows carriers to offer reapply options for maximum policy durations of 36 months, again depending on the discretion of states.

The new rule also requires a specific notice provision for these types of plans.

Specifically, the language in the plan must inform insureds that the plans do not comply with the Minimum Essential Coverage requirements of the Affordable Care Act.

This is important because the ACA currently issues an individual mandate penalty, which equates to 2.5% of one’s yearly household income, or $695 per adult plus $347.50 per child with a $2,085 household maximum — whichever amount is greater.

This penalty will, however, be phased out as of January 1, 2019, meaning you could find and even apply for the best short term health insurance policy for you today without the financial burden of paying the individual mandate penalty.

Options for Short Term Health Coverage

One of the most attractive aspects of short term health insurance is the cost, but many people shy away from short term plans because they are so limited.

Why is that?

When a plan is limited to three months, it may not address insurance needs fully.

Now, however, the legislative change allows individuals to take advantage of more affordable health care for up to three years.

When you apply for a short term plan, you will need to go through medical underwriting. Applications can be rejected.

Short term plans often do not cover many of the same things that ACA-compliant plans will address.

However, with the reapply option, some plans can extend up to 36 months without having to go through the underwriting process again upon each reapplication.

If an insured develops a condition during the short term health plan, the plan will cover medical related expenses for the duration of the plan, in some states up to three years.

It also helps provide additional options to families who may be facing premium increases that make other forms of major medical insurance too expensive over time.

Keep in mind, however, that some states only permit short term coverage for much shorter time periods — as little as six or even three months.

Some states also have more stringent requirements for what the plan must include to qualify as “short term health insurance.”

Some states will not permit underwriting for reapply plans, an advantage to consumers.

Other states require additional benefits such as prescription medicine.

Many states are still developing their rules for short term health insurance.

The Trump Regulation specifically states that the expansion will “expand more affordable coverage options to consumers who desire and need them, to help individuals avoid paying for benefits provided in individual health insurance coverage that they believe are not worth the cost, to reduce the number of uninsured individuals, and to make available more coverage options with broader access to providers than certain individual health insurance coverage has.”

With this rule now in place, Americans have more affordable choices than ever when it comes to finding the right health insurance for their budget and that’s a big lift to Health Insurance Innovations

3. The Short Reports Were Debunked

Researching HIIQ has led to some interesting stories coming out over the past year, seemingly born out of a coordinated short seller assault to bankrupt the company they deemed “a boiler room scam” for reasons we will soon debunk. The first of which came in 2017 by a blogger writing under a pseudonym, who assailed the company’s executives and compliance department with character assassinations to discredit their competence. They also first questioned their independent distribution model and raised concerns over Steven Dorfman, the leader of simple health

Revenue for that year was reported at $184.5 million.

In the Fall of 2017, an article published on Seeking Alpha claimed HIIQ was being investigated by 42 states for fraudulent sales activity and speculated that operating without a Third Party sales license which would result in a massive $100 million dollar fine that would bankrupt the company. The article also speculated that Health Insurance Innovations would never receive licensing in Florida (which it eventually did) and that because of broker conduct, 82% of its revenue was at risk and the multistate examination would “ultimately bring an end to this company.”

The results of that investigation, which spanned over two years and recently ended, were finally released on December 20th 2018 during the company’s first analyst day with no fines or penalties or findings of wrongdoing.

Revenue for the year 2017 came in at $250.5 million.

2018 was the busiest year yet for the shorts.

After hitting an all-time share price high in the mid 60’s over the summer, these “altruistic bears” began furiously planting rumors about executives who had long cut ties with the company, sharing them over Twitter and anonymous websites, and promoting them through content aggregators. A recent example was when Simple Health, one of hundreds of HIIQ distributors, was taken over by the FTC. The short reports shared instagram photos of founder’s wife, who had not been active with the company in over two years, vacationing in Asia with a caption: “In case anyone was wondering $HIIQ’s Head of Broker Compliance was up to while their largest distributor was getting shut down.”

The founder’s wife had not updated her LinkedIn page that she was no longer with the company.

The “research” company apparently didn’t bother to confirm her current state of employment.

In regard to compliance, HIIQ has hired the former director of the Illinois Department of Insurance which clearly indicates they take compliance seriously.

At the end of November, another anonymous analyst report attempted to link HIIQ to a scandal covered by the New York Times. The timing of this one seemed to coincide with the expiration date of put options with a strike price that had an inordinate amount of high interest — the $25 puts that expired on December 21 — and came with a brand new hypothesis that HIIQ’s success is entirely predicated upon sales generated by Simple Health, and other unscrupulous insurance call centers who are quickly drawing scrutiny from government regulatory bodies. The shorts even went so far as to label HIIQ itself as a boiler room style internet scam company who is ripping off unsuspecting health insurance buyers and will inevitably and unceremoniously lurch into bankruptcy once the government shuts down all of their distribution networks like they did with Simple Health.

The Simple Health scandal revolves around the actions of an individual named Steven Dorfman, a third party distributor for HIIQ who operated a vast network of call centers selling insurance. As was discovered by a Federal Trade Commission investigation, Dorfman’s agents were intentionally misleading consumers about the benefits of the policies being sold.

Basically, they were saying whatever it took to get the sale — including assuring them that the plans were ACA compliant when they were not. HIIQ’s connection to Dorfman is that his agents sold insurance policies developed by HIIQ using Health Insurance Innovations’ proprietary digital platform. What has come out to light since the story broke, is that HIIQ is the victim of this deceptive distributor who deliberately went great lengths to hide any criminal activity from the company.

Our research led us to a pamphlet intended for HIIQ investors which said the following: “According to the FTC Complaint and multiple declarations filed in support of that complaint, Simple Health had an ongoing history of misrepresenting products to consumers, lying to investigators, and lying to Health Insurance Innovations and its representatives along with outright acts of physical deception during the regular audits of their sales and call centers. The FTC and the DOI investigators recognized that HII was not the party responsible for the actions of Simple Health.”

In fact, the multistate examination ended with a settlement between HIIQ and state investigators in December 2018, resulting in zero findings and a good faith reimbursement of $3.4 million — quite a far cry from a $100 million fine. We’ll discuss the implications of this settlement further in this article.

Consumers Misled into Insurance Plans

It should be noted that the core of the scandal is about how insurance was represented and sold, not the nature of the insurance products themselves. All insurance products are highly regulated by the federal government and the states in which they are sold, and HIIQ only partners with vetted and trusted companies. As determined by the FTC, Simple Health deliberately deceived everyone: consumers, HII, and government regulators. The Dorfman call centers deliberately misled people into buying plans which were essentially worthless to them — because they had preexisting conditions or needed medical treatments not covered under the minimal benefit plans.

The VP Business Development of AgileHealthInsurance.com (which is owned by HII) was recently interviewed on Forbes Book Radio and asked about consumers being misinformed about what kind of insurance they were buying. “It’s heartbreaking,” said Shaune Greene, who meets regularly with call center representatives to go over consumer concerns/questions. “I feel awful for them. It makes me feel sick in my stomach.”

Every adult in America needs to buy health insurance, and not everyone can afford an all-inclusive insurance plan — which is why these policies exist. In the Forbes interview Greene stressed the importance that consumers need to understand the exclusions and limitations of the insurance policy they buy. He also stressed being well informed about your health situation and needs before buying health insurance. In a decades long career in the health insurance industry Greene has discovered that the overwhelming driver of consumer motivations when buying insurance is price. Dorfman preyed on this vulnerability for people wanting to cut their monthly expenses. Unfortunately the victims were sold insurance plans which would not actually benefit them when they needed it. Having minimal benefit short term plans are an important alternative for many — we as consumers just need to be more careful about what we’re buying into.

The FTC investigation brings awareness to the need for further transparency in the insurance industry — especially in regards to the sales process. Consumers need better protection against rogue agents motivated by sales commissions. HIIQ has recently taken measures like instituting call recording and transcription software and hiring a ten year veteranof the Illinois Department of Insurance to assist in their compliance.

Short attacks continued, becoming more and more outrageous, as recently as the holiday week leading up to a high interest short position

Health Insurance Innovations Complaints, Scams, and Frauds

These are junk policies, the shorts claim, as they point to the hundreds of complaints online made about Health Insurance Innovations.

Before we unpack that assertion, let’s take a step back. Google any company in the insurance business and examine the ratio of positive to negative reviews. When things go right, and by right that means you use your insurance for what it was intended for, you’ll just go about living your life. There’s no inspiration to jump online and crow about how amazing your health insurance policy is.

Addressing the Health Insurance Innovations complaints and reviews online that it’s a scam and a fraud, the fact of the matter is HIIQ has almost 400,000 active policies on the books. The complaints online are generally about the denying of a claim and HIIQ has nothing to do with that.

Any consumer facing business is going to have unhappy customers. In HIIQ’s case, insurance is an emotional purchase because nothing is more personal than one’s health. If a customer was sold a policy being billed by Health Insurance Innovations

What they don’t mention is that these products are all approved by the Department of Insurance of the states in which they are sold.

As one the recent articles on HIIQ points out, there’s numerous negative reviews on the company online from consumers who signed up through the digital platform. This is unfortunate in regards to public perception, however there are some important points to consider.

First, it needs to be stated again that HIIQ does not sell insurance, or provide insurance. They are a software platform that is product agnostic. Looking at the Better Business Bureau site for HIIQ, all of the consumer complaints are cases of people misunderstanding what they were signing up for (or misled into buying it) — or being misled by an agent. HIIQ responds to every query with essentially the same response: “We’re sorry to hear you had a bad experience. Let us help connect you with the agent or carrier that is responsible for the policy, we’re just the billing entity”. These reviews don’t reference any disagreement with the business function HIIQ plays in the process, which is providing a digital portal for policyholders to review, purchase or cancel their benefits. The BBB doesn’t seem bothered that their site allows hundreds of reviews to tarnish a business’s online reputation. If consumers had a better understanding of what kind of coverage they needed, it would significantly reduce the amount of dissatisfied policyholders. With the increased focus on compliance and transparency, the amount of negative consumer experience will become eradicated.

HIIQ Broker Licensing and Compliance

A fundamental point of the Bear argument for HIIQ going out of business is their network of brokers. Bears claim the overwhelming majority the network are made up individuals who are questionable in their nature and unscrupulous in sales tactics.

Much to the contrary, HIIQ does not allow anyone and everyone to sell policies on their platform and the licensing process is extremely thorough. Here’s the onboarding and licensing process:

1. Agents have to take a course and every state has their own exam, pass the exam, and get and pass a criminal background check, get fingerprinted, and be approved by the state to get a resident state license, then a non resident license to sell in other states, and then along with those exams, the states all regulate the agents selling insurance in their states.
2. Every night there is an update from the national insurance producers registrar (NIPR) by the states on a daily basis if anything happens with of those agents pertaining to a license or regulatory matter. Suspensions, terminations for cause or no cause, fines, regulatory matters etc, HIIQ has a system on their agents that is update daily on all their agents and their licenses.
3. In addition, agents have to complete their online questionnaire and documentation, sign a SERA accredited background check along with s copy of errors and omissions insurance, then a general questionnaire about their history, experience and what programs they’re set up for, and they finally must provide a list of states they want to sell in. This is all done through their online enrollment system.
4. Then HIIQ checks the NIPR, the nightly feed with the registar to validate all the licenses the agent holds in every single state they want to conduct business in. The system does not allow for agents to join with their state licenses.
5. To sell with HIIQ, the agent must go through the online agent training manual and the non-negotiables, or the items the agents must agree to NEVER DO. From a sales perspective, disclosure, terms they can say and not say…
6. And then the agent takes ANOTHER test and once the test is passed, they have access to the products. These products mandate carrier-specific training modules and tests agents must pass to be able to get a link to sell the product, and only in the states in which their license is in good standing, which is regulated daily. The second their license is no good, the agent cannot sell products through the HIIQ system.
7. Then what HIIQ and carriers do is regularly audit their agents to ensure the system is working properly.

Once the onboarding process is complete, there is the ongoing monitoring process which consists of:

• There is an HIIQ call center quality team.
• Enlistment of third party services to regularly perform secret shopping to buy policies and listen to sales calls.
• Regular onsite visits with the agencies to see how they’re doing.
• Quality assurance managers that review how the agencies train their agents
• After the fact monitoring
• Maintaining an agent scorecard where the metrics are all tracked and scored and the basis for rewards for agents who do well and consequences for the ones who don’t. Every single agent has their own link and their own license and HIIQ tracks them all independently. All parties are committed to what is best for the reputation of HIIQ, distributors, and carriers.

Clearly, there is full commitment for everyone involved for there to be as many controls as possible at every stage of the insurance sales process.

Stock Up After Settlement

On December 13th, shares of HIIQ went up 26% after news broke that they’d reached a Settlement with the SEC and lead state investigators. Details of the settlement include a $3.4 million payment to cover the costs of the investigation. HIIQ also committed to improve the monitoring of their sales calls, and instituted tightened compliance practices. One important change outlined in the Settlement is a new requirement for HIIQ to prepare and implement a “disclosure plan” to ensure that consumers are made fully aware of policy details and fees when purchasing insurance products on their platform. There will also be a new “compliance plan” to enhance the sales practices of call centers, and a new “training plan” for any agents using HIIQ’s digital platform to sell insurance. All plans will be to the approval of the Monitoring Regulators. Very stringent parameters to abide by, if you ask me.

The Settlement with the FTC highlights the issue of accountability. If HIIQ was of no fault, why are they paying $3.4 million to the government? The Settlement serves as acknowledgment that HIIQ needs to be more vigilant when it comes to policing their platform. Enhanced compliance policies along with improved communications with call centers will no doubt be a priority for the company going forward. The last thing HIIQ wants is a repeat of the Simple scandal.

Focusing on the Future

Year to date, Health Insurance Innovations stock has surged from 22 to 39.

With high hopes from investors, Health Insurance Innovations has set their sights on the future. CEO Gavin Southwell continues to exceed growth expectations each quarter and the board rewarded him with a 5 year contract extension.

Based on recent investor presentations, the leaders at HIIQ come across as data driven and forward thinking about investing in technology. They’ve committed to making it easier for consumers to understand their health insurance benefits, and they’re expanding their marketing efforts to be more direct-to-consumer than ever.

There’s also the recent regulatory updates earlier this fall, which has big revenue implications. The government has ruled that short term health insurance is no longer subject to a tax penalty — which in the past had made the policies harder to sell. Also, the maximum length of short term policies was only 3 months. Even with those old rules in place, HIIQ did impressive business and the stock steadily climbed. The new rules now allow you to buy a short term policy that last up to 12 months, and even up to 36 months in some states. As the current leader in the short term health insurance, HIIQ is poised to dominate the market.

Statistics released ahead ahead of their Analyst Day on December 20th 2018 revealed that the lifetime value of policies sold to-date has increased “approximately 250% in Q4 2018 compared to Q4 2017, even as the cost of acquisition has increased, and the number of submitted policies were lower 30% year over year for the fourth quarter to-date as compared to the same period in 2017.” This means that HIIQ is making more money even by selling less policies — a huge win and a good sign of things to come.

They closed out 2018 with no debt and the company has deep pockets to expand their marketing efforts into the direct to consumer market — including making a push into the spanish speaking market. Anecdotally, HII’s readiness to help with the Hurricane relief in Florida demonstrates compassion and sincerity, which is the opposite of the conniving Dorfman and his huckster swindlers.

It’s still the beginning of a long journey for HIIQ, but I predict to see a big increase in the next few years. This analysts is also predicting the stock will rise and that the shares are currently vastly underpriced. Based on the fact that needs health insurance, and HIIQ is steadily improving the process for buying it online, the upward trend year-over-year is bound to continue. With the increased lifetime value of STM products it’s an excellent time to invest in HIIQ, despite what the short sellers might have you believe. The growth of the company will continue, as well as its reputation as an industry leader. Don’t miss the boat if you’re on the fence, but also don’t just take my word for it. You can do your own research and come to your own conclusion. There’s ample evidence available to indicate this is a great stock to go long on.

Disclosure: Obviously, I’m long on HIIQ