Healthy Inspiration

Source: finviz.com

More money has been lost trying to anticipate and protect from corrections than actually in them.

- Peter Lynch

I discussed several near-term catalysts in my initial coverage of Health Insurance Innovations (HIIQ), one of which came to fruition last month. On August 1, The Center for Medicare and Medicaid Services announced the highly anticipated short-term, limited duration insurance [STLDI] final rule change. The maximum duration of STLDI policies has been restored to less than 12 months from the original effective date, with the option of renewal or extension for a maximum of up to 36 months in total.

The Street bought the news all the way up to all time highs. In light of this, new investors may feel late to the party, and current longs may anticipate a correction. Regardless of position or sentiment, current and prospective investors must undergo particularly vigorous due diligence before making investment decisions in periods of high volatility.

On the same day as the STLDI announcement, management boasted impressive second quarter earnings figures and underlined their diligent preparation in anticipation of the STLDI rule change. CEO Gavin Southwell explains, "We have been waiting for this rule change and we have been preparing for the opportunity. We are ready to continue to lead our market in order to reach as many consumers as possible."

Expanded market opportunity

The short-term health insurance market will welcome millions of new enrollees as the rule change takes effect next month. Short-term plans will become even more attractive when the individual mandate penalty repeal takes effect at the end of the year, which will improve the cost benefit advantage for customers. Mr. Southwell provided some quantitative estimates last earnings call.

Over the next four years, millions of enrollees are expected to shift into association health plans from both the small group and individual market, resulting in an estimated new association health plan enrollment of more than 3 million people by 2022. This represents the equivalent of about 16.9 billion market opportunity... We are ramping up our efforts to try to reach as many consumers as possible. A lot of the distribution partners we’ve added will make a lot more consumers aware. And you will have noticed, we have a very high cash balance that is the highest balance we’ve had. We can put that money to work. [In] Q3 we’ll be investing to make sure we execute on that fourth quarter opportunity.

Multi-state review to reach conclusion

Followers of HIIQ are aware of the ongoing multi-state review that bears successfully sensationalized last September. For those unfamiliar, the review began with a cease & desist order from the Arkansas Insurance Department as reports of fraudulent marketing allegedly came to the department's attention. A coalition was eventually formed to assess whether non-ACA compliant health insurance policies were fraudulently branded as ACA compliant (read more here).

Several state insurance departments have concluded individual investigations, and none have found HIIQ to be culpable of any wrongdoing. As I previously indicated, if the multi-state review finds any legal liability on the part of HIIQ, it is unlikely to materially affect the company. I discussed this conclusion further in my previous article.

Management indicated last earnings call that the review is likely to reach an end this quarter.

Improvement in customer satisfaction

In a tone of excitement, Mr. Southwell detailed another consecutive improvement in customer satisfaction statistics.

Previously we talked about how from 2016 to 2017 our Department of Insurance complaint plummeted 56% year-over-year whist ACA carriers often saw large increases in complaints over the same period...I am pleased to update that in 2018, we continued to improve even further still with a comparison of the first half of 2018 versus the first half of 2017 seeing a drop of a 45%, which is from 22 complaints to only 12. Importantly, out of those 12 complaints only three were upheld, a fantastic achievement for a business with a record 390,000 policies in force and over 1 million people covered.

The complaint-to-policy rate has drastically outperformed the average rates observed across ACA carriers, and is "in some cases 14x, 22x, or even 37x lower than ACA carriers" according to management. The complaint resolution rate achieved by management also outperforms the average ACA carrier rate.

Earnings continue to grow

Management raised full-year revenue guidance to $295-305 million, which would represent 19% annual growth. If guidance is met, management would be heading into next year with industry leading growth rates - 42% revenue CAGR and 111% earnings CAGR over the past four years - whilst poised to capitalize on a multi-billion dollar market expansion.

Source: author illustration using regulatory filings

Over 115,000 shares (nearly 1% of float) were purchased during the second quarter as part of the share repurchase program. The buyback program is just getting started. Only 20% of funds dedicated to share repurchase have been utilized to date.

In conclusion

Shares of Health Insurance Innovations have risen 70% in the two months since I began coverage of the Tampa based company. At this juncture it is important to remember the words of Peter Lynch, who reminds investors that improperly anticipating a correction tends to cause losses more often than corrections themselves. As a rule of thumb, portfolio exposure in any instrument, especially during periods of high relative volatility, should only be considered following assiduous research.

For the time being, long exposure in HIIQ remains astute for value investors. Two major legislative catalysts have the potential to add millions of short-term insurance enrollees to the emerging growth company. New customers will be incentivized as the STLDI maximum twelve month length restoration and the ACA individual mandate penalty elimination take effect.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: https://seekingalpha.com/article/4205327-health-insurance-innovations-tops-healthcare-sector-growth-prospects-new-legislation-takes?source=feed_sector_healthcare

Hi Friends!

I hope everyone is having a great summer so far! We’ve been having really humid weather in Massachusetts lately, so it’s been pretty uncomfortable moving around as a giant pregnant woman. I don’t know how I would deal without air conditioning. I usually wake up on top of the blankets and look over to see Daniel shivering under a comforter and an additional quilt he got in the middle of the night. Poor guy floating in the pool feels amazing these days [/caption]

I am now 35 weeks! I’m getting really excited and a little impatient. I’m super thankful that I haven’t had any major problems or complications but now I just really want to meet the little guy. We went to the hospital where I will be delivering and had a tour. I’m a little uneasy about delivering in Boston, depending on the time of day traffic could be a real issue. But it was nice to be able to visualize how everything is going to work.

Here are some links I’ve read recently while dealing with night sweats or peeing 16 times a day

The New York Times did a fascinating profile on Goop. Equal parts interesting, silly, and yes, “aspirational.”

Sleep is one of the most critical aspects of health and wellness and really just general success in all areas of life. But it’s so often overlooked. A sleep scientist was on Fresh Air talking about the immense importance of sleep.

I always love these lists. Here are some of the unhealthiest meals in America. I know I’m supposed to be grossed out, but honestly a 2700 calorie breakfast burrito sounds pretty darn good right now.

Here are some hacks for picky eaters. Could be good for parents trying to get their kids to eat more nutritious stuff.

I know exercise doesn’t come easy to a lot of us (raises hand…then counts it as exercise for the day) but it really is great for health. According to a study in Australia, lots of physical activity halved the risk of stroke, heart disease, cancer, and diabetes over ten years.