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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-33071
_____________________________________________
EHEALTH, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________

Delaware |  | 56-2357876
(State or other jurisdiction of incorporation or organization) |  | (I.R.S Employer Identification No)

2625 AUGUSTINE DRIVE, SECOND FLOOR
SANTA CLARA, CA 95054
(Address of principal executive offices)
(650) 584-2700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol | Name of each exchange on which registered
Common Stock, par value $0.001 per share | EHTH | The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ |  | Accelerated filer | ☐ |
Non-accelerated filer | ☐ |  | Smaller reporting company | ☐ |
|  |  | Emerging growth Company | ☐ |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of April 23, 2021 was 26,091,024 shares.

EHEALTH, INC.
FORM 10-Q
TABLE OF CONTENTS

PART I | FINANCIAL INFORMATION | PAGE
Summary of Risk Factors | 2
Item 1. | Financial Statements (unaudited) | 3
| Condensed Consolidated Balance Sheets as of March 3 1, 202 1 and December 31, 20 20 | 3
| Condensed Consolidated Statements of Comprehensive Income (L oss) for the Three Months Ended March 3 1, 202 1 and 20 20 | 4
| Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 3 1, 202 1 and 20 20 | 5
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 3 1, 202 1 and 20 20 | 6
| Notes to Condensed Consolidated Financial Statements | 7
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 45
Item 4. | Controls and Procedures | 46
PART II | OTHER INFORMATION |
Item 1. | Legal Proceedings | 47
Item 1A. | Risk Factors | 47
Item 6. | Exhibits | 71
| Signatures | 72

1

Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, including those risks discussed at length in Part II, Item 1A below. The following is a summary of the principal risks we face, any of which could adversely affect our business, operating results, financial condition or prospects:
•If our ability to enroll individuals during enrollment periods is impeded or if investments we make in enrollment periods do not result in the returns we expected when making those investments, our business, operating results and financial condition would be harmed.
•We may be unsuccessful in competing effectively against current and future competitors, including government-run health insurance exchanges.
•Our business may be harmed if we lose our relationship with health insurance carriers or our relationship with health insurance carriers is modified.
•Our financial results will be adversely impacted if our membership does not grow or if we are not able to successfully retain our existing members and limit health insurance plan termination.
•If we are not able to maintain and enhance our brand, our business and operating results will be harmed.
•The ongoing COVID-19 pandemic and public health crises, illness, epidemics or pandemics could adversely impact our business, operating results and financial condition.
•Our business may be harmed if we are not successful in executing on our strategic investments and initiatives, including our growth strategy and retention initiatives.
•The success of our customer care center operations depends upon our ability to timely hire, train, retain and ensure the productivity of our licensed health insurance agents.
•If we are not successful in cost-effectively converting visitors to our website and customers who call into our call centers into members for whom we receive commissions, our business and operating results would be harmed.
•We depend upon Internet search engines and social media platforms to attract a significant portion of the consumers who visit our website, and if we are unable to effectively advertise on search engines or social media platforms on a cost-effective basis, our business and operating results would be harmed.
•We rely significantly on marketing partners and our business and operating results would be harmed if we are unable to maintain effective relationships with our existing marketing partners or if we do not establish successful relationships with new marketing partners.
•Our future operating results are likely to fluctuate and could fall short of expectations.
•The marketing and sale of Medicare plans are subject to numerous, complex and frequently changing laws, regulations and guidelines, and non-compliance with or changes in laws, regulations and guidelines could harm our business, operating results and financial condition.
•Changes and developments in the health insurance industry or system as a result of health care reform could harm our business, operating results and financial condition.
•Our success in selling health insurance is dependent in part on the actions of federal and state governments. Changes in the laws and regulations governing the offer, sale and purchase of health insurance could harm our business and operating results.
•Our business is subject to security risks and, if we experience cyberattacks, security breaches or are otherwise unable to safeguard the security and privacy of confidential data, including personal health information, our business will be harmed.
•Our operating results will be impacted by factors that impact our estimate of the constrained lifetime value, or LTV, of commissions per approved member.
2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

| March 31, 2021 |  | December 31, 2020
Assets | (Unaudited) |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 92,250 |  |  | $ | 43,759 |
Short-term marketable securities | 33,922 |  |  | 49,620 |
Accounts receivable | 1,847 |  |  | 1,799 |
Contract assets – commissions receivable – current | 180,276 |  |  | 219,153 |
Prepaid expenses and other current assets | 12,325 |  |  | 16,661 |
Total current assets | 320,620 |  |  | 330,992 |
Contract assets – commissions receivable – non-current | 561,571 |  |  | 573,252 |
Property and equipment, net | 14,869 |  |  | 14,609 |
Operating lease right-of-use assets | 41,284 |  |  | 42,558 |
Restricted cash | 3,354 |  |  | 3,354 |
Intangible assets, net | 8,393 |  |  | 8,569 |
Goodwill | 40,233 |  |  | 40,233 |
Other assets | 27,471 |  |  | 26,455 |
Total assets | $ | 1,017,795 |  |  | $ | 1,040,022 |
Liabilities and stockholders’ equity |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 10,944 |  |  | $ | 36,921 |
Accrued compensation and benefits | 24,630 |  |  | 20,542 |
Accrued marketing expenses | 11,076 |  |  | 17,788 |
Lease liabilities – current | 5,316 |  |  | 5,192 |
Deferred revenue | 877 |  |  | 308 |
Other current liabilities | 4,270 |  |  | 3,657 |
Total current liabilities | 57,113 |  |  | 84,408 |
Commitments and contingencies |  |  |
Deferred income taxes – non-current | 71,748 |  |  | 72,317 |
Lease liabilities – non-current | 39,984 |  |  | 41,369 |
Other non-current liabilities | 5,025 |  |  | 4,370 |
Stockholders’ equity: |  |  |
Common stock | 38 |  |  | 38 |
Additional paid-in capital | 728,213 |  |  | 721,013 |
Treasury stock, at cost | (199,998) |  |  | (199,998) |
Retained earnings | 315,355 |  |  | 316,155 |
Accumulated other comprehensive income | 317 |  |  | 350 |
Total stockholders’ equity | 843,925 |  |  | 837,558 |
Total liabilities and stockholders’ equity | $ | 1,017,795 |  |  | $ | 1,040,022 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
3

EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts, unaudited)

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Revenue: |  |  |  |  |  |  |
Commission |  |  |  |  | $ | 127,052 |  |  | $ | 99,669 |
Other |  |  |  |  | 7,162 |  |  | 6,739 |
Total revenue |  |  |  |  | 134,214 |  |  | 106,408 |
Operating costs and expenses: |  |  |  |  |  |  |
Cost of revenue |  |  |  |  | 996 |  |  | 1,138 |
Marketing and advertising |  |  |  |  | 50,874 |  |  | 37,764 |
Customer care and enrollment |  |  |  |  | 34,162 |  |  | 30,535 |
Technology and content |  |  |  |  | 23,163 |  |  | 15,740 |
General and administrative |  |  |  |  | 23,054 |  |  | 19,653 |
Amortization of intangible assets |  |  |  |  | 176 |  |  | 547 |
Restructuring charges |  |  |  |  | 2,431 |  |  | — |
Total operating costs and expenses |  |  |  |  | 134,856 |  |  | 105,377 |
Income (loss) from operations |  |  |  |  | (642) |  |  | 1,031 |
Other income, net |  |  |  |  | 150 |  |  | 373 |
Income (loss) before provision for (benefit from) income taxes |  |  |  |  | (492) |  |  | 1,404 |
Provision for (benefit from) income taxes |  |  |  |  | 308 |  |  | (2,048) |
Net income (loss) |  |  |  |  | $ | (800) |  |  | $ | 3,452 |
Net income (loss) per share: |  |  |  |  |  |  |
Basic |  |  |  |  | $ | (0.03) |  |  | $ | 0.14 |
Diluted |  |  |  |  | $ | (0.03) |  |  | $ | 0.13 |
Weighted-average number of shares used in per share amounts:
Basic |  |  |  |  | 26,620 |  |  | 24,719 |
Diluted |  |  |  |  | 26,620 |  |  | 26,179 |
Comprehensive income (loss): |  |  |  |  |  |  |
Net income (loss) |  |  |  |  | $ | (800) |  |  | $ | 3,452 |
Unrealized holding gain (loss) for available for sales debt securities, net of tax |  |  |  |  | (16) |  |  | 25 |
Foreign currency translation adjustment |  |  |  |  | (17) |  |  | (31) |
Comprehensive income (loss) |  |  |  |  | $ | (833) |  |  | $ | 3,446 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, unaudited)

Three Months Ended March 31, 2021
| Common Stock |  | Additional Paid-in Capital |  | Treasury Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Stockholders’ Equity
| Shares |  | Amount |  |  | Shares |  | Amount |  |  |
Balance as of December 31, 2020 | 37,755 |  |  | $ | 38 |  |  | $ | 721,013 |  |  | 11,831 |  |  | $ | (199,998) |  |  | $ | 316,155 |  |  | $ | 350 |  |  | $ | 837,558 |
Issuance of common stock in connection with equity incentive plans | 238 |  |  | — |  |  | 285 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 285 |
Repurchase of shares to satisfy employee tax withholding obligations | — |  |  | — |  |  | (5,037) |  |  | 81 |  |  | — |  |  | — |  |  | — |  |  | (5,037) |
Stock-based compensation | — |  |  | — |  |  | 11,952 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 11,952 |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (33) |  |  | (33) |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (800) |  |  | — |  |  | (800) |
Balance as of March 31, 2021 | 37,993 |  |  | $ | 38 |  |  | $ | 728,213 |  |  | 11,912 |  |  | $ | (199,998) |  |  | $ | 315,355 |  |  | $ | 317 |  |  | $ | 843,925 |

Three Months Ended March 31, 2020
| Common Stock |  | Additional Paid-in Capital |  | Treasury Stock |  | Retained Earnings |  | Accumulated Other Comprehensive Income |  | Total Stockholders’ Equity
| Shares |  | Amount |  |  | Shares |  | Amount |  |  |
Balance as of December 31, 2019 | 34,752 |  |  | $ | 35 |  |  | $ | 455,159 |  |  | 11,616 |  |  | $ | (199,998) |  |  | $ | 271,852 |  |  | $ | 116 |  |  | $ | 527,164 |
Cumulative effect from the adoption of ASU 2016-13 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,147) |  |  | — |  |  | (1,147) |
Issuance of common stock in connection with equity incentive plans | 141 |  |  | — |  |  | 1,091 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,091 |
Repurchase of shares to satisfy employee tax withholding obligations | — |  |  | — |  |  | (4,375) |  |  | 33 |  |  | — |  |  | — |  |  | — |  |  | (4,375) |
Shares issued in equity offering | 2,070 |  |  | 2 |  |  | 228,022 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 228,024 |
Settlement of earnout liability | 295 |  |  | — |  |  | 28,521 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 28,521 |
Stock-based compensation | — |  |  | — |  |  | 8,962 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 8,962 |
Other comprehensive income, net of tax | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (6) |  |  | (6) |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3,452 |  |  | — |  |  | 3,452 |
Balance as of March 31, 2020 | 37,258 |  |  | $ | 37 |  |  | $ | 717,380 |  |  | 11,649 |  |  | $ | (199,998) |  |  | $ | 274,157 |  |  | $ | 110 |  |  | $ | 791,686 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
5

EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

| Three Months Ended March 31,
| 2021 |  | 2020
Operating activities: |  |  |
Net income (loss) | $ | (800) |  |  | $ | 3,452 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |
Depreciation and amortization | 1,138 |  |  | 823 |
Amortization of internally developed software | 2,806 |  |  | 1,501 |
Amortization of intangible assets | 176 |  |  | 547 |
Stock-based compensation expense | 11,402 |  |  | 8,714 |
Deferred income taxes | (570) |  |  | (2,141) |
Other non-cash items | 420 |  |  | 223 |
Changes in operating assets and liabilities: |  |  |
Accounts receivable | (48) |  |  | 1,664 |
Contract assets – commissions receivable | 50,635 |  |  | 26,873 |
Prepaid expenses and other assets | 4,225 |  |  | (159) |
Accounts payable | (25,826) |  |  | (16,279) |
Accrued compensation and benefits | 4,088 |  |  | (11,104) |
Accrued marketing expenses | (6,712) |  |  | (7,329) |
Deferred revenue | 570 |  |  | 113 |
Accrued expenses and other liabilities | 1,305 |  |  | 2,009 |
Net cash provided by operating activities | 42,809 |  |  | 8,907 |
Investing activities: |  |  |
Capitalized internal-use software and website development costs | (3,242) |  |  | (3,564) |
Purchases of property and equipment and other assets | (1,899) |  |  | (2,508) |
Purchases of marketable securities | (7,771) |  |  | (58,064) |
Proceeds from redemption and maturities of marketable securities | 23,409 |  |  | — |
Net cash provided by (used in) investing activities | 10,497 |  |  | (64,136) |
Financing activities: |  |  |
Proceeds from issuance of common stock, net of issuance costs | — |  |  | 228,024 |
Net proceeds from exercise of common stock options | 285 |  |  | 1,091 |
Repurchase of shares to satisfy employee tax withholding obligations | (5,037) |  |  | (4,375) |
Acquisition-related contingent payments | — |  |  | (8,751) |
Principal payments in connection with leases | (38) |  |  | (58) |
Net cash provided by (used in) financing activities | (4,790) |  |  | 215,931 |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (25) |  |  | (2) |
Net increase in cash, cash equivalents and restricted cash | 48,491 |  |  | 160,700 |
Cash, cash equivalents and restricted cash at beginning of period | 47,113 |  |  | 26,820 |
Cash, cash equivalents and restricted cash at end of period | $ | 95,604 |  |  | $ | 187,520 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
6

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 – Summary of Business and Significant Accounting Policies
Description of Business – eHealth, Inc. (the “Company,” “eHealth,” “we” or “us”) is a leading health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs. Our omnichannel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent. We have created a marketplace that offers consumers a broad choice of insurance products that includes thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 200 health insurance carriers across all fifty states and the District of Columbia.
Basis of Presentation – The accompanying condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020 and the condensed consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for the three months ended March 31, 2021 and 2020, respectively, are unaudited. The condensed consolidated balance sheet data as of December 31, 2020 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on February 26, 2021. The accompanying financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K.
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. The condensed consolidated financial statements include the accounts of eHealth, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations. Certain prior period amounts have been reclassified to conform with our current period presentation. However, we believe that the disclosures made are adequate to make the information not misleading.
The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020 and include all adjustments necessary for the fair presentation of our financial position as of March 31, 2021 and December 31, 2020, and our results of operations for the periods presented. Our financial position as of March 31, 2021 and results of operations and cash flows for the three months ended March 31, 2021 were not materially impacted by the COVID-19 pandemic but the Company is continuously assessing the evolving situation related to the pandemic. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2021 and therefore should not be relied upon as an indicator of future results.
Subsequent to the issuance of our consolidated financial statements for the year ended December 31, 2020, we identified certain errors, including a $3.0 million under-recognition of stock-based compensation expense and a $1.5 million over-recognition of licensing costs for the year ended December 31, 2020. We adjusted for these items in the first quarter of 2021 and the adjustments reduced our net income (loss) by approximately $1.5 million in our Condensed Consolidated Statement of Comprehensive Income (Loss) for the three months ended March 31, 2021. We evaluated the effects of these out-of-period adjustments, both qualitatively and quantitatively, and concluded that the errors and the correction thereof were immaterial both individually and in the aggregate to the current reporting period and the periods in which they originated, including quarterly reporting.
Significant Accounting Policies, Estimates and Judgments – The preparation of condensed consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates, judgments and
7

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to, but not limited to, the useful lives of intangible assets, fair value of investments, recoverability of intangible assets, the commissions we expect to collect for each approved member cohort, valuation allowance for deferred income taxes, provision (benefit) for income taxes and the assumptions used in determining stock-based compensation. We base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that we believe to be reasonable. Actual results may differ from these estimates. There have been no material changes to our significant accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2020.
Seasonality – Open enrollment periods drive the seasonality of our business. A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. As a result, our Medicare plan-related commission revenue is highest in our fourth quarter. Any changes or additional enrollment periods may change the seasonality of our business. For instance, due to the reintroduction of the Medicare Advantage open enrollment period that takes place in the first quarter of the year, our first quarter is generally the second-highest revenue generating quarter.
The majority of our individual and family health insurance plans are sold in the fourth quarter during the annual open enrollment period as defined under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. Individuals and families generally are not able to purchase individual and family health insurance outside of these open enrollment periods, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state due to the recent COVID-19 pandemic.
Recently Adopted Accounting Pronouncement
Income Taxes (Topic 740) – In December 2019, the FASB issued ASU No. 2019-12, Income Tax, Simplifying the Accounting for Income Taxes, which aims to simplify the accounting for income taxes. We adopted this guidance in the first quarter of 2021 and it did not have a material impact on our condensed consolidated financial statements.
Codification Improvements – In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. ASU 2020-10 is intended to facilitate codification updates for technical corrections, such as conforming amendments, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements. It contains amendments that improve the consistency of the codification by including all disclosure guidance in the appropriate disclosure section and other updates that varies in nature. We adopted this guidance in the first quarter of 2021 with no material impact on our condensed consolidated financial statements and disclosures.
Debt with Conversion and Other Options (Topic 470) and Contracts in Entity's Own Equity (Topic 815) – In June 2020, the FASB issued ASU No. 2020-06 to simplify the accounting for convertible instruments and improve the usefulness and relevance of information regarding convertible instruments. This ASU reduces the number of accounting models for converting debt instruments and convertible preferred stock. ASU No. 2020-06 is effective for us in 2022, with early adoption permitted. We have early adopted this guidance in the first quarter of 2021 and it did not have a material impact on our condensed consolidated financial statements.
8

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 2 – Revenue
Disaggregation of Revenue – The table below depicts the disaggregation of revenue by product and is consistent with how we evaluate our financial performance (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Medicare |  |  |  |  |  |  |
Medicare Advantage |  |  |  |  | $ | 103,525 |  |  | $ | 68,347 |
Medicare Supplement |  |  |  |  | 8,222 |  |  | 15,170 |
Medicare Part D |  |  |  |  | 1,736 |  |  | 5,661 |
Total Medicare |  |  |  |  | 113,483 |  |  | 89,178 |
Individual and Family (1) |  |  |  |  |  |  |
Non-Qualified Health Plans |  |  |  |  | 3,367 |  |  | 1,446 |
Qualified Health Plans |  |  |  |  | 2,100 |  |  | 1,210 |
Total Individual and Family |  |  |  |  | 5,467 |  |  | 2,656 |
Ancillary |  |  |  |  |  |  |
Short-term |  |  |  |  | 1,756 |  |  | 2,216 |
Dental |  |  |  |  | 1,728 |  |  | 743 |
Vision |  |  |  |  | 205 |  |  | 243 |
Other |  |  |  |  | 35 |  |  | 1,049 |
Total Ancillary |  |  |  |  | 3,724 |  |  | 4,251 |
Small Business |  |  |  |  | 3,223 |  |  | 2,971 |
Commission Bonus |  |  |  |  | 1,155 |  |  | 613 |
Total Commission Revenue |  |  |  |  | 127,052 |  |  | 99,669 |
Other Revenue |  |  |  |  |  |  |
Sponsorship and Advertising Revenue |  |  |  |  | 5,814 |  |  | 5,890 |
Other |  |  |  |  | 1,348 |  |  | 849 |
Total Other Revenue |  |  |  |  | 7,162 |  |  | 6,739 |
Total Revenue |  |  |  |  | $ | 134,214 |  |  | $ | 106,408 |

_____________
(1)We define our individual and family plan offerings as major medical individual and family health insurance plans, which does not include Medicare-related, small business or ancillary plans. Individual and family health insurance plans include both qualified and non-qualified plans. Qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are offered through the government-run health insurance exchange in the relevant jurisdiction. Non-qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are not offered through the exchange in the relevant jurisdiction. Individuals that purchase non-qualified health plans cannot receive a subsidy in connection with the purchase of non-qualified plans.
9

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Commission revenue by segment is presented in the table below (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Medicare |  |  |  |  |  |  |
Commission Revenue from Members Approved During the Period (1) |  |  |  |  | $ | 114,678 |  |  | $ | 81,125 |
Net Commission Revenue from Members Approved in Prior Periods (2) |  |  |  |  | 14 |  |  | 8,979 |
Total Medicare Segment Commission Revenue |  |  |  |  | $ | 114,692 |  |  | $ | 90,104 |
Individual, Family and Small Business |  |  |  |  |  |  |
Commission Revenue from Members Approved During the Period (1) |  |  |  |  | $ | 6,395 |  |  | $ | 5,796 |
Commission Revenue from Renewals of Small Business Members During the Period (3) |  |  |  |  | 2,687 |  |  | 2,396 |
Net Commission Revenue from Members Approved in Prior Periods (2) |  |  |  |  | 3,278 |  |  | 1,373 |
Total IFP/SMB Segment Commission Revenue |  |  |  |  | $ | 12,360 |  |  | $ | 9,565 |
Total Commission Revenue from Members Approved During the Period (1) |  |  |  |  | $ | 121,073 |  |  | $ | 86,921 |
Commission Revenue from Renewals of Small Business Members During the Period (3) |  |  |  |  | 2,687 |  |  | 2,396 |
Total Net Commission Revenue from Members Approved in Prior Periods (2)(4) |  |  |  |  | 3,292 |  |  | 10,352 |
Total Commission Revenue |  |  |  |  | $ | 127,052 |  |  | $ | 99,669 |

_____________
(1)These amounts include commission bonus revenue.
(2)These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as adjustments to revenue within the relevant reporting period. The net adjustment revenue includes both increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts.
(3)Commission revenue from renewals of small business members during the period was previously included in net commission revenue from members approved in prior periods. However, starting in the first quarter of 2021, we enhanced our reporting by separately disclosing commission revenue from renewals of small business members during the period in a separate line item.
(4)The impacts of total net commission revenue from members approved in prior periods were $0.12 and $0.42 per basic share, respectively, or $0.12 and $0.40 per diluted share, respectively, for the three months ended March 31, 2021 and 2020, respectively. The total reductions to revenue from members approved in prior periods were $0.9 million for the three months ended March 31, 2021 and immaterial for the three months ended March 31, 2020. These reductions to revenue primarily related to the Individual, Family and Small Business segment.
Note 3 – Supplemental Financial Statement Information
Cash, Cash Equivalents and Restricted Cash
We consider all investments with an original maturity of 90 days or less from the date of purchase to be cash equivalents. Cash and cash equivalents are stated at fair value. We also invest in marketable securities that are measured and recorded at fair value. See Note 4 – Fair Value Measurements for further discussion about our marketable securities.
10

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our cash, cash equivalent and restricted cash balances are summarized as follows (in thousands):

| March 31, 2021 |  | December 31, 2020
Cash | $ | 72,326 |  |  | $ | 39,552 |
Cash equivalents | 19,924 |  |  | 4,207 |
Cash and cash equivalents | 92,250 |  |  | 43,759 |
Restricted cash | 3,354 |  |  | 3,354 |
Total cash, cash equivalents and restricted cash | $ | 95,604 |  |  | $ | 47,113 |

As of March 31, 2021 and December 31, 2020, we had $3.4 million of restricted cash which was classified as a non-current asset on our Condensed Consolidated Balance Sheets. This amount collateralizes letters of credit related to certain lease commitments.
Contract Assets and Accounts Receivable
We do not require collateral or other security for our contract assets and accounts receivable. We believe the potential for collection issues with any of our customers was minimal as of March 31, 2021.
We estimate an allowance for credit losses using relevant available information from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Specifically, for the purpose of measuring the probability of default parameters, we utilize Capital IQ’s, Standard & Poor’s and Moody’s analytics. Our estimates of loss given default are determined by using our historical collections data as well as historical information obtained through our research and review of other insurance related companies. Our estimated exposure at default is determined by applying these internal and external data sources to our commission receivable balances. As such, we apply an immediate reversion method and revert to historical loss information when computing our credit loss exposure. Credit loss expenses are assessed quarterly and included in general and administrative expense on our Condensed Consolidated Statement of Comprehensive Income (Loss).
We considered the impact of recent events and global economic conditions when evaluating the appropriate adjustments to our allowance for credit losses as of March 31, 2021. Determining the extent of these adjustments in the three months ended March 31, 2021 was especially challenging because we do not have any historical loss information for a period of similar economic uncertainty. We also considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic.
The change in the allowance for credit losses for the three months ended March 31, 2021 is summarized as follows (in thousands):

| Three Months Ended March 31, 2021 |  |
Beginning balance | $ | 2,026 |  |  |
Change in allowance | (78) |  |  |
Ending balance | $ | 1,948 |  |  |

11

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our contract assets – commission receivable activities, net of credit loss allowances are summarized as follows (in thousands):

| Three Months Ended March 31, 2021
| Medicare Segment |  | IFP/SMB Segment |  | Total |  |
Beginning balance | $ | 739,637 |  |  | $ | 52,768 |  |  | $ | 792,405 |  |  |
Commission revenue from members approved during the period | 114,678 |  |  | 6,395 |  |  | 121,073 |  |  |
Commission revenue from renewals of small business members during the period (1) | — |  |  | 2,687 |  |  | 2,687 |  |  |
Net commission revenue adjustments from members approved in prior period | 14 |  |  | 3,278 |  |  | 3,292 |  |  |
Cash receipts | (165,520) |  |  | (12,012) |  |  | (177,532) |  |  |
Net change in credit loss allowance | (72) |  |  | (6) |  |  | (78) |  |  |
Ending balance | $ | 688,737 |  |  | $ | 53,110 |  |  | $ | 741,847 |  |  |

| Three Months Ended March 31, 2020
| Medicare Segment |  | IFP/SMB Segment |  | Total
Beginning balance | $ | 550,922 |  |  | $ | 38,300 |  |  | $ | 589,222 |
Commission revenue from members approved during the period | 81,125 |  |  | 5,796 |  |  | 86,921 |
Commission revenue from renewals of small business members during the period (1) | — |  |  | 2,396 |  |  | 2,396 |
Net commission revenue adjustments from members approved in prior period | 8,979 |  |  | 1,373 |  |  | 10,352 |
Cash receipts | (112,731) |  |  | (13,811) |  |  | (126,542) |
Net change in credit loss allowance | (1,574) |  |  | (58) |  |  | (1,632) |
Ending balance | $ | 526,721 |  |  | $ | 33,996 |  |  | $ | 560,717 |

_____________
(1)Commission revenue from renewals of small business members during the period was previously included in net commission revenue from members approved in prior periods. However, starting in the first quarter of 2021, we enhanced our reporting by separately disclosing commission revenue from renewals of small business members during the period in a separate line item.
Credit Risk
Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, marketable securities, contract assets – commissions receivable, and accounts receivable. We invest our cash and cash equivalents with major banks and financial institutions and, at times, such investments are in excess of federally insured limits. We also have deposits with major banks in China that are denominated in both U.S. dollars and Chinese Yuan Renminbi and are not insured by the U.S. federal government. The deposits in China were $3.5 million as of March 31, 2021. See Note 4 – Fair Value Measurements for more information regarding our marketable securities.
12

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
We do not require collateral or other security for either our contract assets or accounts receivable. Carriers that represented 10% or more of our total contract assets and accounts receivable balance are summarized as of the dates presented below:

| March 31, 2021 |  | December 31, 2020
UnitedHealthCare (1) | 21 | % |  | 21 | %
Humana | 21 | % |  | 21 | %
Aetna (1) | 20 | % |  | 20 | %
Centene (1)(2) | 12 | % |  | 11 | %

_____________
(1)Percentages include the carriers' subsidiaries.
(2)Centene Corporation acquired WellCare Health Plans, Inc. in 2020, and the contract assets and accounts receivable of WellCare are included in the percentage calculation for March 31, 2021 and December 31, 2020.
Prepaid Expenses and Other Current Assets – Our prepaid expenses and other current assets are summarized as of the periods presented as follows (in thousands):

| March 31, 2021 |  | December 31, 2020
Prepaid maintenance contracts | $ | 6,583 |  |  | $ | 7,715 |
Prepaid expenses | 4,095 |  |  | 6,628 |
Prepaid insurance | 1,031 |  |  | 1,672 |
Others | 616 |  |  | 646 |
Prepaid expenses and other current assets | $ | 12,325 |  |  | $ | 16,661 |

Note 4 – Fair Value Measurements
We define fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques we use to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We classify the inputs used to measure fair value into the following hierarchy:

Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 | Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability.
Level 3 | Unobservable inputs for the asset or liability.

13

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our financial assets measured at fair value on a recurring basis are summarized below by their classification within the fair value hierarchy as of the dates presented below (in thousands):

| March 31, 2021
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |  |
Cash equivalents |  |  |  |  |  |  |  |  |
Money market funds | $ | 5,602 |  |  | $ | 5,602 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,602 |
Commercial paper | 14,322 |  |  | — |  |  | 14,322 |  |  | — |  |  | 14,322 |
Short-term marketable securities |  |  |  |  |  |  |  |  |
Agency bonds | 26,826 |  |  | — |  |  | 26,826 |  |  | — |  |  | 26,826 |
Commercial paper | 7,096 |  |  | — |  |  | 7,096 |  |  | — |  |  | 7,096 |
Total assets measured at fair value | $ | 53,846 |  |  | $ | 5,602 |  |  | $ | 48,244 |  |  | $ | — |  |  | $ | 53,846 |

| December 31, 2020 |  |  |
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds | $ | 4,207 |  |  | $ | 4,207 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,207 |  |  |  |  |  |  |  |  |  |
Short-term marketable securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Agency bonds | 35,423 |  |  | — |  |  | 35,423 |  |  | — |  |  | 35,423 |  |  |  |  |  |  |  |  |  |
Commercial paper | 14,197 |  |  | — |  |  | 14,197 |  |  | — |  |  | 14,197 |  |  |  |  |  |  |  |  |  |
Total assets measured at fair value | $ | 53,827 |  |  | $ | 4,207 |  |  | $ | 49,620 |  |  | $ | — |  |  | $ | 53,827 |  |  |  |  |  |  |  |  |  |

Our cash equivalents were invested in money market funds and commercial paper with original maturity of 90 days or less were classified as Level 1. We endeavor to utilize the best available information in measuring fair value. We used observable prices in active markets in determining the classification of our money market funds as Level 1.
As of March 31, 2021, our Level 2 assets included our available for sale marketable securities, which consisted of commercial paper and agency bonds with maturity less than one year. We classify our marketable debt securities within Level 2 in the fair value hierarchy, because we use quoted market prices to the extent available or alternative pricing sources and models utilizing market observable inputs to determine fair value. Our portfolio primarily consisted of financial instruments with a credit rating of AA or equivalent by S&P Rating and Moody's Investor Services. There were no transfers between the hierarchy levels during the three months ended March 31, 2021 and year ended December 31, 2020.
The following table summarizes our cash equivalents and available-for-sale debt securities by contractual maturity (in thousands):

| As of March 31, 2021
| Amortized Cost |  | Fair Value
Due in 1 year | $ | 53,827 |  |  | $ | 53,846 |

14

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Unrealized gains and losses on available-for-sale debt securities that are not credit related are included in accumulated other comprehensive income and summarized as follows as of March 31, 2021 (in thousands):

| Amortized Cost |  | Unrealized Gain |  | Unrealized Loss |  | Fair Value
Cash equivalents |  |  |  |  |  |  |
Money market funds | $ | 5,602 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,602 |
Commercial paper | 14,323 |  |  | — |  |  | (1) |  |  | 14,322 |
Short-term marketable securities |  |  |  |  |  |  |
Agency bonds | 26,805 |  |  | 21 |  |  | — |  |  | 26,826 |
Commercial paper | 7,097 |  |  | — |  |  | (1) |  |  | 7,096 |
Total | $ | 53,827 |  |  | $ | 21 |  |  | $ | (2) |  |  | $ | 53,846 |

As of March 31, 2021, there were twelve securities in net loss positions and their unrealized losses were immaterial. We did not record any credit losses regarding our available-for-sales debt securities during the three months ended March 31, 2021. We do not intend to sell these securities and it is more likely than not that we will not be required to sell these securities before the recovery of their amortized cost basis.
Note 5 – Equity
Public Offering of Common Stock – Pursuant to an effective registration statement that was filed on December 17, 2018, and amended on January 22, 2019 and March 2, 2020, we entered into an underwriting agreement in March 2020 to issue a total of 2.1 million shares of common stock, which included the exercise in full of the underwriters’ option to purchase 0.3 million additional shares of common stock, at a price to the public of $115.00 per share in March 2020. Net proceeds from the offering were approximately $228.0 million after deducting underwriting discounts, commissions and expenses of the offering.
Stock Repurchase Programs – We had no stock repurchase activity during the three months ended March 31, 2021. In addition to 10.7 million shares repurchased under our previous repurchase programs, we have in treasury 1.2 million shares as of March 31, 2021 that were previously surrendered by employees to satisfy tax withholding due in connection with the vesting of certain restricted stock units. As of March 31, 2021 and December 31, 2020, we had a total of 11.9 million shares and 11.8 million shares, respectively, held in treasury.
For accounting purposes, common stock repurchased under our stock repurchase programs is recorded based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method.
Stock-Based Compensation Expense – Our stock-based compensation expense is summarized as follows by award types (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Common stock options |  |  |  |  | $ | 180 |  |  | $ | 306 |
Restricted stock units* |  |  |  |  | 10,719 |  |  | 8,408 |
ESPP |  |  |  |  | 503 |  |  | — |
Total stock-based compensation expense |  |  |  |  | $ | 11,402 |  |  | $ | 8,714 |

_________
* Amounts include market-based and performance-based RSUs.
15

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table summarizes stock-based compensation expense by operating function for the periods presented below (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Marketing and advertising |  |  |  |  | $ | 2,485 |  |  | $ | 1,730 |
Customer care and enrollment |  |  |  |  | 469 |  |  | 662 |
Technology and content |  |  |  |  | 2,743 |  |  | 1,617 |
General and administrative |  |  |  |  | 5,705 |  |  | 4,705 |
Total stock-based compensation expense |  |  |  |  | $ | 11,402 |  |  | $ | 8,714 |
Amount capitalized in internal-use software |  |  |  |  | 550 |  |  | 248 |
Total stock-based compensation |  |  |  |  | $ | 11,952 |  |  | $ | 8,962 |

Note 6 — Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Diluted net income (loss) per share is computed giving effect to all potential dilutive common stock equivalent shares, including options, restricted stock units and shares to be issued under our ESPP. The dilutive effect of outstanding awards is reflected in diluted net income (loss) per share by application of the treasury stock method.
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Numerator: |  |  |  |  |  |  |
Net income (loss) |  |  |  |  | $ | (800) |  |  | $ | 3,452 |
Denominator: |  |  |  |  |  |  |
Shares used in per share calculation – basic |  |  |  |  | 26,620 |  |  | 24,719 |
Dilutive effect of common stock |  |  |  |  | — |  |  | 1,460 |
Shares used in diluted share calculation |  |  |  |  | 26,620 |  |  | 26,179 |
Net income (loss) per share – basic |  |  |  |  | $ | (0.03) |  |  | $ | 0.14 |
Net income (loss) per share – diluted |  |  |  |  | $ | (0.03) |  |  | $ | 0.13 |

16

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For each of the three months ended March 31, 2021 and 2020, we had securities outstanding that could potentially dilute per share amounts, but the shares from the assumed conversion or exercise of these securities were excluded in the computation of diluted net income (loss) per share as their effect would have been anti-dilutive. The number of outstanding anti-dilutive shares that were excluded from the computation of diluted net income (loss) per share consisted of the following (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020*
Common stock options |  |  |  |  | 363 |  |  | n/a
Restricted stock units |  |  |  |  | 1,090 |  |  | n/a
ESPP |  |  |  |  | 7 |  |  | n/a
Total |  |  |  |  | 1,460 |  |  | n/a

_________
* There were no antidilutive shares for this period.
Note 7 – Commitments and Contingencies
Service and Licensing Obligations
We have entered into service and licensing agreements with third party vendors to provide various services, including network access, equipment maintenance, and software licensing. As the benefits of these agreements are experienced uniformly over the applicable contractual periods, we record the related service and licensing expenses on a straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.
Our future minimum payments under non-cancellable contractual service and licensing obligations as of March 31, 2021 (in thousands):

For the Years Ending December 31, |
Remainder of 2021 | $ | 4,246 |
2022 | 3,472 |
2023 | 2,745 |
2024 | 2,056 |
2025 | 1,353 |
Thereafter | 1,353 |
Total | $ | 15,225 |

Operating Leases
Refer to Note 9 – Leases for commitments related to our operating leases.
Contingencies
From time to time, we receive inquiries from governmental bodies and also may be subject to various legal proceedings and claims arising in the ordinary course of business. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our condensed consolidated financial statements. An estimated loss contingency is accrued in the condensed consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. There was no material litigation-related accrual during the three months ended March 31, 2021. Legal proceedings or other contingencies could result in material costs, even if we ultimately prevail.
17

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Legal Proceedings
Securities Class Action – On April 8, 2020 and April 30, 2020, two purported class action lawsuits were filed against us, our chief executive officer, Scott N. Flanders, our chief financial officer, Derek N. Yung, and our then-chief operating officer, David K. Francis, in the United States District Court for the Northern District of California. The cases are captioned Patel v. eHealth, Inc., et al., Case No. 5:20-cv-02395 (N.D. Cal.) and Bertrand v. eHealth, Inc. et al., Case No. 4:20-cv-02967 (N.D. Cal.). The complaints allege, among other things, that we and Messrs. Flanders, Yung and Francis made materially false and misleading statements and/or failed to disclose material information regarding our accounting and modeling assumptions, rate of member churn and our profitability during the alleged class period of March 19, 2018 to April 7, 2020. The complaints allege that we and Messrs. Flanders, Yung and Francis violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaints seek compensatory and (in the Patel lawsuit) punitive damages, attorneys’ fees and costs, and such other relief as the court deems proper. On June 24, 2020, the Court consolidated the above-referenced matters under the caption In re eHealth Securities Litig., Master File No. 4:20-cv-02395-JST (N.D. Cal.). The Court also appointed a lead plaintiff and lead counsel for the consolidated matter. The lead plaintiff filed an amended complaint on August 25, 2020, which Defendants moved to dismiss. The motion to dismiss has been fully briefed.
Derivative Actions – On July 7, 2020 and October 13, 2020, two derivative lawsuits were filed against our chief executive officer, Mr. Flanders, our chief financial officer, Mr. Yung, our then-chief operating officer, Mr. Francis, and the members of our Board of Directors (collectively, the “Individual Defendants”), in the United States District Court for the Northern District of California and the Superior Court of California, County of Santa Clara. The cases are captioned Chernet v. Flanders et al., Case No. 3:20-cv-04477-SK (N.D. Cal.), and Lincolnshire Police Pension Fund v. Flanders et al., Case No. 20CV371555 (Cal. Super. Ct.), and also name the Company as a nominal defendant. The complaints allege, among other things, that beginning on March 19, 2018, the Individual Defendants made or caused the Company to make materially false and misleading statements and/or failed to disclose material information regarding our accounting and modeling assumptions, rate of member churn, profitability, and internal controls. Both complaints purport to assert claims for breach of fiduciary duty, unjust enrichment and waste of corporate assets. The Chernet lawsuit also alleges that the Individual Defendants violated Sections 14(a), 10(b), and 20(a) of the Securities Exchange Act of 1934, and asserts claims for abuse of control and gross mismanagement. The complaints seek damages, restitution, attorneys’ fees and costs, and certain measures with respect to the Company’s corporate governance and internal procedures, and (in the Lincolnshire lawsuit) equitable and/or injunctive relief. The Chernet and Lincolnshire lawsuits have both been stayed pending the resolution of the motion to dismiss in the Securities Class Action, In re eHealth Securities Litig., Master File No. 4:20-cv-02395-JST (N.D. Cal.).
The Gonzalez and Le’Vias Complaints – On April 6, 2018, a former employee, Lupita Gonzalez, filed a complaint against us in the Superior Court of the State of California for the County of Sacramento (the “Gonzalez Complaint”). On July 1, 2019, two other current or former employees, Michael Le’Vias and Ramona Meadows, filed a related complaint against us and eHealth Ins. Serv. Co., in the Superior Court of the State of California for the County of Santa Clara (the “Le’Vias Complaint”). Both complaints asserted claims under the California Private Attorney General Act (“PAGA”) on behalf of all current and former hourly-paid or non-exempt employees who work or have worked for us in California, based on alleged failures to comply with California wage and hour laws.
The parties have entered into a court-approved settlement agreement that resolves both matters related to the Gonzalez and Le'Vias Complaints, and Plaintiffs Michael Le’Vias and Ramona Meadows have sought dismissal with prejudice of the Le’Vias Complaint. Upon the completion of the distribution of the settlement funds in accordance with the settlement agreement and the court order approving the settlement agreement, the parties will seek a dismissal with prejudice of the Gonzalez Complaint.
Note 8 – Segment and Geographic Information
Operating Segments
We report segment information based on how our chief executive officer, who is our chief operating decision maker ("CODM"), regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. The performance measures of our segments include total revenue and profit. Our business structure is comprised
18

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
of two operating segments: Medicare and Individual, Family and Small Business. Please refer to Note 1 – Summary of Business and Significant Accounting Policies of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2020 for our accounting policies relating to operating segments.
The results of our operating segments are summarized for the periods presented below (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Revenue: |  |  |  |  |  |  |
Medicare |  |  |  |  | $ | 121,021 |  |  | $ | 96,151 |
Individual, Family and Small Business |  |  |  |  | 13,193 |  |  | 10,257 |
Total revenue |  |  |  |  | $ | 134,214 |  |  | $ | 106,408 |
Segment profit: |  |  |  |  |  |  |
Medicare segment profit (1) |  |  |  |  | $ | 24,545 |  |  | $ | 23,136 |
Individual, Family and Small Business segment profit (1) |  |  |  |  | 8,052 |  |  | 2,928 |
Total segment profit |  |  |  |  | 32,597 |  |  | 26,064 |
Corporate |  |  |  |  | (15,286) |  |  | (13,448) |
Stock-based compensation expense |  |  |  |  | (11,402) |  |  | (8,714) |
Depreciation and amortization(2) |  |  |  |  | (3,944) |  |  | (2,324) |
Amortization of intangible assets |  |  |  |  | (176) |  |  | (547) |
Restructuring charges |  |  |  |  | (2,431) |  |  | — |
Other income, net |  |  |  |  | 150 |  |  | 373 |
Income (loss) before provision for (benefit from) income taxes |  |  |  |  | $ | (492) |  |  | $ | 1,404 |

_____________
(1)During the first quarter of 2021, we revised the calculation of segment profit by excluding amortization of capitalized software development costs to enhance comparability of our financial metrics with peer companies. The amortization of capitalized software development costs were $2.8 million and $1.5 million for the first quarter of 2021 and 2020, respectively.
(2)Depreciation and amortization has been adjusted to include amortization of software development costs.
There were no inter-segment revenue transactions for the periods presented. With the exception of contract assets – commissions receivable, which is presented by segment in Note 3 – Supplemental Financial Statement Information, our CODM does not separately evaluate assets by segment, and therefore, assets by segment are not presented.
Geographic Information
Our long-lived assets primarily consist of property and equipment and internally-developed software. Our long-lived assets are attributed to the geographic location in which they are located. Long-lived assets by geographical area are summarized as follows (in thousands):

| March 31, 2021 |  | December 31, 2020
United States | $ | 41,829 |  |  | $ | 40,500 |
China | 511 |  |  | 565 |
Total | $ | 42,340 |  |  | $ | 41,065 |

19

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Significant Customers
Substantially all revenue for the three months ended March 31, 2021 and 2020 was generated from customers located in the United States. Carriers representing 10% or more of our total revenue are summarized as follows:

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
UnitedHealthcare (1) |  |  |  |  | 22 | % |  | 22 | %
Aetna (1) |  |  |  |  | 21 | % |  | 15 | %
Humana |  |  |  |  | 17 | % |  | 19 | %
Centene (2) |  |  |  |  | 12 | % |  | 11 | %

__________
(1)Percentages include the carriers' subsidiaries.
(2)Centene Corporation acquired WellCare Health Plans, Inc. in 2020, and the revenue of WellCare is included in the percentage calculation for March 31, 2021 and 2020.
Note 9 – Leases
Our leases have remaining lease terms of 3 to 9 years. Certain of these leases have free or escalating rent payment provisions. We recognize lease expense on a straight-line basis over the terms of the leases, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements. Most leases include options to renew, and the exercise of these options is at our discretion.
Total operating lease expenses were $2.0 million and $2.1 million for the three months ended March 31, 2021 and 2020, respectively and sublease income was immaterial for both periods.
The following table summarizes the lease-related assets and liabilities recorded on the Condensed Consolidated Balance Sheets as of the dates presented below (in thousands):

| March 31, 2021 |  | December 31, 2020
Operating lease right-of-use assets | $ | 41,284 |  |  | $ | 42,558 |
Lease liabilities – current | $ | 5,316 |  |  | $ | 5,192 |
Lease liabilities – non-current | 39,984 |  |  | 41,369 |
Total operating lease liabilities | $ | 45,300 |  |  | $ | 46,561 |

Supplemental information related to leases are as follows (in thousands):

| March 31, 2021 |  | December 31, 2020
Operating cash outflows from operating leases | $ | 1,900 |  | $ | 7,090
Weighted-average remaining lease term of operating leases | 7.0 years |  | 7.2 years
Weighted-average discount rate used to recognize operating lease right-of-use-assets | 5.4 | % |  | 5.4 | %

20

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of March 31, 2021, maturities of operating lease liabilities are as follows (in thousands):

Year ending December 31, |
Remainder of 2021 | $ | 5,744 |
2022 | 7,701 |
2023 | 8,033 |
2024 | 7,832 |
2025 | 8,009 |
Thereafter | 19,407 |
Total lease payments (1) | 56,726 |
Less imputed interest | (11,426) |
Total | $ | 45,300 |

____________
(1)Noncancellable sublease income for the remainder of 2021 and years ending December 31, 2022 and 2023 of $0.9 million, $0.4 million and $0.4 million, respectively, is not included in the table above.
Note 10 — Restructuring
In February 2021, we eliminated approximately 89 full-time positions, primarily in the United States, representing approximately 5% of our workforce, primarily within our customer care and enrollment group, and to a lesser extent, in our marketing and advertising, technology and content, and general and administrative groups.
Total pre-tax restructuring charges for the three months ended March 31, 2021 were $2.4 million, which primarily related to employee termination benefits. Substantially all of the restructuring charges resulted in cash expenditures. The restructuring activities were completed by March 31, 2021. Accrued restructuring charges balance was $0.3 million as of March 31, 2021.
Note 11 – Debt
On September 17, 2018, we entered into a Credit Agreement with Royal Bank of Canada (“RBC”), as administrative agent and collateral agent (the “Credit Agreement”). The Credit Agreement provides for a $40.0 million secured asset-backed revolving credit facility with a $5.0 million letter of credit sub-facility.
On December 20, 2019, we amended our revolving credit facility agreement with RBC (the “Amendment”) and increased the borrowing amount from $40.0 to $75.0 million. The maturity date has been extended to December 20, 2022.
The borrowing base under the Credit Agreement is comprised of an amount equal to (a) the lesser of (i) eighty percent (80%) of Eligible Commissions Receivables (as defined in the Credit Agreement) we actually collected during the immediately preceding period of three months or (ii) eighty percent (80%) of our Eligible Commission Receivables for the immediately succeeding period of three months, plus (b) fifty percent (50%) of our Eligible Commission Receivables for the immediately succeeding period of six months (excluding the immediately succeeding period of three months), in each case subject to reserves established by RBC (the “Borrowing Base”). The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes. The borrowers have the right to prepay the loans under the Credit Agreement in whole or in part at any time without penalty. Subject to availability under the Borrowing Base, amounts repaid may be reborrowed.
21

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Amounts not borrowed under the Credit Agreement will be subject to a commitment fee of 0.5% per annum on the daily unused portion of the credit facility, to be paid in arrears on the first business day of each calendar quarter. At the closing of the Credit Agreement, we paid a one-time facility fee of 1.75% of the total commitments of $40.0 million. We also paid a one-time closing fee of 0.5% of the new commitment of $75.0 million in connection with the Amendment. The Company is also obligated to pay other customary administration fees for a credit facility of this size and type.
The availability under the credit facility was up to the lesser of $40.0 million or the Borrowing Base in the original credit agreement. The Amendment increased the availability up to the lesser of $75.0 million or the Borrowing Base, which may be reduced from time to time pursuant to the Credit Agreement.
Financial covenants in the original Credit Agreement required that we maintain Excess Availability (as defined in the Credit Agreement) at or above $6.0 million at any time. The Amendment also changed the financial covenants to require us to maintain at least $6.0 million of Excess Availability at all times or, if greater, up to $11.3 million depending on our borrowing base as determined by eligible past and future commissions receivable. In addition, the Amendment also included changes in the payment conditions to, among other things, require us to have at least $10.0 million of liquidity or, if greater, up to $18.8 million depending on our borrowing base as determined by eligible past and future commissions receivable, in order for us to make certain permitted acquisitions, investments, distributions and payments of indebtedness. The Amendment also stated the seasonal amount thresholds used in connection with the cash dominion and field examination covenants in the Credit Agreement.
We incurred $1.2 million of issuance costs in connection with the Credit Agreement, which were capitalized as part of other assets on our Consolidated Balance Sheet in the period we entered into the Credit Agreement. The Amendment did not change the interest rate. In connection with the Amendment, we incurred closing costs totaling $0.5 million, which were capitalized and recorded as other assets on our Condensed Consolidated Balance Sheet as of March 31, 2021. The remaining balance of unamortized issuance costs was $0.7 million as of March 31, 2021 and December 31, 2020.
As of March 31, 2021, we had no outstanding borrowings under our revolving credit facility.
Note 12 – Income Taxes
The following table summarizes our provision for (benefit from) income taxes and our effective tax rates for the periods presented below (in thousands, except effective tax rate):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Income (loss) before provision for (benefit from) income taxes |  |  |  |  | $ | (492) |  |  | $ | 1,404 |
Provision for (benefit from) income taxes |  |  |  |  | 308 |  |  | (2,048) |
Effective tax rate |  |  |  |  | (62.6) | % |  | (145.9) | %

For the three months ended March 31, 2021, we recognized a provision for income taxes of $0.3 million, representing an effective tax rate of (62.6)%, which was lower than the statutory federal tax rate due primarily to one-time state tax adjustments. For the three months ended March 31, 2020, we recognized a benefit from income taxes of $2.0 million, representing an effective tax rate of (145.9)%, which was lower than the statutory federal tax rate due primarily to stock-based compensation windfalls.
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. We continue to recognize our
22

EHEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
deferred tax assets as of March 31, 2021, as we believe it is more likely than not that the net deferred tax assets will be realized, with the exception of certain net operating losses and credits that are expected to expire unutilized which have a valuation allowance.
Note 13 – Subsequent Event
On April 30, 2021, we issued and sold to Echelon Health SPV, LP ("H.I.G."), an investment vehicle of H.I.G. Capital, in a private placement, 2,250,000 shares of our newly designated Series A convertible preferred stock, in par value of $0.001 per share (“Series A Preferred Stock”), at an aggregate purchase price of $225.0 million, at a price of $100 per share. We received $216.2 million in proceeds from the private placement with H.I.G., net of sales commissions and certain transaction fees.
23

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “expect,” “anticipate,” “believe,” “estimate,” “target,” “goal,” “project,” “hope,” “intend,” “plan,” “seek,” “continue,” “may,” “could,” “should,” “might,” “forecast,” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, among other things, statements regarding our expectations relating to approved members, new paying members and estimated membership; our estimates regarding the constrained lifetime value of commissions; our expectations relating to revenue, operating costs, cash flows and profitability; our expectations regarding our strategy and investments; our expectations regarding our Medicare business, including market opportunity, consumer demand and our competitive advantage; our expectations regarding our individual and family business, including anticipated trends and our ability to enroll individuals and families into qualified health plans; the impact of future and existing healthcare laws and regulations on our business; the expected impact of the COVID-19 on our business; our expectations regarding commission rates, payment rates, conversion rates, plan termination rates and duration, membership retention rates and membership acquisition costs; our expectations regarding health insurance agents licensing and productivity; our expectations relating to the seasonality of our business; expected competition from government-run health insurance exchanges and other sources; our expectations relating to marketing and advertising expense and expected contributions from our marketing and strategic partnership channels; the timing of our receipt of commission and other payments; our critical accounting policies and related estimates; liquidity and capital needs; political, legislative, regulatory and legal challenges; the merits or potential impact of any lawsuits filed against us; as well as other statements regarding our future operations, financial condition, prospects and business strategies.
We have based these forward-looking statements on our current expectations about future events. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Our actual results may differ materially from those suggested by these forward-looking statements for various reasons, including our ability to retain existing members and enroll new members during the annual healthcare open enrollment period, the Medicare annual enrollment period and a COVID-19-related or other special enrollment period; changes in laws, regulations and guidelines, including in connection with healthcare reform or with respect to the marketing and sale of Medicare plans; competition, including competition from government-run health insurance exchanges; the seasonality of our business and the fluctuation of our operating results; our ability to accurately estimate membership and lifetime value of commissions; changes in product offerings among carriers on our ecommerce platform and the resulting impact on our commission revenue; our ability to execute on our growth strategy in the Medicare market; the continued impact of the COVID-19 pandemic on our operations, business, financial condition and growth prospects, as well as on the general economy; changes in our management and key employees; exposure to security risks and our ability to safeguard the security and privacy of confidential data; our relationships with health insurance carriers; customer concentration; our success in marketing and selling health insurance plans and our unit cost of acquisition; our ability to hire, train, retain and ensure the productivity of licensed health insurance agents and other employees; changes in the market for private health insurance; consumer satisfaction of our service; changes in member conversion rates; changes in commission rates; our ability to sell qualified health insurance plans to subsidy-eligible individuals and to enroll subsidy-eligible individuals through government-run health insurance exchanges; our ability to maintain and enhance our brand identity; our ability to derive desired benefits from investments in our business, including membership growth and retention initiatives; reliance on marketing partners; the impact of our direct-to-consumer email, telephone and television marketing efforts; timing of receipt and accuracy of commission reports; payment practices of health insurance carriers; dependence on our operations in China; the restrictions in our debt obligations; the restrictions in our investment agreement with H.I.G; compliance with insurance and other laws and regulations; the outcome of litigation in which we are involved; and the performance, reliability and availability of our information technology systems, ecommerce platform and underlying network infrastructure and those identified under the heading “Risk Factors” in Part II, Item 1A. of this report and those discussed in our other Securities and Exchange Commission filings. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. Except as required by applicable law, we do not undertake, and specifically decline, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise. The following discussion should be read in conjunction with our Annual Report on Form 10-K as filed with the Securities and Exchange Commission in February 2021, and the audited consolidated financial statements and related notes contained therein.
24

Overview
We are a leading private health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs. Our omnichannel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent. We have created a marketplace that offers consumers a broad choice of insurance products that include thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 200 health insurance carriers across all fifty states and the District of Columbia.
Impact from COVID-19
As of March 31, 2021, some of our offices in the United States remained closed, while some locations have opened at a reduced capacity with additional safety and social distancing measures. Based on our experience in shifting existing agents to work from home and launching a remote agent model in 2020, we expect this remote agent model to provide us with geographic hiring flexibility as we grow our telesales capacity. We believe the COVID-19 pandemic had an impact on consumer behavior in selecting and utilizing health insurance. We believe that the way people shop for health coverage is changing with more seniors that are now likely to shop for Medicare products online or over the phone versus a face-to-face meeting with a traditional broker. We anticipate that this will have a positive impact on comparison Medicare platforms such as ours. Notwithstanding the anticipated positive change in the manner in which consumers purchase health insurance, the pandemic could adversely impact our business, including as a result of changes in consumer behavior, decreased ability to afford health insurance, an increased desire to change plans, an adverse impact on our ability to recruit and onboard sales agents and decreased productivity of our employees. See Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of risks related to the COVID-19 pandemic.
H.I.G. Investment
On April 30, 2021, upon the terms and subject to the conditions set forth in our investment agreement with H.I.G., we issued and sold 2,250,000 shares of newly designated Series A convertible preferred stock to H.I.G. in a private placement at an aggregate purchase price of $225 million, at a price of $100 per share.
Summary of Selected 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 but not limited to:
•the number of individuals on applications for Medicare-related, individual and family, small business and ancillary health insurance plans that are approved by the relevant health insurance carriers;
•the number of approved members for Medicare-related, individual and family, small business and ancillary health insurance plans from whom we have received an initial commission payment; and
•the constrained lifetime value, or LTV, of approved members for Medicare-related, individual and family and ancillary health insurance plans we sell, as well as the estimated annual value of approved members for small business plans we sell.
Approved Members
Approved members represent 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. Not all approved members ultimately become paying members.
25

The following table shows approved members by product for the period presented:

|  |  |  |  | Three Months Ended March 31, |  | % Change
|  |  |  |  |  | 2021 |  | 2020 |
Medicare: |  |  |  |  |  |  |  |  |  |  |
Medicare Advantage |  |  |  |  |  |  | 106,884 |  |  | 64,898 |  |  | 65 | %
Medicare Supplement |  |  |  |  |  |  | 7,782 |  |  | 10,838 |  |  | (28) | %
Medicare Part D |  |  |  |  |  |  | 8,011 |  |  | 8,966 |  |  | (11) | %
Total Medicare |  |  |  |  |  |  | 122,677 |  |  | 84,702 |  |  | 45 | %
Individual and Family: |  |  |  |  |  |  |  |  |  |  |
Non-Qualified Health Plans |  |  |  |  |  |  | 5,609 |  |  | 4,820 |  |  | 16 | %
Qualified Health Plans |  |  |  |  |  |  | 5,705 |  |  | 4,545 |  |  | 26 | %
Total Individual and Family |  |  |  |  |  |  | 11,314 |  |  | 9,365 |  |  | 21 | %
Ancillaries: |  |  |  |  |  |  |  |  |  |  |
Short-term |  |  |  |  |  |  | 7,876 |  |  | 12,138 |  |  | (35) | %
Dental |  |  |  |  |  |  | 11,170 |  |  | 9,710 |  |  | 15 | %
Vision |  |  |  |  |  |  | 5,062 |  |  | 4,501 |  |  | 12 | %
Other |  |  |  |  |  |  | 2,403 |  |  | 4,325 |  |  | (44) | %
Total Ancillaries |  |  |  |  |  |  | 26,511 |  |  | 30,674 |  |  | (14) | %
Small Business |  |  |  |  |  |  | 2,948 |  |  | 3,603 |  |  | (18) | %
Total Approved Members |  |  |  |  |  |  | 163,450 |  |  | 128,344 |  |  | 27 | %

Medicare approved members increased 45% in the three months ended March 31, 2021 compared to the same period in 2020. The increase in total Medicare approved members was primarily attributable to a 65% growth in Medicare Advantage plan members, partially offset by a 28% decline in Medicare Supplement plan members and an 11% decline in Medicare Part D plan members in the three months ended March 31, 2021 compared to the same period in 2020. The increase in approved Medicare Advantage members was primarily driven by strong consumer demand and an increase in our internal agent productivity and online enrollment growth. We expect our year-over-year Medicare enrollment growth will slow down in the second quarter of 2021, as compared to the first quarter of 2021 growth rate, due to the introduction of a COVID-related special enrollment period for the Medicare Advantage market in the second quarter of 2020 that is not in place during the second quarter of 2021. The COVID-related special enrollment period had a favorable impact on consumer demand and agent conversion rates in 2020 as more consumers were allowed to transact due that enrollment period.
Individual and Family Plan approved members grew 21% in the three months ended March 31, 2021 compared to the same period in 2020 due to a 26% increase in approved members for qualified health plans and a 16% increase in approved members in non-qualified health plans. Recent growth in approved major medical individual and family plan members is partially a result to the current administration’s decision to extend the open enrollment period outside of the fourth quarter when it typically takes place, and to make these plans more affordable to certain consumer segments through a more extensive premium subsidy program. Ancillary plan approved members declined 14% in the three months ended March 31, 2021 compared to the same period in 2020 primarily due to a 35% decline in approved members for short-term health plans and a 44% decrease in approved members for other ancillary plans, partially offset by an increase in approved members for dental and vision insurance. Small business group health insurance approved members declined 18% in the three months ended March 31, 2021 compared to the same period in 2020 mainly due to the shift of our focus away from the sale of small business products.
26

New Paying Members
New Paying Members consist of approved members from the period presented and any periods prior to the period presented from whom we have received an initial commission payment during the period presented. The following table shows our new paying members by product for the periods presented below:

|  |  |  |  | Three Months Ended March 31, |  | % Change
|  |  |  |  |  | 2021 |  | 2020 |
Medicare: |  |  |  |  |  |  |  |  |  |  |
Medicare Advantage |  |  |  |  |  |  | 140,997 |  |  | 86,299 |  |  | 63 | %
Medicare Supplement |  |  |  |  |  |  | 9,996 |  |  | 11,560 |  |  | (14) | %
Medicare Part D |  |  |  |  |  |  | 29,139 |  |  | 63,705 |  |  | (54) | %
Total Medicare |  |  |  |  |  |  | 180,132 |  |  | 161,564 |  |  | 11 | %
Individual and Family: |  |  |  |  |  |  |  |  |  |  |
Non-Qualified Health Plans |  |  |  |  |  |  | 10,968 |  |  | 9,553 |  |  | 15 | %
Qualified Health Plans |  |  |  |  |  |  | 6,639 |  |  | 5,957 |  |  | 11 | %
Total Individual and Family |  |  |  |  |  |  | 17,607 |  |  | 15,510 |  |  | 14 | %
Ancillaries: |  |  |  |  |  |  |  |  |  |  |
Short-term |  |  |  |  |  |  | 11,243 |  |  | 12,260 |  |  | (8) | %
Dental |  |  |  |  |  |  | 11,473 |  |  | 10,413 |  |  | 10 | %
Vision |  |  |  |  |  |  | 6,126 |  |  | 5,571 |  |  | 10 | %
Other |  |  |  |  |  |  | 2,749 |  |  | 4,313 |  |  | (36) | %
Total Ancillaries |  |  |  |  |  |  | 31,591 |  |  | 32,557 |  |  | (3) | %
Small Business |  |  |  |  |  |  | 4,125 |  |  | 5,156 |  |  | (20) | %
Total New Paying Members |  |  |  |  |  |  | 233,455 |  |  | 214,787 |  |  | 9 | %

Medicare total new paying members grew 11% in the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by a 63% increase Medicare Advantage plan new paying members, partially offset by a 54% decrease in Medicare Part D prescription drug plan and a 14% decrease in Medicare Supplement plan new paying members. Individual and family plan new paying members grew 14% in the three months ended March 31, 2021 compared to the same period in 2020 due to increases in new paying members for non-qualified plans and new paying members for qualified plans. Ancillary new paying members declined 3% in the three months ended March 31, 2021 compared to the same period in 2020 primarily due to a decline in approved members for short-term and other health plans. Small business new paying members declined 20% in the three months ended March 31, 2021 compared to the same period in 2020 primarily due to a decrease in approved members.
27

Estimated Constrained Lifetime Value of Commissions Per Approved Member
The following table shows our estimated constrained LTV of commissions per approved member by product for the periods presented below:

| Three Months Ended March 31, |  | % Change
| 2021 |  | 2020 |
Medicare |  |  |  |  |
Medicare Advantage (1) | $ | 968 |  |  | $ | 1,006 |  |  | (4) | %
Medicare Supplement (1) | 1,057 |  |  | 1,158 |  |  | (9) | %
Medicare Part D (1) | 217 |  |  | 260 |  |  | (17) | %
Individual and Family |  |  |  |  |
Non-Qualified Health Plans (1) | 200 |  |  | 199 |  |  | 1 | %
Qualified Health Plans (1) | 298 |  |  | 240 |  |  | 24 | %
Ancillaries |  |  |  |  |
Short-term (1) | 180 |  |  | 150 |  |  | 20 | %
Dental (1) | 91 |  |  | 67 |  |  | 36 | %
Vision (1) | 59 |  |  | 52 |  |  | 13 | %
Small Business (2) | 182 |  |  | 160 |  |  | 14 | %

__________
(1)Constrained LTV 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, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship. These factors may result in varying values from period to period. For additional information on constrained LTV, see Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2020.
(2)For small business, the amount represents the estimated commissions we expect to collect from the plan over the following twelve months. The estimate is driven by multiple factors, including but not limited to, contracted commission rates, carrier mix, estimated average plan duration, the regulatory environment, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship and applied constraints. These factors may result in varying values from period to period.
Medicare
The constrained LTV of commissions per approved member for Medicare Part D prescription drug, Medicare Supplement and Medicare Advantage plans declined by 17%, 9% and 4%, respectively, during the three months ended March 31, 2021 compared to the same period in 2020. The decline in constrained LTVs for Medicare Advantage plans was primarily due to a decrease in estimated average plan duration driven by various market factors, including the reintroduction of the open enrollment period in 2019, which provided an additional opportunity for Medicare Advantage plan members to change plans. The negative impact of these factors was partially offset by an increase in broker commission rates and higher commission rates for new Medicare Advantage enrollments compared to the commissions for enrollments of existing members changing their plans. The decline in constrained LTV for Medicare Part D prescription drug plans was primarily due to a shift in consumer demand away from these plans and towards Medicare Advantage plans with prescription drug coverage. We believe that, similar to our Medicare Advantage plan members, a larger number of Medicare Part D prescription drug plan members terminated their plans due to the additional opportunities for consumers to shop and switch Medicare Part D prescription drug plans during the recently introduced open enrollment periods. The decline in constrained LTV of commissions per approved member was driven by telephonic enrollments from our more recent member cohorts enrolled prior to the last annual enrollment period. Our telephonic enrollments historically have had a shorter average plan duration compared to our online enrollments, which continue to have a higher average plan duration.
28

Individual and Family and Ancillaries
The constrained LTV of commissions per qualified health plan approved member increased 24% during the three months ended March 31, 2021 compared with the same period in 2020 mostly due to increased estimates of average plan duration.
The constrained LTV of commissions per short-term health insurance approved member increased 20% during the three months ended March 31, 2021 compared to the same period in 2020 primarily as a result of our selling of plans with higher premiums and resulting in increased commissions and an increase in estimated average plan duration.
The constrained LTV of commissions per approved member for dental and vision plans increased by 36% and 13%, respectively, during the three months ended March 31, 2021 compared with the same period in 2020 primarily due to an increase in estimated average plan duration and lower constraints as a result of reduced volatility based on historical trends.
The constraints applied to the total estimated lifetime commissions we expect to receive for selling the plan after the carrier approves an application in order to derive the constrained LTV of commissions for approved members recognized for the periods presented below are summarized as follows:

| Three Months Ended March 31,
| 2021 |  | 2020
Medicare |  |  |
Medicare Advantage | 7 | % |  | 7 | %
Medicare Supplement | 5 | % |  | 5 | %
Medicare Part D | 5 | % |  | 5 | %
Individual and Family |  |  |
Non-Qualified Health Plans | 15 | % |  | 15 | %
Qualified Health Plans | 4 | % |  | 4 | %
Ancillaries |  |  |
Short-term | 20 | % |  | 10 | %
Dental | 7 | % |  | 10 | %
Vision | 5 | % |  | 10 | %
Other | 10 | % |  | 10 | %
Small Business | 5 | % |  | — | %

The constraints for small business plans and short-term health insurance plans increased during the three months ended March 31, 2021, as compared to the same period in the prior year, due to an increase in volatility.
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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 period of estimation. The following table shows estimated membership by product for the periods presented below:

| As of March 31, |  | % Change
| 2021 |  | 2020 |
Medicare (1) |  |  |  |  |
Medicare Advantage (2) | 538,716 |  |  | 404,262 |  |  | 33 | %
Medicare Supplement | 104,727 |  |  | 97,527 |  |  | 7 | %
Medicare Part D | 229,598 |  |  | 224,154 |  |  | 2 | %
Total Medicare | 873,041 |  |  | 725,943 |  |  | 20 | %
Individual and Family (3) | 103,844 |  |  | 113,483 |  |  | (8) | %
Ancillaries (4) |  |  |  |  |
Short-term | 19,352 |  |  | 23,553 |  |  | (18) | %
Dental | 118,070 |  |  | 123,260 |  |  | (4) | %
Vision | 69,454 |  |  | 70,590 |  |  | (2) | %
Other | 34,539 |  |  | 36,012 |  |  | (4) | %
Total Ancillaries | 241,415 |  |  | 253,415 |  |  | (5) | %
Small Business (5) | 45,207 |  |  | 44,113 |  |  | 2 | %
Total Estimated Membership | 1,263,507 |  |  | 1,136,954 |  |  | 11 | %

__________________
(1)To estimate the number of members on Medicare-related health insurance plans, we take the sum of (i) the number of members for whom we have applied or expected to receive a commission payment for a month that may be 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 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.
(2)As previously disclosed, we learned subsequent to reporting for the three months ended March 31, 2020 that Medicare Advantage membership as of March 31, 2020 was 384,513, a decrease of 19,749 or 4.9% relative to the previously reported estimated membership of 404,262, due to additional membership attrition during the quarter ended March 31, 2020 that was observed after the reporting period.
(3)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 may be 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 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.
(4)To estimate the number of members on 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 may be 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 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.
(5)To estimate the number of members on small business health insurance plans, we use the number of initial members at the time the group was approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier. 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.
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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 plans 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. If we experience a significant variance in historical membership as compared to our initial estimates, we keep the prior period data consistent with previously reported amounts, while we may provide the updated information in other communications or disclosures. 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. Various circumstances 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. 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.
Historically, our membership estimates in a particular quarter have not been significantly different when compared to membership data received from carriers in a subsequent quarter. However, we experienced a larger deviation in the actual Medicare Advantage membership, which was lower than our initial estimate, for the first quarter of 2020. This deviation was primarily due to the time delay in receiving information from our carriers and a higher level of plan cancellations than expected.
Medicare-related plan estimated membership as of March 31, 2021 grew 20% compared to estimated membership as of March 31, 2020 due to a 33% growth in Medicare Advantage estimated membership, a 7% growth in Medicare Supplement plan estimated membership, and a 2% growth in Medicare Part D prescription drug plan estimated membership. The overall growth in Medicare estimated membership was due to increased sales of Medicare-related plans and improved member retention for new members approved during the fourth quarter of 2020, as well as a higher recapture rate during the full year 2020 as compared to 2019.
Individual and family plan estimated membership as of March 31, 2021 declined 8% compared to estimated membership as of March 31, 2020 due to market conditions in the individual and family plan market and our decision to shift our investment to our Medicare business. Ancillary plan estimated membership as of March 31, 2021 declined 5% compared to estimated membership as of March 31, 2020 primarily as a result of the decline in dental and short-term health plans estimated membership.
Member Acquisition
Marketing initiatives are an important component of our strategy to increase revenue and are primarily designed to encourage consumers to complete an application for health insurance. Variable marketing cost represents direct costs incurred in member acquisition from our direct, marketing partners and online advertising channels. In addition, we incur customer care and enrollment expenses (“CC&E”) in assisting applicants during the enrollment process. Variable marketing costs exclude fixed overhead costs, such as personnel related costs, consulting expenses, facilities and other operating costs allocated to the marketing and advertising department.
The following table shows the estimated variable marketing cost per approved member and the estimated customer care and enrollment expense per approved member metrics for the periods presented below. The numerator used to calculate
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each metric is the portion of the respective operating expenses for marketing and advertising and customer care and enrollment that is directly related to member acquisition for our sale of Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans (collectively, “Medicare Plans”) and for all individual and family major medical plans and short-term health insurance (collectively, “IFP Plans”), respectively. The denominator used to calculate each metric is based on a derived metric that represents the relative value of the new members acquired. For Medicare Plans, we call this derived metric Medicare Advantage (“MA”)-equivalent members, and for IFP Plans, we call this derived metric IFP-equivalent members. The calculations for MA-equivalent members and for IFP-equivalent members are based on the weighted number of approved members for Medicare Plans and IFP Plans during the period, with the number of approved members adjusted based on the relative LTV of the product they are purchasing. Since the LTV for any product fluctuates from period to period, the weight given to each product was determined based on their relative LTVs at the time of our adoption of Accounting Standards Codification 606 – Revenue from Contracts with Customers ("ASC 606").

| Three Months Ended March 31, |  | % Change
| 2021 |  | 2020 |
Medicare: |  |  |  |  |
Estimated CC&E cost per approved MA-equivalent approved member (1) | $ | 278 |  |  | $ | 364 |  |  | (24) | %
Estimated variable marketing cost per MA-equivalent approved member (1) | 353 |  |  | 349 |  |  | 1 | %
Total Medicare estimated cost per approved member | $ | 631 |  |  | $ | 713 |  |  | (12) | %
Individual and Family Plan: |  |  |  |  |
Estimated CC&E cost per IFP-equivalent approved member (2) | $ | 63 |  |  | $ | 79 |  |  | (20) | %
Estimated variable marketing cost per IFP-equivalent approved member (2) | 44 |  |  | 36 |  |  | 22 | %
Total IFP estimated cost per approved member | $ | 107 |  |  | $ | 115 |  |  | (7) | %

__________________
(1)MA-equivalent approved members is a derived metric with a Medicare Part D approved member being weighted at 25% of a Medicare Advantage member and a Medicare Supplement member based on their relative LTVs at the time of our adoption of ASC 606. We calculate the number of approved MA-equivalent members by adding the total number of approved Medicare Advantage and Medicare Supplement members and 25% of the total number of approved Medicare Part D members during the period presented.
(2)IFP-equivalent approved members is a derived metric with a short-term approved member being weighted at 33% of a major medical individual and family health insurance plan member based on their relative LTVs at the time of our adoption of ASC 606. We calculate the number of approved IFP-equivalent members by adding the total number of approved qualified and non-qualified health plan members and 33% of the total number of short-term approved members during the period presented.
Estimated CC&E costs per approved MA-equivalent member decreased 24% in the three months ended March 31, 2021 compared to the same period in 2020 due to an increase in productivity of our internal agents, and an increase in the percentage of online enrollments, as well as our operational and technology enhancements. Estimated variable marketing cost per MA-equivalent member remained flat due to a higher conversion rate being offset by a shift towards online marketing channels that have a higher cost per lead.
Estimated CC&E cost per approved IFP-equivalent member decreased 20% in the three months ended March 31, 2021 compared to the same period in 2020 due primarily to an increase in agent productivity. Estimated variable marketing cost per IFP-equivalent member increased 22% in the three months ended March 31, 2021 compared to the same period in 2020 due to an increase in marketing costs.
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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:
•Revenue Recognition and contract assets - commission receivable;
•Stock-Based Compensation; and
•Accounting for Income Taxes.
There have been no changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021, that have had a significant impact on our condensed consolidated financial statements and related notes. Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, for a complete discussion of our other critical accounting policies and estimates.
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Results of Operations
Our operating results and related percentage of total revenue are summarized below for the periods presented (dollars in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commission |  |  |  |  |  |  |  |  | $ | 127,052 |  |  | 95 | % |  | $ | 99,669 |  |  | 94 | %
Other |  |  |  |  |  |  |  |  | 7,162 |  |  | 5 | % |  | 6,739 |  |  | 6 | %
Total revenue |  |  |  |  |  |  |  |  | 134,214 |  |  | 100 | % |  | 106,408 |  |  | 100 | %
Operating costs and expenses (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of revenue |  |  |  |  |  |  |  |  | 996 |  |  | 1 | % |  | 1,138 |  |  | 1 | %
Marketing and advertising |  |  |  |  |  |  |  |  | 50,874 |  |  | 38 | % |  | 37,764 |  |  | 35 | %
Customer care and enrollment |  |  |  |  |  |  |  |  | 34,162 |  |  | 25 | % |  | 30,535 |  |  | 29 | %
Technology and content |  |  |  |  |  |  |  |  | 23,163 |  |  | 17 | % |  | 15,740 |  |  | 15 | %
General and administrative |  |  |  |  |  |  |  |  | 23,054 |  |  | 17 | % |  | 19,653 |  |  | 18 | %
Amortization of intangible assets |  |  |  |  |  |  |  |  | 176 |  |  | — | % |  | 547 |  |  | 1 | %
Restructuring charges |  |  |  |  |  |  |  |  | 2,431 |  |  | 2 | % |  | — |  |  | — | %
Total operating costs and expenses |  |  |  |  |  |  |  |  | 134,856 |  |  | 100 | % |  | 105,377 |  |  | 99 | %
Income (loss) from operations |  |  |  |  |  |  |  |  | (642) |  |  | — | % |  | 1,031 |  |  | 1 | %
Other income, net |  |  |  |  |  |  |  |  | 150 |  |  | — | % |  | 373 |  |  | — | %
Income (loss) before provision for (benefit from) income taxes |  |  |  |  |  |  |  |  | (492) |  |  | — | % |  | 1,404 |  |  | 1 | %
Provision for (benefit from) income taxes |  |  |  |  |  |  |  |  | 308 |  |  | — | % |  | (2,048) |  |  | (2) | %
Net income (loss) |  |  |  |  |  |  |  |  | $ | (800) |  |  | — | % |  | $ | 3,452 |  |  | 3 | %

____________
(1)Operating costs and expenses include the following amounts of stock-based compensation expense (in thousands):

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Marketing and advertising |  |  |  |  | $ | 2,485 |  |  | $ | 1,730 |
Customer care and enrollment |  |  |  |  | 469 |  |  | 662 |
Technology and content |  |  |  |  | 2,743 |  |  | 1,617 |
General and administrative |  |  |  |  | 5,705 |  |  | 4,705 |
Total stock-based compensation expense |  |  |  |  | $ | 11,402 |  |  | $ | 8,714 |

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Revenue
Our commission revenue, other revenue and total revenue are summarized as (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Commission |  |  |  |  |  |  |  |  | $ | 127,052 |  |  | $ | 99,669 |  |  | $ | 27,383 |  |  | 27 | %
% of total revenue |  |  |  |  |  |  |  |  | 95 | % |  | 94 | % |  |  |  |
Other |  |  |  |  |  |  |  |  | 7,162 |  |  | 6,739 |  |  | 423 |  |  | 6 | %
% of total revenue |  |  |  |  |  |  |  |  | 5 | % |  | 6 | % |  |  |  |
Total revenue |  |  |  |  |  |  |  |  | $ | 134,214 |  |  | $ | 106,408 |  |  | $ | 27,806 |  |  | 26 | %

Commission revenue increased $27.4 million, or 27%, during the three months ended March 31, 2021 compared to the same period in 2020 due to a $24.6 million increase in commission revenue from the Medicare segment and a $2.8 million increase in commission revenue from Individual, Family and Small Business segment.
The increase in commission revenue from the Medicare segment was driven by a 45% increase in Medicare plan approved members, primarily attributable to a 65% growth in Medicare Advantage plan approved members compared to 2020, partially offset by lower LTVs and a decrease in net commission revenue from Medicare members approved in prior periods. The increase in commission revenue from Individual, Family and Small Business segment was primarily driven by a $1.9 million increase in net adjustment revenue, 21% increase in individual and family major medical plan approved members, 15% increase in dental plan approved members and 12% increase in vision plan approved members. See Segment Information below for further discussion.
Other revenue increased $0.4 million, or 6%, during the three months ended March 31, 2021 compared to the same period in 2020 due to an increase in sponsorship and advertising revenue.
Cost of Revenue
Cost of revenue consists of payments related to health insurance plans sold to members who were referred to our website by marketing partners with whom we have revenue-sharing arrangements. In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state where the policy is sold. Costs related to revenue-sharing arrangements are expensed as the related revenue is recognized.
Additionally, cost of revenue includes the amortization of consideration we paid to certain broker partners in connection with the transfer of their health insurance members to us as the new broker of record on the underlying plans. These transfers include primarily Medicare plan members. Consideration for all book-of-business transfers is being amortized to cost of revenue as we recognize commission revenue related to the transferred members.
Our cost of revenue is summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Cost of revenue |  |  |  |  |  |  |  |  | $ | 996 |  |  | $ | 1,138 |  |  | $ | (142) |  |  | (12) | %
% of total revenue |  |  |  |  |  |  |  |  | 1 | % |  | 1 | % |  |  |  |

Cost of revenue decreased by $0.1 million during the three months ended March 31, 2021, compared to the same period in 2020, primarily due to decreased activity from our revenue sharing arrangements.
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Marketing and Advertising
Marketing and advertising expenses consist primarily of member acquisition expenses associated with our direct, marketing partner and online advertising member acquisition channels, in addition to compensation and other expenses related to marketing, business development, partner management, public relations and carrier relations personnel who support our offerings.
Our marketing and advertising expenses are summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Marketing and advertising |  |  |  |  |  |  |  |  | $ | 50,874 |  |  | $ | 37,764 |  |  | $ | 13,110 |  |  | 35 | %
% of total revenue |  |  |  |  |  |  |  |  | 38 | % |  | 35 | % |  |  |  |

Marketing and advertising expenses increased $13.1 million, or 35%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by a $14.0 million increase in Medicare plan related variable advertising and $0.8 million in stock-based compensation expenses, partially offset by decreases of $1.0 million in consulting expenses and $0.7 million in personnel and compensation costs. The increase in variable advertising expenses was due to an increase in our advertising expense through our partner and online channels.
Customer Care and Enrollment
Customer care and enrollment expenses primarily consist of compensation, benefits, and licensing costs for personnel engaged in assistance to applicants who call our customer care center and for enrollment personnel who assist applicants during the enrollment process. Our customer care and enrollment expenses also include third-party call center costs.
Our customer care and enrollment expenses are summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Customer care and enrollment |  |  |  |  |  |  |  |  | $ | 34,162 |  |  | $ | 30,535 |  |  | $ | 3,627 |  |  | 12 | %
% of total revenue |  |  |  |  |  |  |  |  | 25 | % |  | 29 | % |  |  |  |

Customer care and enrollment expenses increased $3.6 million, or 12%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily due to an increase of $6.1 million in personnel costs associated with an increase in customer care and enrollment headcount, partially offset by decreases of $1.7 million in licensing costs and $1.0 million in consulting expenses. The decrease in licensing costs was primarily due to previously over-recognized licensing costs that were adjusted during the three months ended March 31, 2021.
We have shifted to a predominantly internal agent model and intend to employ and maintain the majority of our health insurance agent force year-round. In 2021, we are starting internal agent hiring and training earlier in the year compared to prior years, with the largest headcount increase planned for the second and third quarters. As a result, our customer care and enrollment costs will increase accordingly during the second and third quarters of 2021. We believe that a combination of a longer training period and an increased percentage of internal agents will have a significant positive impact on agent productivity, enrollment volumes and acquisition cost per approved member during the annual enrollment period in the fourth quarter.
Technology and Content
Technology and content expenses consist primarily of compensation and benefits costs for personnel associated with developing and enhancing our website technology as well as maintaining our website. A portion of our technology and content group is located at our wholly-owned subsidiary in China, where technology development costs are generally lower than in the United States.
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Our technology and content expenses are summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Technology and content |  |  |  |  |  |  |  |  | $ | 23,163 |  |  | $ | 15,740 |  |  | $ | 7,423 |  |  | 47 | %
% of total revenue |  |  |  |  |  |  |  |  | 17 | % |  | 15 | % |  |  |  |

Technology and content expenses increased $7.4 million, or 47%, during the three months ended March 31, 2021 compared to the same period in 2020 primarily driven by increases of $3.2 million in personnel and compensation costs due to higher headcount, $1.3 million in amortization of internal software development costs, $1.3 million in facilities, and $1.1 million in stock-based compensation expenses.
General and Administrative
General and administrative expenses include compensation and benefits costs for personnel working in our executive, finance, investor relations, government affairs, legal, human resources, internal audit, facilities and internal information technology departments. These expenses also include fees paid for outside professional services, including audit, tax, legal, government affairs and information technology fees.
Our general and administrative expenses are summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
General and administrative |  |  |  |  |  |  |  |  | $ | 23,054 |  |  | $ | 19,653 |  |  | $ | 3,401 |  |  | 17 | %
% of total revenue |  |  |  |  |  |  |  |  | 17 | % |  | 18 | % |  |  |  |

General and administrative expenses increased $3.4 million, or 17%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily driven by increases of $1.0 million stock-based compensation expenses, $0.9 million in personnel and compensation costs, $0.7 million in shareholder engagement costs, $0.4 million in consulting expenses, and $0.4 million in facilities and other operating costs.
Amortization of Intangible Assets
Our intangible asset amortization expense is summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Amortization of intangible assets |  |  |  |  |  |  |  |  | $ | 176 |  |  | $ | 547 |  |  | $ | (371) |  |  | (68) | %
% of total revenue |  |  |  |  |  |  |  |  | — | % |  | 1 | % |  |  |  |

Amortization expense was primarily related to intangible assets purchased through our acquisitions. Amortization expense decreased during the three months ended March 31, 2021 compared to the same periods in 2020 due to certain intangible assets being fully amortized during the three months ended March 31, 2021.
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Restructuring Charges
In February 2021, our Board of Directors approved a plan to terminate the employment of certain employees in certain locations. As part of this plan, we eliminated approximately 89 full-time positions, primarily in the United States, representing approximately 5% of our workforce primarily within customer care and enrollment groups, and to a lesser extent, in our marketing and advertising and general and administrative groups.
Our restructuring charges is summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Restructuring charges |  |  |  |  |  |  |  |  | $ | 2,431 |  |  | $ | — |  |  | $ | 2,431 |  |  | *
% of total revenue |  |  |  |  |  |  |  |  | 2 | % |  | — | % |  |  |  |

Our restructuring charges primarily consist of severance and other termination benefits provided to employees as part of the restructuring plan.
_______
* Percentage calculated is not meaningful.
Other Income, Net
Other income, net, primarily consisted of interest income, sublease income and margin earned on commissions received from Medicare plan members transferred to us in 2010 through 2012 by a broker partner, partially offset by interest expense on finance leases and debt and other bank fees.
Our other income, net is summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Other income, net |  |  |  |  |  |  |  |  | $ | 150 |  |  | $ | 373 |  |  | $ | (223) |  |  | (60) | %
% of total revenue |  |  |  |  |  |  |  |  | — | % |  | — | % |  |  |  |

Other income, net decreased $0.2 million during the three months ended March 31, 2021 compared to the same period in 2020 due primarily to a decrease in interest income.
Provision for (Benefit from) Income Taxes
Our provision (benefit) for income taxes are summarized as follows (dollars in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Provision for (benefit from) income taxes |  |  |  |  |  |  |  |  | $ | 308 |  |  | $ | (2,048) |  |  | $ | 2,356 |  |  | *
Effective tax rate |  |  |  |  |  |  |  |  | (62.6) | % |  | (145.9) | % |  |  |  |

_______
* Percentage calculated is not meaningful.
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Our effective tax rate increased for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, primarily due to a decrease in stock-based compensation windfalls partially offset by a one-time state tax adjustment in the first quarter of 2021. During the three months ended March 31, 2021, we recorded a provision for income taxes of $0.3 million representing an effective tax rate of (62.6)% which was lower than the statutory federal tax rate due primarily to one-time state tax adjustments. During the three months ended March 31, 2020, we recorded a benefit from income taxes of $2.0 million representing an effective tax rate of (145.9)% which was lower than the statutory federal tax rate primarily due to stock-based compensation windfalls.
Segment Information
We report segment information based on how our chief executive officer, who is our chief operating decision maker, or CODM, regularly reviews our operating results, allocates resources and makes decisions regarding our business operations. The performance measures of our segments include total revenue and profit. Our business structure is comprised of two operating segments:
•Medicare; and
•Individual, Family and Small Business.
Our CODM does not separately evaluate assets by segment, with the exception of commissions receivable, and therefore assets by segment are not presented.
The Medicare segment consists primarily of commissions earned from our sale of Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans, and to a lesser extent, ancillary products sold to our Medicare-eligible applicants, including but not limited to, dental and vision plans, as well as our advertising program that allows Medicare-related carriers to purchase advertising on a separate website developed, hosted and maintained by us and to purchase other marketing and advertising services, as well as our delivery and sale to third parties of Medicare-related health insurance leads generated by our ecommerce platforms and our marketing activities.
The Individual, Family and Small Business segment consists primarily of commissions earned from our sale of individual, family and small business health insurance plans and ancillary products sold to our non-Medicare-eligible applicants, including but not limited to, dental, vision, and short-term health insurance. To a lesser extent, the Individual, Family and Small Business segment consists of amounts earned from our online sponsorship program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website, our licensing to third parties the use of our health insurance ecommerce technology, and our delivery and sale to third parties of individual and family health insurance leads generated by our ecommerce platforms and our marketing activities.
Marketing and advertising, customer care and enrollment, technology and content, and general and administrative operating expenses that are directly attributable to a segment are reported within the applicable segment. Indirect marketing and advertising, customer care and enrollment, and technology and content operating expenses are allocated to each segment based on usage. Other indirect general and administrative operating expenses are managed in a corporate shared services environment and, since they are not the responsibility of segment operating management, are not allocated to the operating segments and instead reported within Corporate.
Segment profit is calculated as total revenue for the applicable segment less direct and allocated marketing and advertising, customer care and enrollment, technology and content, and general and administrative operating expenses, excluding stock-based compensation expense, change in fair value of earnout liability, depreciation and amortization expense, and amortization of intangible assets. During the first quarter of 2021, we modified the calculation of segment profit to exclude the amortization of capitalized software development cost to enhance comparability of our financial metrics with peer companies.
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Our operating segment revenue and profit are summarized as follows (in thousands):

|  |  |  |  | Three Months Ended March 31, |  | Change
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | $ |  | %
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Medicare |  |  |  |  |  |  |  |  | $ | 121,021 |  |  | $ | 96,151 |  |  | $ | 24,870 |  |  | 26 | %
Individual, Family and Small Business |  |  |  |  |  |  |  |  | 13,193 |  |  | 10,257 |  |  | 2,936 |  |  | 29 | %
Total revenue |  |  |  |  |  |  |  |  | $ | 134,214 |  |  | $ | 106,408 |  |  | $ | 27,806 |  |  | 26 | %
Segment profit: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Medicare segment profit (1) |  |  |  |  |  |  |  |  | $ | 24,545 |  |  | $ | 23,136 |  |  | $ | 1,409 |  |  | 6 | %
Individual, Family and Small Business segment profit (1) |  |  |  |  |  |  |  |  | 8,052 |  |  | 2,928 |  |  | 5,124 |  |  | 175 | %
Total segment profit |  |  |  |  |  |  |  |  | 32,597 |  |  | 26,064 |  |  | 6,533 |  |  | 25 | %
Corporate |  |  |  |  |  |  |  |  | (15,286) |  |  | (13,448) |  |  | (1,838) |  |  | 14 | %
Stock-based compensation expense |  |  |  |  |  |  |  |  | (11,402) |  |  | (8,714) |  |  | (2,688) |  |  | 31 | %
Depreciation and amortization (2) |  |  |  |  |  |  |  |  | (3,944) |  |  | (2,324) |  |  | (1,620) |  |  | 70 | %
Amortization of intangible assets |  |  |  |  |  |  |  |  | (176) |  |  | (547) |  |  | 371 |  |  | (68) | %
Restructuring charges |  |  |  |  |  |  |  |  | (2,431) |  |  | — |  |  | (2,431) |  |  | *
Other income, net |  |  |  |  |  |  |  |  | 150 |  |  | 373 |  |  | (223) |  |  | (60) | %
Income (loss) before provision for (benefit from) income taxes |  |  |  |  |  |  |  |  | $ | (492) |  |  | $ | 1,404 |  |  | $ | (1,896) |  |  | *

_______
* Percentage calculated is not meaningful.
(1)During the first quarter of 2021, we revised the calculation of segment profit by excluding amortization of capitalized software development costs to enhance comparability of our financial metrics with peer companies. The amortization of capitalized software development costs were $2.8 million and $1.5 million for the first quarter of 2021 and 2020, respectively.
(2)Depreciation and amortization has been adjusted to include amortization of software development costs.
Revenue
Revenue from our Medicare segment grew $24.9 million, or 26%, during the three months ended March 31, 2021 compared to the same period in 2020, primary attributable to an increase in Medicare Advantage plan related commission revenue of $35.2 million, partially offset by lower LTVs and a decrease in net adjustment revenue. The increase in Medicare Advantage commission revenue was driven by 65% growth in Medicare Advantage plan approved members. The overall growth of our Medicare business was a result of an increase in our agent productivity and strong consumer demand.
Revenue from our Individual, Family and Small Business segment grew $2.9 million, or 29%, during the three months ended March 31, 2021 compared to the same period in 2020, primarily attributable to a $2.8 million increase in commission revenue. Despite the uncertainties with respect to the extension of the open enrollment period through August 15, 2021 combined with greater government incentives, we continued to observe stronger member retention rates in our LTV assessments for the majority of the earlier period cohorts of certain products in our Individual, Family and Small Business segment. Based on our evaluation of the updated LTV models and retention trends, we recognized $3.3 million in net adjustment revenue, an increase $1.9 million during the three months ended March 31, 2021 compared to the same period in 2020.

Segment Profit
Our Medicare segment profit was $24.5 million during the three months ended March 31, 2021, an increase of $1.4 million, or 6%, compared to the same period in 2020. This was primarily due to a $24.9 million increase in revenue, partially offset by a $23.5 million increase in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, and amortization of intangible assets. The increase in operating expenses was mostly attributable to increases in marketing costs and customer care and enrollment costs as we continued to invest in telesales capacity, internal agent counts, agent productivity tools and incentives, customer engagement and retention initiatives, and enhancements to our technology platform.
Our Individual, Family and Small Business segment profit was $8.1 million during the three months ended March 31, 2021, an increase of $5.1 million, or 175% compared to the same period in 2020. The increase was primarily driven by a $2.9 million increase in revenue and a $2.2 million decrease in operating expenses, excluding stock-based compensation expense, depreciation and amortization expenses, and amortization of intangible assets.
Liquidity and Capital Resources
Our cash, cash equivalents, and short-term marketable securities are summarized as follows (in thousands):

| March 31, 2021 |  | December 31, 2020
Cash and cash equivalents | $ | 92,250 |  |  | $ | 43,759 |
Short-term marketable securities | 33,922 |  |  | 49,620 |
Total cash, cash equivalents, and short-term marketable securities | $ | 126,172 |  |  | $ | 93,379 |

We believe our current cash and cash equivalents, credit facility and expected cash collections will be sufficient to fund our operations for at least twelve months after the filing date of this Quarterly Report on Form 10-Q. Our future capital requirements will depend on many factors, including our expected membership, retention rates and our level of investment in technology, marketing and advertising and our customer care initiatives. In addition, our cash position could be impacted by further acquisitions and investments we make to pursue our growth strategy.
While we recognize constrained LTV as revenue at the time applications are approved, our collection of the cash commissions resulting from approved applications generally occurs over a number of years. The expense associated with approved applications, however, is generally incurred at the time of enrollment. As a result, the net cash flow resulting from approved applications is generally negative in the period of revenue recognition and generally becomes positive over the lifetime of the member. In periods of membership growth, cash receipts associated with new and continuing members may be less than the cash outlays to acquire new members. We expect a reduction in cash and cash equivalents in the future resulting from our continued investments to grow our business. To the extent that available funds are insufficient to fund our future activities or to execute our financial strategy, we may raise additional capital through bank debt, or public or private equity or debt financing to the extent such funding sources are available.
As of March 31, 2021, our cash and cash equivalents totaled $92.3 million. Cash equivalents, which are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily consist of money market funds. The increase in cash and cash equivalents reflects $42.8 million of net cash provided by operating activities and $10.5 million of net cash provided by investing activities, partially offset by $4.8 million of net cash used in financing activities. We also maintained $3.4 million in restricted cash as of March 31, 2021 and December 31, 2020.
The following table presents a summary of our cash flows for the three months ended March 31, 2021 (in thousands):

| Three Months Ended March 31,
| 2021 |  | 2020
Net cash provided by operating activities | $ | 42,809 |  |  | $ | 8,907 |
Net cash provided by (used in) investing activities | 10,497 |  |  | (64,136) |
Net cash provided by (used in) financing activities | (4,790) |  |  | 215,931 |

Operating Activities
Net cash provided by operating activities primarily consists of net income (loss), adjusted for certain non-cash items, including, deferred income taxes, stock-based compensation expense, depreciation and amortization, amortization of intangible assets and internally developed software, other non-cash items, and the effect of changes in working capital and other activities.
Collection of commissions receivable depends upon the timing of our receipt of commission payments and associated commission reports from health insurance carriers. If we were to experience a delay in receiving a commission payment from a health insurance carrier within a quarter, our operating cash flows for that quarter could be adversely impacted.
A significant portion of our marketing and advertising expense is driven by the number of health insurance applications submitted on our ecommerce platforms. Since our marketing and advertising costs are expensed and generally paid as incurred, and since commission revenue is recognized upon approval of a member but commission payments are paid to us over time, our operating cash flows could be adversely impacted by a substantial increase in the volume of applications submitted during a quarter or positively impacted by a substantial decline in the volume of applications submitted during a quarter. During the Medicare annual enrollment period which takes place during the last quarter of each year and the reintroduced Medicare Advantage open enrollment period in the first quarter of the year, we experience an increase in the number of submitted Medicare-related health insurance applications and marketing and advertising expenses compared to outside of these enrollment periods. Similarly, during the open enrollment period for individual and family health insurance plans which typically takes place during the fourth quarter of each year, with the exception of a special enrollment period that runs through May 15, 2021 due to the pandemic, we experience an increase in the number of submitted individual and family plan health insurance applications and marketing and advertising expenses compared to outside of open enrollment periods. The timing of enrollment periods for individual and family health insurance plans, the Medicare annual enrollment period and the open enrollment period for Medicare-related health insurance can positively or negatively affect our cash flows during each quarter.
Three Months Ended March 31, 2021 – Net cash provided by operating activities was $42.8 million during the three months ended March 31, 2021, primarily driven by changes in net operating assets and liabilities of $28.2 million and a net loss of $0.8 million, partially offset by adjustments for non-cash items of $15.4 million. Adjustments for non-cash items primarily consisted of $11.4 million of stock-based compensation expense, $3.0 million of amortization of intangible assets and internally-developed software, and $1.1 million of depreciation and amortization. Cash used from changes in net operating assets and liabilities during the three months ended March 31, 2021 primarily consisted of decreases of $50.6 million in contract assets – commissions receivable and $4.2 million in prepaid expenses and other current asset, increases of $4.1 million in accrued compensation and benefits and $1.3 million in accrued expenses and other liabilities, partially offset by decreases of $25.8 million in accounts payable and $6.7 million in accrued marketing expense. Cash collection during the three months ended March 31, 2021 increased primarily driven by enrollment growth and increases in commission rates for new enrollments, as compared to the three months ended March 31, 2020.
Three Months Ended March 31, 2020 – Net cash provided by operating activities was $8.9 million during the three months ended March 31, 2020, primarily driven by net income of $3.5 million and adjustments for non-cash items of $9.7 million, partially offset by changes in net operating assets and liabilities of $4.2 million. Adjustments for non-cash items primarily consisted of $8.7 million of stock-based compensation expense, $2.0 million of amortization of intangible assets and internally developed software, $0.8 million of depreciation and amortization, partially offset by a $2.1 million decrease due to the change in deferred income taxes. Cash used from changes in net operating assets and liabilities during the three months ended March 31, 2020 primarily consisted of decreases of $16.3 million in accounts payable, $11.1 million in accrued compensation and benefits, and $7.3 million in accrued marketing expenses, partially offset by decreases of $26.9 million in contract assets – commissions receivable and $1.7 million in accounts receivable and an increase of $2.0 million in accrued expenses and other liabilities.
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Investing Activities
Our investing activities primarily consist of purchases, maturities, and redemptions of marketable securities as well as purchases of computer hardware and software to enhance our website and customer care operations, leasehold improvements related to facilities expansion, capitalized internal-use software and website development costs and security deposit payments.
Three Months Ended March 31, 2021 – Net cash provided by investing activities of $10.5 million for the three months ended March 31, 2021 mainly consisted $23.4 million proceeds from the maturities and redemptions of marketable securities, partially offset by $7.8 million used to purchase marketable securities, $3.2 million in capitalized internal-use software and website development costs and $1.9 million used to purchase property and equipment and other assets.
Three Months Ended March 31, 2020 – Net cash used in investing activities of $64.1 million for the three months ended March 31, 2020 was due to $58.1 million in purchases of marketable securities, $3.6 million in capitalized internal-use software and website development costs and $2.5 million used to purchase property and equipment and other assets.
Financing Activities
Three Months Ended March 31, 2021 – Net cash used in financing activities of $4.8 million for the three months ended March 31, 2021 was primarily due to repurchase of shares to satisfy employee tax withholding obligation.
Three Months Ended March 31, 2020 – Net cash provided by financing activities of $215.9 million for the three months ended March 31, 2020 was primarily due to $228.0 million net proceeds from the issuance of common stock in a public equity offering and $1.1 million of net proceeds from the exercise of common stock options, partially offset by $8.8 million of acquisition-related contingent payments and $4.4 million repurchase of shares to satisfying employee tax withholding obligations.
Convertible Preferred Stock
On April 30, 2021, upon the terms and subject to the conditions set forth in our investment agreement with H.I.G., we issued and sold 2,250,000 shares of our newly designated Series A convertible preferred stock at an aggregate purchase price of $225.0 million, at a price of $100 (the “Stated Value” per share of Series A preferred stock) per share. We received $216.2 million in proceeds from the private placement with H.I.G., net of sales commissions and certain transaction fees.
Dividends on our outstanding shares of Series A preferred stock accrue daily at 8% per annum on the Stated Value per share and compound semiannually, payable in kind until April 30, 2023, which is the second anniversary of the closing date of the Private Placement, on June 30 and December 31 of each year, beginning on June 30, 2021, and will thereafter become 6% payable in kind and 2% payable in cash in arrears on June 30 and December 31 of each year, beginning on June 30, 2023 (each, a “Cash Dividend Payment Date”). Dividends payable in kind will be cumulative. The Series A preferred stock also participates, on an as-converted basis (without regard to conversion limitations) in all dividends paid to the holders of our common stock. If we fail to declare and pay full cash dividend payments as required by the certificate of designations for the Series A preferred stock for two consecutive Cash Dividend Payment Dates, the cash dividend rate then in effect shall increase one time by 2%, retroactive to the first day of the semiannual period immediately preceding the first Cash Dividend Payment Date at which we failed to pay such accrued cash dividends, until such failure to pay full cash dividends is cured (at which time the dividend rate shall return to the rate prior to such increase). The dividend rights of the Series A preferred stock are senior to all of our other equity securities.
Beginning on April 30, 2027, which is the sixth anniversary of the closing date of the Private Placement, each holder of Series A preferred stock will have the right to require us to redeem all or any portion of the Series A preferred stock for cash at a price calculated as set forth in the certificate of designations. In addition, upon certain change of control events, holders of Series A preferred stock can require us, subject to certain exceptions, to repurchase any or all of their Series A preferred stock.
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Credit Agreement
We entered into a credit agreement with Royal Bank of Canada, or RBC, as administrative agent and collateral agent, (the “Credit Agreement”) in September 2018. The Credit Agreement provides for a $40.0 million secured asset-backed revolving credit facility with a $5 million letter of credit sub-facility. On December 20, 2019, we amended our revolving credit facility agreement with RBC (the “Amendment”) and increased the maximum borrowing amount to $75.0 million and extended the expiration to December 20, 2022.
The borrowing base under the Credit Agreement is comprised of an amount equal to (a) the lesser of (i) eighty percent (80%) of Eligible Commissions Receivables (as defined in the Credit Agreement) we actually collected during the immediately preceding period of three months or (ii) eighty percent (80%) of our Eligible Commission Receivables for the immediately succeeding period of three months, plus (b) fifty percent (50%) of our Eligible Commission Receivables for the immediately succeeding period of six months (excluding the immediately succeeding period of three months), in each case subject to reserves established by RBC, or the Borrowing Base. The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes. We have the right to prepay the loans under the Credit Agreement in whole or in part at any time without penalty. Subject to availability under the Borrowing Base, amounts repaid may be reborrowed. Amounts not borrowed under the Credit Agreement are subject to a commitment fee of 0.5% per annum on the daily unused portion of the credit facility, to be paid in arrears on the first business day of each calendar quarter. At closing of the Credit Agreement, we paid a one-time facility fee of 1.75% of the total commitments of $40 million. We also paid a one-time closing fee of 0.5% of the new commitment of $75.0 million in connection with the Amendment. We are also obligated to pay other customary administration fees for a credit facility of this size and type.
As of March 31, 2021, we had no outstanding principal amount under our revolving credit facility. See Note 11 – Debt of Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding this credit agreement and subsequent amendment.
Common Stock Issuance
Pursuant to an effective registration statement that was filed on December 17, 2018, and amended on January 22, 2019 and March 2, 2020, we entered into an underwriting agreement in March 2020 to issue a total of 2,070,000 shares of common stock, which included the exercise in full of the underwriters’ option to purchase 270,000 additional shares of common stock, at a price to the public of $115.00 per share. Net proceeds from the offering were approximately $228.0 million after deducting underwriting discounts, commissions and expenses of the offering.
Contractual Obligations and Commitments
Our material contractual obligation generally include operating lease liabilities and non-cancellable contractual service and licensing obligations. See Note 9 – Leases in the Notes to Condensed Consolidated Financial Statements for information about our operating lease obligations. See Note 7 – Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements for the information about our non-cancellable contractual service and licensing obligations.
Off-Balance Sheet Arrangements
As of March 31, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
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Recent Accounting Pronouncements
See Note 1 – Summary of Business and Significant Accounting Policies in the Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q for recently issued accounting standards that could have an effect on us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Credit and Interest Rate Risk
Our financial instruments that are exposed to concentrations of credit risk principally consist of cash and cash equivalents, marketable securities, accounts receivable, and contract assets – commission receivable.
Our cash, cash equivalents, short-term marketable securities, and restricted cash are summarized as follows (in thousands):

| March 31, 2021 |  | December 31, 2020
Cash and cash equivalents (1) (2) | $ | 92,250 |  |  | $ | 43,759 |
Short-term marketable securities (2) | 33,922 |  |  | 49,620 |
Restricted cash | 3,354 |  |  | 3,354 |
Total cash, cash equivalents, short-term marketable securities, and restricted cash | $ | 129,526 |  |  | $ | 96,733 |

_________________
(1)We deposit our cash and cash equivalents in accounts with major banks and financial institutions and such deposits are in excess of federally insured limits. We also have deposits with major banks in China that are denominated in both U.S. dollars and Chinese Yuan Renminbi and are not insured by the U.S. federal government.
(2)See Note 4 – Fair Value Measurements in our Notes to Condensed Consolidated Financial Statements for more information on our cash and cash equivalents and marketable securities.
Our portfolio of available-for-sale debt securities is exposed to credit and interest rate risk. As of March 31, 2021, we invested $33.9 million in marketable securities primarily consisting of commercial paper and agency bonds with credit rating of AA or equivalent by S&P Rating and Moody's Investor Services. The maturity of these securities were less than one year. See Note 4 – Fair Value Measurements in our Notes to Condensed Consolidated Financial Statements for further discussion on our available-for-sale debt securities.
As of March 31, 2021, our net contract assets consisted of commissions receivable balance of $741.8 million. Our contracts with carriers expose us to credit risk that a financial loss could be incurred if the counterparty does not fulfill its financial obligation. While we are exposed to credit losses due to the non-performance of our counterparties, we consider the risk of this remote. We estimate our maximum credit risk in determining the commissions receivable amount recorded on the balance sheet. We had a $1.9 million allowance for credit losses for our commissions receivable balance as of March 31, 2021.
Our total contract assets and accounts receivable as of March 31, 2021 and December 31, 2020 are summarized as follows (in thousands):

| March 31, 2021 |  | December 31, 2020
Contract assets – commissions receivable – current | $ | 180,276 |  |  | $ | 219,153 |
Contract assets – commissions receivable – non-current | 561,571 |  |  | 573,252 |
Accounts receivable | 1,847 |  |  | 1,799 |
Total contract assets and accounts receivable | $ | 743,694 |  |  | $ | 794,204 |

Foreign Currency Exchange Risk
To date, substantially all of our revenue has been derived from transactions denominated in United States Dollars. We have exposure to adverse changes in exchange rates associated with operating expenses of our foreign operations, which are
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denominated in Chinese Yuan Renminbi. Foreign currency fluctuations have not had a material impact historically on our results of operations; however, they may in the future. We have not engaged in any foreign currency hedging or other derivative transactions to date.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Our Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our chief executive officer and chief financial officer, believes that our disclosure controls and our internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of our business, we have received and may continue to receive inquiries from state and federal regulators relating to various matters. We have become, and may in the future become, involved in litigation in the ordinary course of our business. If we are found to have violated laws or regulations in any jurisdiction, we could be subject to various fines and penalties, including revocation of our license to sell insurance in those states, and our business, operating results and financial condition would be harmed. Revocation of any of our licenses or penalties in one jurisdiction could cause our license to be revoked or for us to face penalties in other jurisdictions. In addition, without a health insurance license in a jurisdiction, carriers would not pay us commissions for the products we sold in that jurisdiction, and we would not be able to sell new health insurance products in that jurisdiction. We could also be harmed to the extent that related publicity damages our reputation as a trusted source of objective information relating to health insurance and its affordability. It could also be costly to defend ourselves regardless of the outcome. Our material legal proceedings are described in Part I, Item I of this Quarterly Report on Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 7 – Commitments and Contingencies.
ITEM 1A. RISK FACTORS
In addition to other information in this Quarterly Report on Form 10-Q and in other filings we make with the Securities and Exchange Commission, the following risk factors should be carefully considered in evaluating our business as they may have a significant impact on our business, operating results and financial condition. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered as a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods.
Risks Related to Our Business
If our ability to enroll individuals during enrollment periods is impeded or if investments we make in enrollment periods do not result in the returns we expected when making those investments, our business, operating results and financial condition would be harmed.
In an attempt to attract and enroll a large number of individuals during the Medicare annual enrollment period and to a lesser extent, the Medicare Advantage open enrollment period and the health care reform open enrollment period under the Affordable Care Act, we may invest in areas of our business, including technology and content, customer care and enrollment, and marketing and advertising. We have in the past made investments in areas of our business in advance of enrollment periods that have not yielded the results we expected when making those investments. Any investment we make in any enrollment period may not result in a significant number of approved and paying members or may not be as cost-effective as we anticipated. If it does not, or is not, our business, operating results and financial condition would be harmed. If our ability to market and sell Medicare-related health insurance and individual and family health insurance is constrained during an enrollment period for any reason, such as technology failures, interruptions in the operation of our e-commerce or telephony platforms, reduced allocation of resources, any inability to timely employ, license, train, certify and retain our employees and our outsourced call centers and their health insurance agents to sell health insurance, we could acquire fewer members, suffer a reduction in our membership, and our business, operating results and financial condition could be harmed.
We may be unsuccessful in competing effectively against current and future competitors, including government-run health insurance exchanges.
The market for selling health insurance plans is highly competitive. We compete with government-run health insurance exchanges, among others, with respect to our sale of Medicare-related and individual and family health insurance. The federal government operates a website where Medicare beneficiaries can purchase Medicare Advantage and Medicare Part D prescription drug plans or be referred to carriers to purchase Medicare Supplement plans. We also compete with the original Medicare program. The Affordable Care Act exchanges have websites where individuals and small businesses can purchase
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health insurance, and they also have offline customer support and enrollment capabilities. Our competitors also include local insurance agents across the United States who sell health insurance plans in their communities, companies that advertise primarily through television, and companies that operate websites that provide quote information or the opportunity to purchase health insurance online, including lead aggregator services. Many health insurance carriers also directly market and sell their plans to consumers through call centers, Internet advertising and their own websites. Although we offer health insurance plans for many of these carriers, they also compete with us by offering their plans directly to consumers.
To remain competitive against our current and future competitors, we will need to market our services effectively and continue to improve the online shopping experience and functionalities of our website and other platforms that our current and future customers may access to purchase health insurance products from us. If we cannot predict, develop and deliver the right shopping experience and functionality in a timely and cost-effective manner, or if we are not effective in cost-effectively driving a substantial number of consumers interested in purchasing health insurance to our website and customer care centers, we may not be able to compete successfully against our current or future competitors and our business, operating results and financial condition may be adversely affected.
Some of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, technical, marketing and other resources than we do. As compared to us, our current and future competitors may be able to undertake more extensive marketing campaigns for their brands and services, devote more resources to website and systems development, negotiate more favorable commission rates and commission override payments, and make more attractive offers to potential employees, marketing partners and third-party service providers.
Competitive pressures from government-run health insurance exchanges and other competitors may result in our experiencing increased marketing costs, decreased demand and loss of market share, increased health insurance plan termination, reduction in our membership or revenue and may otherwise harm our business, operating results and financial condition.
Our business may be harmed if we lose our relationship with health insurance carriers or our relationship with health insurance carriers is modified.
We typically enter into contractual relationships with health insurance carriers that are non-exclusive and terminable on short notice by either party for any reason. In many cases, health insurance carriers also may amend the terms of our agreements unilaterally, including commission rates, on short notice. Carriers may be unwilling to allow us to sell their existing or new health insurance plans, or desire to amend our agreements with them for a variety of reasons, including for competitive or regulatory reasons, dissatisfaction with the economics of the members that we place with them or because they do not want to be associated with our brand. The termination of our relationship with a health insurance carrier, the reduction of commission rates, or the amendment of or change in our relationship with a carrier could reduce the variety, quality and affordability of health insurance plans we offer, cause a loss of commission payments, including commissions for past and/or future sales, cause a reduction in the estimated constrained LTVs, we use for revenue recognition purposes, result in a loss of existing and potential members, adversely impact our profitability or have other adverse impacts, which could harm our business, operating results and financial condition.
Health insurance carriers can unilaterally amend the commission rates that they pay to us. For example, given the significant losses that carriers sustained in connection with their sale of individual and family health insurance as a result of health care reform, many health insurance carriers with which we have a relationship, including large national health insurance carriers, reduced or eliminated our commissions for selling individual and family health insurance, and in a limited number of cases, our renewal commissions. As a result, we experienced a meaningful reduction in our average commission rates for our aggregate individual and family health insurance plan membership. In addition, the reduction in contractual commission rates and these carriers’ desire to not sell individual and family health insurance reduced the number of plans that we are able to offer on our websites, which resulted in less consumer demand for the individual and family health insurance that we sell and a reduction in our membership. In the future, health insurance carriers may decide to reduce our commissions, rely on their own internal distribution channels to sell their own plans, determine not to sell their plans or otherwise limit or prohibit us from selling their plans. In addition to reducing commission rates, health insurance carriers may determine to exit certain states or increase premiums to a significant degree, which could cause our members’ health insurance to be terminated or our members to purchase new health insurance or determine not to pay for health insurance at all. If we lose these members, our business, operating results and financial condition could be harmed.
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Our Medicare plan-related revenue is concentrated in a small number of health insurance carriers. The success of our Medicare-related health insurance business depends upon our ability to enter into new and maintain existing relationships with health insurance carriers on favorable economic terms. We expect that a small number of health insurance carriers will account for a significant portion of our revenue for the foreseeable future and any impairment of our relationship with, or the material financial impairment of, these health insurance carriers could adversely affect our business, operating results and financial condition.
We may also temporarily or permanently lose the ability to market and sell Medicare plans for one or more of our Medicare plan carriers. The regulations applicable to the business of selling Medicare-related health insurance are complex and frequently change. If we or our health insurance agents violate any of the requirements imposed by CMS, state laws or regulations, a health insurance carrier may terminate our relationship or CMS may penalize a health insurance carrier by suspending or terminating the carrier's ability to market and sell Medicare plans. Given the concentration of our Medicare plan sales in a small number of carriers, if we lose a relationship with a health insurance carrier to market their Medicare plans, even temporarily, or if the health insurance carrier loses its Medicare product membership, our business, operating results and financial condition would be harmed.
Our financial results will be adversely impacted if our membership does not grow or if we are not able to successfully retain our existing members and limit health insurance plan termination.
We receive commissions from health insurance carriers for health insurance plans sold through us. When one of these plans is canceled, or if we otherwise do not remain the agent on the plan, we no longer receive the related commission payment. Our members and/or health insurance carriers may choose to discontinue their health insurance plans for a variety of reasons. Consumers may also purchase individual and family and Medicare-related health insurance plans directly from other sources, such as our competitors, and we would not remain the agent on the policy and receive the related commission. Medicare Advantage plan and Medicare Part D prescription drug plan enrollees may select another plan during the Medicare annual enrollment period that occurs in the fourth quarter every year. Medicare Advantage plan enrollees may also select another plan during the Medicare Advantage open enrollment period that occurs in the first quarter of the year. In addition, certain individuals are permitted to enroll, disenroll or change their Medicare Advantage or Medicare Part D prescription drug plans during special enrollment periods. We experienced an increased attrition rate in our Medicare Advantage and Medicare prescription drug plan membership in 2020 above historical levels prior to that time. While we have implemented measures to improve the attrition rate, if our Medicare Advantage and other health insurance plan termination rates do not decline in subsequent quarters, our business, operating results and financial condition would be harmed. In addition, enrollment periods could cause us to further experience increased termination rates in the future, which could adversely impact our business, operating results and financial condition.
Any decrease in the amount of time we retain our members on the health insurance plans that they purchased through us could adversely impact the estimated constrained LTVs we use for purposes of recognizing revenue, which would harm our business, operating results and financial condition. For example, our Medicare Advantage plan and Medicare Part D prescription drug plan LTVs have been negatively impacted by increased plan termination rates. While we have recently placed a stronger operational focus on member retention, there are no assurances that investments we make to pursue retention initiatives will result in a decline in health insurance plan termination rate and/or improvement in our constrained LTVs in the future. If we are not able to successfully retain our existing members and limit health insurance plan termination, our business, operating results and financial condition would be harmed. If we experience higher health insurance plan termination rates than we estimated when we recognized commission revenue, we may not collect all of the related commissions receivable, which could result in a reduction in LTV and a write-off of contract assets - commissions receivable, which would harm our business, operating results and financial condition.
In addition, the growth of our membership is highly dependent upon our success in attracting new members during the Medicare annual enrollment period and to a lesser extent, the Medicare Advantage open enrollment period and the health care reform open enrollment period. The Medicare-related commission rates that we receive may be higher in the first calendar year of a plan if the plan is the first Medicare-related plan issued to the member. Similarly, the individual and family plan commission rates that we receive are typically higher in the first twelve months of a policy. After the first twelve months, the commission rates generally decline significantly. As a result, if we do not add a sufficient number of members to new plans, our business, operating results and financial condition would be harmed.
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If we are not able to maintain and enhance our brand, our business and operating results will be harmed.
We believe that maintaining and enhancing our brand identity is critical to our relationships with existing members, marketing partners and health insurance carriers and to our ability to attract new members, marketing partners and health insurance carriers. The promotion of our brand in these and other ways may require us to make substantial investments and we anticipate that, as our market becomes increasingly competitive, these branding initiatives may become increasingly difficult and expensive. Our brand promotion activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur and our operating results could be harmed. If we do not successfully maintain and enhance our brand, our business may not grow and we could lose our relationships with health insurance carriers, marketing partners and/or members, which would harm our business, operating results and financial condition.
The ongoing COVID-19 pandemic and public health crises, illness, epidemics or pandemics could adversely impact our business, operating results and financial condition.
COVID-19 and public health crises, illness, epidemics or pandemics, in general, and any associated disruption to our call center and service operations, in particular, could materially impact our business, operations and financial condition. In an effort to mitigate the spread of COVID-19, and to comply with applicable government directives, we generally have directed employees to work from home and implemented new business protocols for employees who have resumed work in our offices. A potential COVID-19 infection of any of our employees could adversely impact our operations, including resulting in the sudden closure of any of our offices. Our business operations may be disrupted if key personnel or significant portions of our employees are unable to work effectively, especially if such disruption occurs during or in our preparation for the Medicare annual enrollment period. We have had to adjust our business operations, including onboarding and training new health insurance agents remotely and asking employees to work from home, which could cause operational difficulties, reduce the effectiveness of our agents in selling health insurance and impair our ability to manage our business. An increased number of employees in a remote work environment may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us or our customers or other third-parties. Our business operations and recruitment efforts could be impacted if government offices, including CMS and state departments of insurance, are adversely impacted by COVID-19 given that some of our marketing materials require CMS approval and health insurance agent licensing and licensing renewals are dependent on state department of insurance processing. Our product development initiatives could also be negatively impacted by extended office closures. Furthermore, if any of our health insurance carriers, business partners or vendors increase the prices of or become unable to continue to provide their products or services as a result of COVID-19, or if health insurance carriers reduce our commission rates or the amount they pay us, our business, operating results and financial condition would be harmed. The impact of COVID-19 to our Individual, Family and Small Business segment is especially uncertain because of increases in unemployment rate, potential delays in customer premium payments and/or health insurance carrier commission payments, potential changes to the open enrollment period, and potential changes to qualified health plans subsidies, among others. COVID-19 presents uncertainties and risks with respect to the demand for and pricing of health insurance plans, which could negatively impact our business, operating results and financial condition. The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted.
Changes in our management and key employees could affect our business and financial results.
Our success is dependent upon our ability to attract and retain qualified personnel for all areas of our organization. We may not be successful in attracting and retaining personnel on a timely basis, on competitive terms or at all. If we are unable to attract and retain the necessary personnel, our business would be harmed. Our executive officers and employees can terminate their employment at any time. The transition and the departure of members of our senior management could result in attrition in our senior management and key personnel and any significant change in leadership over a short period of time could harm our business, operating results and financial condition.
The loss of the services of any of our executive officers or key employees could harm our business. For example, we are required to appoint a single designated writing agent with each insurance carrier. A small number of our employees act as writing agent and each employee that acts as writing agent does so for a number of carriers. When an employee that acts as writing agent terminates their employment with us, we need to replace such writing agent with another employee who has health insurance licenses. Due to our national reach and the large number of carriers whose plans are purchased by our members, the process of changing writing agents has in the past taken and could take a significant period of time to complete. If
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the transition is not successful, our ability to sell health insurance plans may be interrupted, our agency relationship with particular insurance carriers may be terminated, our commission payments could be discontinued or delayed and, as a result, our business, operating results and financial condition would be harmed.
Our business may be harmed if we are not successful in executing on our strategic investments and initiatives, including our growth strategy and retention initiatives.
As part of our strategy, we have determined to invest in initiatives to accelerate growth in our Medicare product sales, to enhance post-enrollment consumer engagement and increase customer retention, to increase online enrollment and enhance operating leverage, to expand our strategic partner relationships, improve our technology platform to optimize the consumer experience and relationship, and to utilize data analytics to increase the productivity of our customer care employees. Pursuing and investing in these and other initiatives we develop will require significant investments in marketing and advertising, technology and product offerings, and customer care and enrollment, among others, and involves risks and uncertainties described elsewhere in this Risk Factors section, including the initiatives not achieving our retention, growth or profitability targets, inadequate return of capital on our investments, legal and regulatory compliance risks, potential changes in laws and regulations and other issues that could cause us to fail to realize the anticipated benefits of our investments and incur unanticipated liabilities. Our pursuit of these strategic initiatives may not be successful. Our cash flow from operations is expected to be negative in the year ending December 31, 2021 and was negative in each of the years ended December 31, 2020, 2019 and 2018. If we are not successful in executing on our business strategy, our business, operating results and financial condition would be harmed.
Seasonality may cause fluctuations in our financial results.
Open enrollment periods drive the seasonality of our business. The Medicare annual enrollment period occurs from October 15 to December 7 each year and the individual and family health insurance open enrollment period typically runs from November 1 through December 15 each year. In addition, the Medicare Advantage open enrollment period, where Medicare-eligible individuals who enrolled in a Medicare Advantage plan can switch to the original Medicare program or switch to a different Medicare Advantage plan, runs from January 1 st through March 31 st of each year. We experience an increase in the number of submitted Medicare-related applications and approved members during the fourth quarter and, to a lesser extent, in the first quarter, and an increase in Medicare plan related expense during the third and fourth quarters in connection with the open enrollment periods. In addition, we typically experience the highest plan termination rates from our Medicare Advantage plan members in the first year following the effective date of plan enrollment. If we experience significant growth in Medicare Advantage approved members resulting in an increased number of first year members as a percentage of our total estimated membership, we may also experience increased health insurance plan terminations in the year following such periods of growth.
The seasonality of our business could change in the future due to other factors, including as a result of changes in timing of the Medicare or individual and family health plan enrollment periods, adoption of new enrollment periods such as the COVID-related special enrollment period that was adopted in the second quarter of 2020 for Medicare Advantage and Medicare Part D prescription drug plans, and changes in the laws and regulations that govern the sale of health insurance. We may not be able to timely adjust to changes in customer demand and the seasonality of our business. If we are not successful in responding to changes in the seasonality of our business, our business, operating results and financial condition could be harmed.
The success of our customer care center operations depends upon our ability to timely hire, train, retain and ensure the productivity of our licensed health insurance agents.
In addition to our websites, we rely upon our customer care centers and, during the Medicare annual enrollment period, outsourced call centers to sell Medicare plans. The success of our customer care center operations is largely dependent on licensed health insurance agents and other employees. In order to sell Medicare-related health insurance plans, our health insurance agent employees and employees of outsourced call centers must be licensed by the states in which they are selling plans and certified and appointed with the health insurance carrier that offers the plans in each applicable state. Because a significant number of Medicare plans are sold in the fourth quarter each year during the Medicare annual enrollment period, we contract with outsourced call centers and hire additional employees on a temporary or seasonal basis in a limited period of time to address the expected increase in the volume of health insurance transactions during this period. We depend upon our employees, state departments of insurance, government exchanges and health insurance carriers for the licensing, certification and appointment of our health insurance agents. The COVID-19 pandemic and resulting containment measures have negatively
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impacted the capacity of health insurance license testing facilities and have caused delays in the completion of background checks and fingerprinting requirements. As a result, these health insurance agents may experience delays in obtaining health insurance licenses and certifications and health insurance carrier appointments. We and our outsourced call centers may experience difficulties hiring a sufficient number of additional licensed agents and retaining existing licensed agents for the Medicare annual enrollment period. If we and our outsourced call centers are not successful in these regards, our ability to sell Medicare-related health insurance plans will be impaired during the Medicare annual enrollment period, which would harm our business, operating results and financial condition.
Even if we or our outsourced call centers are successful in hiring licensed health insurance agents, our success depends on the productivity of these health insurance agents. Health insurance agents may not perform to the standard we expect of them, which could result in lower than expected conversion rates and revenue, higher costs of acquisition per member and higher plan termination rates. We have observed that our health insurance agent employees are more productive than the employees of our outsourced call centers and that experienced health insurance agents are more productive than less-tenured health insurance agents. As a result, the success of our business depends upon our ability to retain existing health insurance agents and hiring and training a sufficient number of internal health insurance agent employees who can perform to the standard we expect of them. Failure to retain, train and ensure the productivity of our health insurance agent employees and employees of outsourced call centers would harm our business, operating results and financial condition.
During the 2020 annual enrollment period, we experienced reduced conversion rates from health insurance agents that work at an outsourced call center, which impacted our revenue and cost of acquisition during the fourth quarter of 2020. As a result, we have determined to increase the number of our health insurance agent employees to a much more significant degree than we have in the past. Our ability to do so successfully will depend on the success of our recruiting efforts and our ability to train, license and appoint with carriers the newly employed agents so that they are effective in selling plans in time for the Medicare annual enrollment period occurring in 2021. If we are not successful in these efforts, we may need to rely more than we have planned on outsourced health insurance agents or rely on a fewer number of employed agents, which could harm our business, operating results and financial condition.
If we are not successful in cost-effectively converting visitors to our website and customers who call into our call centers into members for whom we receive commissions, our business and operating results would be harmed.
Our growth depends in large part upon growth in approved members in a given period. The rate at which consumers visiting our ecommerce platforms and customer care centers seeking to purchase health insurance are converted into approved members directly impacts our revenue. In addition, the rate at which consumers who are approved become paying members impacts the constrained LTV of our approved members, which impacts the revenue that we are able to recognize. A number of factors have influenced, and could in the future influence, these conversion rates for any given period, some of which are outside of our control. These factors include, but are not limited to:
•changes in consumer shopping behavior due to circumstances outside of our control, such as economic conditions, the COVID-19 pandemic, consumers’ ability or willingness to pay for health insurance, adverse weather conditions or natural disasters, availability of unemployment benefits or proposed or enacted legislative or regulatory changes impacting our business, including health care reform;
•the quality of and changes to the consumer experience on our ecommerce platforms or with our customer care centers;
•regulatory requirements, including those that make the experience on our ecommerce platforms cumbersome or difficult to navigate or reduce the ability of consumers to purchase plans outside of enrollment periods;
•the variety, competitiveness and affordability of the health insurance plans that we offer;
•system failures or interruptions in the operation of our ecommerce platform or call center operations;
•changes in the mix of consumers who are referred to us through our direct, marketing partner and online advertising member acquisition channels;
•health insurance carriers offering the health insurance plans for which consumers have expressed interest, and the degree to which our technology is integrated with those carriers;
•health insurance carrier guidelines applicable to applications submitted by consumers, the amount of time a carrier takes to make a decision on that application and the percentage of submitted applications approved by health insurance carriers;
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•the effectiveness of health insurance agents in assisting consumers, including the tenure of the health insurance agent and whether the health insurance agent is an employee or works with an outsourced call center with which we have a relationship; and
•our ability to enroll subsidy-eligible individuals in qualified health plans through government-run health insurance exchanges and the efficacy of the process we are required to use to do so.
Our conversion rates can be impacted by changes in the mix of consumers referred to us through our member acquisition channels and whether they interact with a more seasoned health insurance agent or a health insurance agent that works with an outsourced call center. We may make changes to our ecommerce platforms in response to regulatory requirements or undertake other initiatives in an attempt to improve consumer experience or for other reasons. These changes have in the past, and may in the future have the unintended consequence of adversely impacting our conversion rates. A decline in the percentage of consumers who submit health insurance applications on our ecommerce platforms or telephonically via our customer care centers and are converted into approved and paying members could cause an increase in our cost of acquiring members on a per member basis and impact our revenue in any given period. To the extent the rate at which we convert consumers visiting our ecommerce platforms or telephonically via our customer care centers into members suffers, our membership may decline, which would harm our business, operating results and financial condition.
We depend upon Internet search engines and social media platforms to attract a significant portion of the consumers who visit our website, and if we are unable to effectively advertise on search engines or social media platforms on a cost-effective basis, our business and operating results would be harmed.
We derive a significant portion of our website traffic from consumers who search for health insurance through Internet search engines, such as Google, Bing and Yahoo!, and through social media platforms, such as Facebook. A critical factor in attracting consumers to our website is whether we are prominently displayed in response to an Internet search relating to health insurance or on a social media platform. Search engines typically provide two types of search results, algorithmic listings and paid advertisements. We rely on both to attract consumers to our websites and otherwise generate demand for our services.
Algorithmic search result listings are determined and displayed in accordance with a set of formulas or algorithms developed by the particular Internet search engine. The algorithms determine the order of the listing of results in response to the consumer’s Internet search. From time to time, search engines revise these algorithms. In some instances, these modifications have caused our website to be listed less prominently in algorithmic search results, which has resulted in decreased traffic to our website. We may also be listed less prominently as a result of other factors, such as new websites, changes we make to our website or technical issues with the search engine itself. For example, government health insurance exchange websites appear prominently in algorithmic search results. In addition, search engines have deemed the practices of some companies to be inconsistent with search engine guidelines and decided not to list their website in search result listings at all. If we are listed less prominently in, or removed altogether from, search result listings for any reason, the traffic to our websites would decline and we may not be able to replace this traffic, which would harm our business, operating results and financial condition. If we decide to attempt to replace this traffic, we may be required to increase our marketing expenditures, which would also increase our cost of member acquisition and harm our business, operating results and financial condition.
We purchase paid advertisements on search engines and social media platforms in order to attract consumers to our platforms. We typically pay a search engine for prominent placement of our website when particular health insurance-related terms are searched for on the search engine, regardless of the algorithmic search result listings. The prominence of the placement of our advertisement is determined by a combination of factors, including the amount we are willing to pay and algorithms designed to determine the relevance of our paid advertisement to a particular search term. As with algorithmic search result listings, search engines may revise the algorithms relevant to paid advertisements, and websites other than our ecommerce platform may become more optimized for the algorithms. These changes may result in our having to pay increased amounts to maintain our paid advertisement placement in response to a particular search term. We could also have to pay increased amounts should the market share of major search engines continue to become more concentrated with a single search engine. Additionally, we bid against our competitors, insurance carriers, government health insurance exchanges and others for the display of these paid search engine or social media platform advertisements. We have experienced increased competition for both algorithmic search result listings and for paid advertisements, which competition increases substantially during the enrollment periods for Medicare related health insurance and for individual and family health insurance. The competition has increased the cost of paid internet search advertising and has increased our marketing and advertising expenses. If paid search advertising costs increase or become cost prohibitive, whether as a results of competition, algorithm changes or otherwise our
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advertising expenses could rise significantly or we could reduce or discontinue our paid search advertisements, either of which would harm our business, operating results and financial condition.
We rely significantly on marketing partners and our business and operating results would be harmed if we are unable to maintain effective relationships with our existing marketing partners or if we do not establish successful relationships with new marketing partners.
We frequently enter into contractual marketing relationships with partners that drive consumers to our ecommerce platform and call centers. These marketing partners include financial and online services companies, affiliate organizations, online advertisers and content providers, and other marketing vendors. We also have relationships with strategic marketing partners, including hospitals and pharmacy chains that promote our Medicare platforms to their customers as well as pharmacy service providers and other affinity groups. We compensate many of our marketing partners for their referrals on a submitted health insurance application basis and, if they are licensed to sell health insurance, may share a percentage of the commission we earn from the health insurance carrier for each member referred by the marketing partner. The success of our relationship is dependent on a number of factors, including but not limited to the continued positive market presence, reputation and growth of the marketing partner, the effectiveness of the marketing partner in marketing our website and services, the compliance of each marketing partner with applicable laws, regulations and guidelines, and the contractual terms we negotiate with our marketing partners, including the marketing fees we agree to pay.
While we have relationships with a large number of marketing partners, we depend upon referrals from a limited number of marketing partners for a significant portion of the submitted applications we receive from our marketing partner customer acquisition channel. Given our reliance on our marketing partners, our business operating results and financial condition would be harmed if we are unable to maintain successful relationships with these companies, if we fail to establish successful relationships with new marketing partners, if we experience competition in our receipt of referrals from high volume marketing partners, and if we are required to pay increased amounts to our marketing partners.
Competition for referrals from our marketing partners has increased particularly during the enrollment periods for Medicare-related health insurance and individual and family health insurance. We may lose marketing partner referrals if our competitors pay marketing partners more than we do or be forced to pay increased fees to our marketing partners, which could harm our business, operating results and financial condition. If we lose marketing partner referrals during the Medicare or individual and family health insurance enrollment periods, the adverse impact on our business would be particularly pronounced. In addition, the promulgation of laws, regulations or guidelines, or the interpretation of existing laws, regulations and guidelines, by state departments of insurance or by CMS, could cause our relationships with our marketing partners to be in non-compliance with those laws, regulations and guidelines. We also have relationships with hospital systems and pharmacy chains that utilize aspects of our platform and tools. Our relationships with these hospital systems and pharmacy chains result in the referral of a significant number of individuals to us who are interested in purchasing Medicare-related health insurance plans. If CMS or state departments of insurance were to change existing laws, regulations or guidelines, or interpret existing laws, regulations or guidelines, to prohibit these arrangements, or if hospital systems or pharmacy partners otherwise decided to no longer utilize aspects of our platform and tools, we could experience a significant decline in the number of Medicare-eligible individuals who are referred to our platforms and customer care centers, which would harm our business, operating results and financial condition.
Our future operating results are likely to fluctuate and could fall short of expectations.
Our operating results are likely to fluctuate as a result of a variety of factors, including the factors described elsewhere in this Risk Factors section, many of which are outside of our control. For example and among these factors, the assumptions underlying our estimates of commission revenue as required by ASC 606 may vary significantly over time. As a result, comparing our operating results on a period-to-period basis may not be meaningful and you should not rely on our past results as an indication of our future performance, particularly in light of the fact that our business and industry are undergoing substantial change as a result of health care reform, competition and initiatives we determined to pursue. If our revenue or operating results differ from our guidance or fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. In the past, when our revenue and operating results differed from our guidance and the expectations of investors or securities analysts, the price of our common stock was impacted.
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If commission reports we receive from carriers are inaccurate or not sent to us in a timely manner, our business and operating results could be harmed and we may not recognize trends in our membership.
We rely on health insurance carriers to timely and accurately report the amount of commissions earned by us, and we calculate our commission revenue, prepare our financial reports, projections and budgets and direct our marketing and other operating efforts based on the reports we receive from health insurance carriers. There have been instances where we have determined that plan cancellation data reported to us by a health insurance carrier has not been accurate. The extent to which health insurance carriers are inaccurate in their reporting of plan cancellations could cause us to change our cancellation estimates, which could adversely impact our revenue. We have designed controls to assess the completeness and accuracy of the data received, whereby we apply judgment and make estimates based on historical data and current trends to independently determine whether or not carriers are accurately reporting commissions due to us. We also operate procedures with carriers on an ongoing basis whereby potential under or over reporting is reconciled and discrepancies are resolved. For instance, we reconcile information health insurance carriers provide to us and may determine that we were not historically paid commissions owed to us, which would cause us to have underestimated our membership. Conversely, health insurance carriers may require us to return commission payments paid in a prior period due to plan cancellations for members we previously estimated as being active. To the extent that health insurance carriers understate or fail to accurately report the amount of commissions due to us in a timely manner or at all, our estimates of constrained LTV may be adversely impacted, which would harm our business, operating results and financial condition. In addition, any inaccuracies in the reporting from and reconciliations with insurance carriers may also impact our estimates of constrained LTV or our estimates of commission revenue for future periods which is based on historical trends, including trends relating to contracted commission rates and expected health insurance plan cancellation.
We do not receive information about membership cancellations from our health insurance carriers directly, which makes it difficult for us to determine the impact of current conditions on our membership retention and to accurately estimate membership as of a specific date.
We depend on health insurance carriers and others for data related to our membership. For instance, with respect to health insurance plans other than small business health insurance, health insurance carriers do not directly report member cancellations to us, resulting in the need for us to determine cancellations using payment data that carriers provide. We infer cancellations from this payment data by analyzing whether payments from members have ceased for a period of time, and we may not learn of a cancellation for several months. The majority of our members who terminate their plans do so by discontinuing their insurance premium payments to the health insurance carrier and do not inform us of the cancellation. With respect to our small business membership, many groups notify the carrier directly with respect to increases or decreases in group size and policy cancellations. Our insurance carrier partners often do not communicate this information to us, and it often takes a significant amount of time for us to learn about small business group cancellations and changes in our membership within the group itself. We often are not made aware of policy cancellations until the time of the group’s annual renewal.
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 health insurance plans 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. As a result of the Medicare annual enrollment and other open enrollment periods, we may not receive information from our carriers on as timely a basis due to the significant increase in health insurance transaction volume, which could impair the accuracy of our membership estimates. For these and other reasons, including if current trends in membership cancellation are inconsistent with past cancellation trends that we use to estimate our membership or if carriers subsequently report changes to the commission payments that they previously reported to us, our actual membership could be different from our estimates, perhaps materially. If our actual membership is different from our estimates, the constrained LTV component of our revenue recognition could also be inaccurate, including as a result of an inaccurate estimate of the average amount of time our members maintain their health insurance plans. 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. For example, our estimated membership reported as of March 31, 2020 was higher than our actual membership, because we experienced increased membership cancellation compared to the historical cancellation rates we used to estimate our membership as of March 31, 2020. We were not able to observe the increased membership cancellations that occurred during the first quarter of 2020 until after we reported our estimated membership for the period. Various circumstances, including market-related factors such as
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changes in timing of enrollment periods and other factors specific to our business, could cause the assumptions and estimates that we make in connection with estimating our membership and constrained LTV to be inaccurate, which would harm our business, operating results and financial condition.
Our carrier advertising and sponsorship business may not be successful.
We develop, host and maintain carrier dedicated Medicare plan websites and may undertake other marketing and advertising initiatives through our Medicare plan advertising program. We also allow health insurance carriers to purchase advertising space for non-Medicare products on our website through our sponsorship program. To the extent that economic conditions, health care reform or other factors impact the amount health insurance carriers are willing to pay for advertising, our advertising and sponsorship program will be adversely impacted. In addition, since we maintain relationships with a limited number of health insurance carriers to sell their Medicare plans, our Medicare plan-related advertising revenue is concentrated in a small number of health insurance carriers and our ability to generate Medicare plan-related advertising revenue would be harmed by the termination or non-renewal of any of these relationships as well as by a reduction in the amount a health insurance carrier is willing to pay for these services. Moreover, in light of the regulations applicable to the marketing and sale of Medicare plans, and given that these regulations are often unclear, change frequently and are subject to changing interpretations, we may in the future not be permitted to sell Medicare plan-related advertising. If we are not successful in these areas or these factors are unfavorable to us, our business, operating results and financial condition could be harmed.
The success of our sponsorship and advertising program depends on a number of factors, including the amount health insurance carriers are willing to pay for advertising, the effectiveness of the sponsorship and advertising program as a cost-effective method for carriers to obtain additional members, consumer demand for the health insurance carrier’s product, our ability to attract consumers to our ecommerce platform, our call centers or the dedicated Medicare plan websites and convert those consumers into members, and the cost, benefit and brand recognition of the health insurance plan that is the subject of the advertising, among others. If we are not successful in these areas or these factors are unfavorable to us, our business, operating results and financial condition could be harmed.
Our business may be harmed if we do not enroll subsidy-eligible individuals through government-run health insurance exchanges efficiently.
In order to offer the qualified health plans that individuals and families must purchase to receive Affordable Care Act subsidies, agents and brokers must meet certain conditions, such as receiving permission to do so from the applicable government health insurance exchange, entering into an agreement with the health insurance exchange or a partner of the exchange, ensuring that the enrollment and subsidy application is completed through the health insurance exchange and complying with privacy, security and other standards. In the event Internet-based agents and brokers such as us use the Internet for completion of qualified health plan selection purposes, their websites are required to meet certain additional requirements. To the extent we enroll individuals and families into qualified health plans, we do so through the Federally Facilitated Marketplace, or FFM, which runs all or part of the health insurance exchange in 36 states. We may experience difficulty in satisfying the conditions and requirements to offer qualified health plans to our existing members and new potential members, and in getting them enrolled through the FFM. If we are not able to satisfy these conditions and requirements, or if we are not able to successfully adopt and maintain solutions that allow us to enroll large numbers of individuals and families in qualified plans over the Internet both during and outside of open enrollment periods, we will lose existing members and new members, and may incur additional expense, which would harm our business, operating results and financial condition. Beginning in the open enrollment period that occurred in the fourth quarter of 2018, CMS adopted a new enhanced direct enrollment pathway for CMS-approved partners to enroll individuals into qualified health plans and complete all steps in the eligibility and enrollment process on a single website. Before enhanced direct enrollment partners are approved, extensive security and privacy reviews are conducted by an independent third-party auditor and CMS reviews the audit results to ensure the entity satisfies numerous additional privacy and security standards. We entered into an agreement to outsource certain aspects of the enrollment process for qualified health plans to a third party in light of the expense and burden associated with the additional requirements. However, if we do not develop the ability to satisfy the requirements to use the improved qualified health plan enrollment process in the future, or if we are unsuccessful in entering into or maintaining a relationship with a third party who is approved to use the process, we may not be able to enroll individuals into qualified health plans through the FFM or could be required to use an inferior process to do so, which could cause a reduction in our individual and family health insurance plan membership and commission revenue. In addition, if we are not able to adopt or contract with and maintain solutions to integrate with government-run health insurance exchanges or if the health insurance exchange websites and other processes are unstable or not consumer friendly, efficient and compatible with the process we have adopted for enrolling individuals and families into
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qualified health plans through the exchanges, we would not be successful in retaining and acquiring members, and our business, operating results and financial condition would be harmed. The FFM may at any time cease allowing us to enroll individuals in qualified health plans or change the requirements for doing so. If it does so or if the FFM platform does not function properly, our ability to retain existing members and add new members could be negatively impacted, which would harm our business, operating results and financial condition.
There are many risks associated with our operations in China.
A portion of our operations is conducted by our subsidiary in China. Among other things, we use employees in China to maintain and update our ecommerce platform and perform certain tasks within our finance and customer care and enrollment functions. We rely on the Internet to communicate with our subsidiary in China. Our business would be harmed if our ability to communicate over the Internet with these employees failed, and we were prevented from promptly updating our software or implementing other changes to our database and systems, among other things. From time-to-time we receive inquiries from health insurance carriers relating to our operations in China and the security measures we have implemented to protect data that our employees in China may be able to access. As a part of these inquiries, we have implemented additional security measures relating to our operations in China. We may be required to implement further security measures to continue aspects of our operations in China or health insurance carriers may require us to bring aspects of our operations in China back to the United States, which could be time consuming and expensive and harm our operating results and financial condition. Health insurance carriers may also terminate our relationship due to concerns surrounding protection of data that our employees in China are able to access, which would harm our business, operating results and financial condition.
Our operations in China also expose us to different and unfamiliar laws, rules and regulations, including different intellectual property laws, which are not as protective of our intellectual property as the laws in the United States. United States and Chinese trade laws may also impose restrictions on the importation of programming or technology to or from the United States. We are also subject to anti-bribery and anti-corruption laws, privacy and data security laws, labor laws, tax laws, foreign exchange controls and cash repatriation restrictions in China. On June 1, 2017, a national cybersecurity law came into effect in China. The law, along with its implementation regulations, applies to the establishment, operation, maintenance and usage of networks within China and the supervision and management of cybersecurity. Under the law, network operators are required to comply with certain tiered security obligations based on the networks’ relative impact on national security, social order, public interest and individuals’ privacy rights. There remains considerable uncertainty as to how the cybersecurity law will be applied, and the regulatory environment continues to evolve with new draft regulations and standards published frequently. Such laws, regulations and standards are complex, ambiguous and subject to change or interpretation, which create uncertainty regarding compliance. Pursuant to the draft regulations, we may be required to perform self-assessments, obtain third party certifications, report cybersecurity incidents and make filings with public security authorities. We could also be subject to security inspections and evaluations by public security authorities and be restricted to use only network products and services that meet certain standards based on the level of risk applicable to us. Compliance with these laws and regulations could cause us to incur substantial costs or require us to change our business operations in China. Violation of applicable laws and regulations could adversely affect our brand, affect our relationship with our health insurance carriers, and could result in regulatory enforcement actions and the imposition of civil or criminal penalties and fines, which would harm our business, operating results and financial condition.
Our business may be adversely impacted by changes in China’s economic or political condition. We have experienced greater competition for qualified personnel in China, which has raised market salaries and increased our compensation costs related to employees in China. If competition for personnel increases further, our compensation expenses could rise considerably or, if we determine to not increase compensation levels, our ability to attract and retain qualified personnel in China may be impaired, which could harm our business, operating results and financial condition. These risks could cause us to incur increased expenses and could harm our ability to effectively and successfully manage our operations in China. Moreover, any significant or prolonged deterioration in the relationship between United States and China could adversely affect our operations in China. Certain risks and uncertainties of doing business in China are solely within the control of the Chinese government, and Chinese law regulates the scope of our foreign investments and business conducted within China. The escalation of trade tensions initiated by the current administration has increased the risk associated with our operations in China. Either the United States or the Chinese government may sever our ability to communicate with our China operations or may take actions that force us to close our operations in China. We employ a large number of our technology and content employees in China, and we have other employees in China that support our business. Any sudden disruption of our operations in China would adversely impact our business. If we are required to move aspects of our operations from China to our offices in the
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United States as a result of political instability, changes in laws, inquiries from health insurance carriers or for other reasons, we could incur increased expenses, and our business, operating results and financial condition could be harmed.
We cannot predict the impact that changing climate conditions, including legal, regulatory and social responses thereto, may have on our business.
Global climate change has added, and will continue to add, to the unpredictability, frequency and severity of natural disasters, including but not limited to hurricanes, tornadoes, freezes, droughts, other storms and fires in certain parts of the world. In response, a number of legal and regulatory measures and social initiatives have been introduced in an effort to reduce greenhouse gas and other carbon emissions that are chief contributors to global climate change. We cannot predict the impact that changing climate conditions will have on our business, though extreme weather events could impact our facilities, technological assets, business continuity and reputation. The legal, regulatory and social responses to climate change could also adversely affect our results of business, operating results and financial conditions.
Our success in selling Medicare-related health insurance will depend upon a number of factors some of which are outside of our control.
Our success in selling Medicare-related health insurance is dependent upon a number of factors, including:
•our ability to continue to adapt our ecommerce platforms to market Medicare plans, including our development or acquisition of marketing tools and features important in the sale of Medicare plans online and the effective modification of our user experience;
•our success in marketing to Medicare-eligible individuals, including television advertising, online marketing and direct mail marketing, and in entering into and maintaining marketing partner relationships to drive Medicare-eligible individuals to our ecommerce platforms or customer care centers on a cost-effective basis;
•our ability to hire and retain additional employees with experience in Medicare, including our ability to timely implement Medicare sales expertise into our customer care centers;
•our ability to implement and maintain an effective information technology infrastructure for the sale of Medicare plans, including the infrastructure and systems that support our websites, call centers and call recording;
•our ability to leverage technology in order to sell, and otherwise become more efficient at selling, Medicare-related plans over the telephone;
•our ability to comply with the numerous, complex and changing laws, regulations, guidelines and policies of the federal and state government, including CMS guidelines and policies relating to the marketing and sale of Medicare plans and health care reform; and
•the effectiveness with which our competitors market the availability of Medicare plans from sources other than our ecommerce platforms.
As a result of these and other factors, we may prove unsuccessful in marketing Medicare plans and acting as a health insurance agent in connection with their sale, which would harm our business, operating results and financial condition. In addition, if our efforts to market Medicare plans during enrollment periods were impeded due to lack of timely health insurance carrier or CMS approval, or for other reasons, the impact on our business, operating results and financial condition would be significantly greater given the seasonality of our Medicare-related revenue, membership acquisition and expenses and the fact that much of the sales of Medicare plans occur during this period.
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Risks Related to Laws and Regulations
The marketing and sale of Medicare plans are subject to numerous, complex and frequently changing laws, regulations and guidelines, and non-compliance with or changes in laws, regulations and guidelines could harm our business, operating results and financial condition.
The marketing and sale of Medicare plans are subject to numerous laws, regulations and guidelines at the federal and state level. The marketing and sale of Medicare Advantage and Medicare Part D prescription drug plans are principally regulated by the CMS but are also subject to state laws. The marketing and sale of Medicare Supplement plans are principally regulated on a state-by-state basis by state departments of insurance. The laws and regulations applicable to the marketing and sale of Medicare plans are numerous, ambiguous and complex, and, particularly with respect to regulations and guidance issued by CMS for Medicare Advantage and Medicare Part D prescription drug plans, change frequently. We have altered, and likely will have to continue to alter, our marketing and sales process to comply with these laws, regulations and guidelines.
Health insurance carriers whose Medicare plans we sell approve our websites, our call center scripts and some of our marketing material. We must receive these approvals in order for us market and sell Medicare plans to Medicare-eligible individuals as a health insurance agent. We are also required to file many of these materials on a regular basis with CMS. In addition, certain aspects of our Medicare plan marketing partner relationships have been in the past, and will be in the future, subjected to CMS and health insurance carrier review. CMS, state departments of insurance or health insurance carriers may determine to object to or not to approve aspects of our online platforms, sales function or marketing material and processes and may determine that certain existing aspects of our Medicare-related business are not in compliance with legal requirements. Health insurance carriers may terminate our relationship with them or take other corrective action if our Medicare product sales, marketing and operations are not in compliance or give rise to too many complaints. The termination of or change in our relationship with health insurance carriers for this reason would reduce the products we are able to offer, could result in the loss of commissions for past and future sales and would otherwise harm our business, operating results and financial condition. Changes to the laws, regulations and guidelines relating to the sale of Medicare plans, their interpretation or the manner in which they are enforced could impact the manner in which we conduct our Medicare business, our ecommerce platforms or our sale of Medicare plans, or we could be prevented from operating aspects of our Medicare revenue generating activities altogether, which would harm our business, operating results and financial condition. We have received, and may in the future receive, inquiries from CMS or state departments of insurance regarding our marketing and business practices and compliance with laws and regulations. Inquiries and proceedings initiated by the government could adversely impact our health insurance licenses, require us to pay fines, require us to modify marketing and business practices, result in litigation and otherwise harm our business, operating results or financial condition.
CMS recently indicated that it is changing its process for the submission and approval of marketing materials related to Medicare Advantage and Medicare Part D prescription drug plans. The practical application of the current process allows for a lead carrier to handle most of the review and filing of Medicare plan marketing materials with CMS. If the manner in which any new process is implemented requires multiple carriers to review and potentially comment on our marketing materials, it could harm our ability to efficiently change and implement new marketing materials, including call center scripts, which could harm our business, operating results and financial condition.
Changes and developments in the health insurance industry or system as a result of health care reform could harm our business, operating results and financial condition.
The United States health insurance system is subject to a changing regulatory environment. The future financial performance of our business will depend in part on our ability to adapt to regulatory developments. For example, the federal Patient Protection and Affordable Care Act of 2010 and related regulatory reforms have and will continue to change the industry in which we operate in substantial ways. The implementation of health care reform has increased, and could further increase, our competition in the individual and family health insurance market, reduce demand for the health insurance for individuals and families that we sell, decrease the number of health insurance plans that we sell as well as the number of health insurance carriers offering them, cause carriers to increase premiums or reduce commissions and other amounts they pay for our services, any of which could materially harm our business, operating results and financial condition. These and other impacts of health care reform caused a significant decline in our individual and family plan revenue and membership and other changes in the future could have a similar impact on our Medicare related health insurance business. Our business, operating results, financial condition and prospects may be materially and adversely affected if we are unable to adapt to developments in healthcare reform in the United States.
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The Affordable Care Act contains a mandate requiring individuals to maintain health insurance plans that comply with the Affordable Care Act or face a tax penalty. As a part of the tax reform law that came into effect in December 2017, the tax penalty for violating the mandate was set at zero effective in 2019, essentially repealing it. The essential repeal of the individual mandate could cause individuals to determine not to purchase or maintain individual and family health insurance and could cause carriers to increase premiums, reduce commissions or exit the business of selling individual and family health insurance, any of which would adversely impact our business, operating results and financial condition.
Since the enactment of the Affordable Care Act, there have been judicial and Congressional challenges to certain aspects of the law. In December 2018, a federal district court in Texas determined that the individual mandate in the Affordable Care Act is unconstitutional, because it was not within Congress’s tax power or interstate commerce power. It also determined that the remaining provisions of the Affordable Care Act were inseverable and therefore invalid. The court, however, did not rule that the operation of the Affordable Care Act be enjoined, so the law continues to operate until determined otherwise by the court or an appellate court. The Fifth Circuit Court of Appeals agreed with the district court that the mandate is unconstitutional, but remanded the case back to the district court to address whether the unconstitutionality of the mandate should impact the rest of the law. In March 2020, the Supreme Court agreed to review the case, including whether the individual mandate is unconstitutional, and if the mandate is unconstitutional whether the rest of the Affordable Care Act can survive. Oral argument of the case before the Supreme Court occurred and we are awaiting the court's decision. If the Affordable Care Act were finally determined to be unconstitutional and no longer operated, it is unclear what impact it or its replacement would have on our business. However, it or its replacement could adversely impact our business, operating results and financial condition.
Our business depends upon the private sector of the United States health insurance system, which is subject to a changing environment. Changes and developments in the health insurance system in the United States could reduce demand for our services and harm our business. Ongoing healthcare reform efforts and measures may expand the role of government-sponsored coverage, including single payer or so called “Medicare-for-All” proposals, which could have far-reaching implications for the health insurance industry if enacted. Some proposals would seek to eliminate the private marketplace, while others would expand a government-sponsored option to a larger population. We are unable to predict the full impact of healthcare reform initiatives on our operations in light of the uncertainty of whether initiatives will be successful and the uncertainty regarding the terms and timing of any provisions enacted and the impact of any of those provisions on various healthcare and insurance industry participants. Changes to the health insurance system as a result of the change in the balance of power in Congress or as a result of the Biden administration could harm our business, operating results and financial condition. In the event that laws, regulations or rules that eliminate or reduce private sources of health insurance are adopted, the demand for our products could be adversely impacted and our business, operating results and financial condition would be harmed.
From time to time we are subject to various legal proceedings which could adversely affect our business.
We are, and may in the future become, involved in various legal proceedings and governmental inquiries, including labor and employment-related claims, claims relating to our marketing or sale of health insurance, intellectual property claims and claims relating to our compliance with securities laws. Any claims asserted against us, with or without merit, could be time-consuming, expensive to settle or litigate and divert management’s attention and other resources. These claims also could subject us to significant liability for damages and harm our reputation. Our insurance and indemnities may not cover all claims that may be asserted against us. If we are unsuccessful in our defense in these legal proceedings, we may be forced to pay damages or fines, enter into consent decrees, stop offering our services or change our business practices, any of which would harm our business, operating results or financial condition.
Our success in selling health insurance is dependent in part on the actions of federal and state governments. Changes in the laws and regulations governing the offer, sale and purchase of health insurance could harm our business and operating results.
The laws and regulations governing the offer, sale and purchase of health insurance are complex and subject to change, and future changes may be adverse to our business. For example, a long-standing provision in most applicable state laws that we believe is advantageous to our business is that once health insurance premiums are set by the carrier and approved by state regulators, they are fixed and not generally subject to negotiation or discounting by insurance companies or agents. Additionally, state regulations generally prohibit carriers, agents and brokers from providing financial incentives, such as rebates, to their members in connection with the sale of health insurance. As a result, we do not currently compete with carriers or other agents and brokers on the price of the health insurance plans offered on our website. If these regulations change, we could be forced to reduce prices or provide rebates or other incentives for the health insurance plans sold through our ecommerce platform, which would harm our business, operating results and financial condition. In addition, a federal law was
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recently passed that requires disclosure of commissions paid to us to the purchaser of small business, major medical individual and family and short-term health insurance plans. The provisions of the law have not gone into effect. It is unclear what impact the law will have when it goes into effect, but it could cause health insurance carriers to lower our commission rates, which could reduce our revenue.
States and federal governments may adopt laws and regulations that are adverse to our business, including laws and regulations that impact the types of health insurance coverage available to consumers, the product features and benefits, our marketing and selling of plans and the role and compensation of agents and brokers in the sale of health insurance.
Changes to the rules and regulations that apply to our sale of Medicare related health insurance are more likely given that the Biden administration recently took office. CMS may change the rules and regulations applicable to us in connection with our Medicare plan business, and those changes could harm our business, operating results and financial condition. The Biden administration has also indicated that it is in support of changes to the Affordable Care Act. It is difficult to predict what changes the Biden administration may make in the rules and regulations relating to our sale of the products that we sell, but the changes could harm our business, operating results and financial condition.
If we fail to comply with the numerous state insurance laws and regulations that are applicable to the sale of health insurance, our business and operating results could be harmed.
We are required to maintain a valid license in each state in which we transact health insurance business and to adhere to sales, documentation and administration practices specific to that state. We must maintain our health insurance licenses to continue selling plans and to continue to receive commissions from health insurance carriers. In addition, each employee who transacts health insurance business on our behalf must maintain a valid license in one or more states. Because we do business in all 50 states and the District of Columbia, compliance with health insurance-related laws, rules and regulations is difficult and imposes significant costs on our business. Each jurisdiction’s insurance department typically has the power, among other things, to:
•grant, limit, suspend and revoke licenses to transact insurance business;
•conduct inquiries into the insurance-related activities and conduct of agents and agencies;
•require and regulate disclosure in connection with the sale and solicitation of health insurance;
•authorize how, by which personnel and under what circumstances insurance premiums can be quoted and published and an insurance policy sold;
•approve which entities can be paid commissions from carriers and the circumstances under which they may be paid;
•regulate the content of insurance-related advertisements, including web pages, and other marketing practices;
•approve policy forms, require specific benefits and benefit levels and regulate premium rates;
•impose fines and other penalties; and
•impose continuing education requirements.
Due to the complexity, periodic modification and differing interpretations of state insurance laws and regulations, we may not have always been, and we may not always be, in compliance with them. New state insurance laws, regulations and guidelines also may not be compatible with the sale of health insurance over the Internet or with various aspects of our platform or manner of marketing or selling health insurance plans. Failure to comply with insurance laws, regulations and guidelines or other laws and regulations applicable to our business could result in significant liability, additional department of insurance licensing requirements, required modification of our advertising and business practices, changes to our existing technology or platforms, the limitation, suspension and/or revocation of our licenses in a particular jurisdiction, termination of our relationship with health insurance carriers or loss of commissions and/or our inability to sell health insurance plans, which would harm our business, operating results and financial condition. Moreover, an adverse regulatory action in one jurisdiction could result in penalties and adversely affect our license status, business or reputation in other jurisdictions due to the requirement that adverse regulatory actions in one jurisdiction be reported to other jurisdictions. Even if the allegations in any regulatory or other action
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against us are proven false, any surrounding negative publicity could harm consumer, marketing partner or health insurance carrier confidence in us, which could significantly damage our brand.
Our business is subject to security risks and, if we experience cyberattacks, security breaches or are otherwise unable to safeguard the security and privacy of confidential data, including personal health information, our business will be harmed.
Our services involve the collection and storage of confidential and personally identifiable information of consumers and the transmission of this information to their chosen health insurance carriers and to government. For example, we collect names, addresses, credit card and social security numbers and protected health information such as information regarding the medical history of consumers. As a result, we are subject to various laws and regulations and contractual requirements regarding the collection, maintenance, protection, use, transmission, disclosure and disposal of sensitive personal information. We also hold a significant amount of information relating to our current and former employees. We cannot guarantee that our facilities and systems, and those of our third party service providers, will be free of security breaches, cyberattacks, acts of vandalism, computer viruses, malware, misplaced or lost data, programming and/or human errors or other similar events. Compliance with privacy and security laws, requirements and regulations, particularly new state legislation such as the California Consumer Privacy Act, may result in cost increases due to new constraints on our business, the development of new processes, the effects of potential non-compliance by us or third party service providers, and enforcement actions. We may be required to expend significant amounts and other resources to protect against security breaches or to alleviate problems caused by security breaches. Despite our implementation of security measures, techniques used to obtain unauthorized access or to sabotage systems change frequently. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. Additionally, our third party service providers may cause security breaches for which we are responsible.
Any compromise or perceived compromise of our security or the security of one of our vendors could damage our reputation, cause the termination of relationships with government-run health insurance exchanges and our members, marketing partners and health insurance carriers, reduce demand for our services and subject us to significant liability and expense as well as regulatory action and lawsuits, which would harm our business, operating results and financial condition. The COVID-19 pandemic generally is increasing the attack surface available to criminals, as more companies and individuals work remotely and otherwise work online. Consequently, the risk of a cybersecurity incident has increased. We cannot provide assurances that our preventative efforts, or those of our vendors or service providers, will be successful. In addition, in the event that additional data security laws are implemented, or our health insurance carrier or other partners determine to impose requirements on us relating to data security, we may not be able to timely comply with such requirements or such requirements may not be compatible with our current processes. Changing our processes could be time consuming and expensive, and failure to timely implement required changes could result in our inability to sell health insurance plans in a particular jurisdiction or for a particular health insurance carrier or subject us to liability for non-compliance, any of which would damage our business, operating results and financial condition. For instance, health insurance carriers may require us to be compliant with additional security standards in order to accept credit card information from consumers or require us to comply with additional privacy and security standards to do business with us at all. Compliance with privacy and security standards is regularly assessed, and we may not always be compliant with the standards. If we are not in compliance, we may not be able to accept credit card information from consumers or conduct health insurance business, and our relationship with health insurance carriers could be adversely impacted or terminated, which would harm our business, operating results and financial condition.
Any legal liability, regulatory penalties, or negative publicity for the information on our website or that we otherwise provide could harm our business and operating results.
We provide information on our website, through our customer care centers, in our marketing materials and in other ways regarding health insurance in general and the health insurance plans we market and sell, including information relating to insurance premiums, coverage, benefits, provider networks, exclusions, limitations, availability, plan comparisons and insurance company ratings. A significant amount of both automated and manual effort is required to maintain the considerable amount of insurance plan information on our website. We also use the information provided on our website and otherwise collected by us to publish reports designed to educate consumers, facilitate public debate, and facilitate reform at the state and federal level. If the information we provide on our website, through our customer care centers, in our marketing materials or otherwise is not accurate or is construed as misleading, or if we do not properly assist individuals and businesses in purchasing health insurance, members, health insurance carriers and others could attempt to hold us liable for damages, our relationships with health insurance carriers could be terminated or impaired and regulators could attempt to subject us to penalties, force us to
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stop using our websites, marketing material or certain aspects of them, revoke our licenses to transact health insurance business in a particular jurisdiction, and/or compromise the status of our licenses to transact health insurance business in other jurisdictions, which could result in our loss of our commission revenue and harm our business, operating results and financial condition. In the ordinary course of operating our business, we have received complaints that the information we provided was not accurate or was misleading. We have received, and may in the future receive, inquiries from CMS or state departments of insurance regarding our marketing and business practices and compliance with laws and regulations. Although in the past we have resolved these complaints and governmental inquiries without significant financial cost or impact to our brand or reputation, we cannot guarantee that we will be able to do so in the future. Our sales of short-term health insurance plans that lack the same benefits as major medical health insurance plans may increase the risk that we receive complaints regarding our marketing and business practices due to the potential for consumer confusion between short-term health insurance and major medical health insurance. In addition, these types of claims could be time-consuming and expensive to defend, could divert our management’s attention and other resources, and could cause a loss of confidence in our services. As a result, whether or not we are able to successfully resolve these claims, they could harm our business, operating results and financial condition.
Our business could be harmed if we are unable to contact our consumers or market the availability of our products through specific channels.
We use email and telephone, among other channels, to market our services to potential members and as the primary means of communicating with our existing members. The laws and regulations governing the use of email and telephone calls for marketing purposes continue to evolve, and changes in technology, the marketplace or consumer preferences may lead to the adoption of additional laws or regulations or changes in interpretation of existing laws or regulations. If new laws or regulations are adopted, or existing laws and regulations are interpreted or enforced, to impose additional restrictions on our ability to send email or telephone messages to our members or potential members, we may not be able to communicate with them in a cost-effective manner. In addition to legal restrictions on the use of email, Internet service providers, e-mail service providers and others attempt to block the transmission of unsolicited email, commonly known as “spam.” Many Internet and e-mail service providers have relationships with organizations whose purpose it is to detect and notify the Internet and e-mail service providers of entities that the organization believes is sending unsolicited e-mail. If an Internet or e-mail service provider identifies email from us as “spam” as a result of reports from these organizations or otherwise, we can be placed on a restricted list that will block our email to members or potential members.
We use telephones to communicate with customers and prospective customers and some of these communications may be subject to the Telephone Consumer Protection Act, or TCPA, and other telemarketing laws. The TCPA and other laws, including state laws, relating to telemarketing restrict our ability to market using the telephone in certain respects. For instance, the TCPA prohibits us from using an automatic telephone dialing system to make certain telephone calls to consumers without prior express consent. We have policies in place to comply with the TCPA and other telemarketing laws. However, despite our legal compliance, we have in the past and may in the future become subject to claims that we have violated the TCPA. The TCPA provides for statutory damages of $500 for each violation and $1,500 for each willful violation. In the event that we were found to have violated the TCPA, our business, operating results and financial condition could be harmed. In addition, telephone carriers may block or put consumer warnings on calls originating from call centers. Consumers increasingly screen their incoming emails and telephone calls, including by using screening tools and warnings, and therefore our members or potential members may not reliably receive our emails or telephone messages. If we are unable to communicate effectively by email or telephone with our members and potential members as a result of legislation, blockage, screening technologies or otherwise, our business, operating results and financial condition would be harmed.
Risks Related to Finance, Accounting and Tax Matters
Our operating results will be impacted by factors that impact our estimate of the constrained LTV of commissions per approved member.
Effective January 1, 2018, we adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606). As a result of the adoption of ASC 606, we recognize revenue for plans approved during the period by applying the latest estimated constrained LTVs for that product. Constrained LTVs are estimates and are based on a number of assumptions, which include, but are not limited to, estimates of the conversion rates of approved members into paying members, forecasted average plan duration and forecasted commission rates we expect to receive per approved member's plan. These assumptions are based on historical trends and require significant judgment by our management in interpreting those
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trends and in applying the constraints. Changes in our historical trends will result in changes to our constrained LTV estimates in future periods and therefore could adversely affect our revenue and financial results in those future periods. As a result, negative changes in the factors upon which we estimate constrained LTVs, such as reduced conversion of approved members to paying members, increased health insurance plan terminations or a reduction in the lifetime commission amounts we expect to receive for selling the plan to a member or other changes could harm our business, operating results and financial condition. Changes in LTV may result in an increase or a decrease to revenue and a corresponding increase or decrease to commission receivables. In addition, if we ultimately receive commission payments that are less than the amount we estimated when we recognized commission revenue, we would need to write off the remaining commission receivable balance, which would adversely impact our business, operating results, and financial condition.
The rate at which approved members become paying members is a significant factor in our estimation of constrained LTVs. To the extent we experience a decline in the rate at which approved members turn into our paying members, our business, operating results, and financial condition would be harmed.
The forecasted average plan duration is another important factor in our estimation of constrained LTV. We receive commissions from health insurance carriers for health insurance plans sold through us. When one of these plans is canceled, or if we otherwise do not remain the agent on the policy, we no longer receive the related commission payment. Our forecasted average plan duration and health insurance plan termination rate are calculated based on our historical data by plan type. As a result, a reduction in our forecasted average plan duration or an inability to produce accurate forecasted average plan duration may adversely impact our business, operating results and financial condition.
Commission rates are also a significant factor in our estimation of constrained LTVs. The commission rates we receive are impacted by a variety of factors, including the particular health insurance plans chosen by our members, the carriers offering those plans, our members’ states of residence, the laws and regulations in those jurisdictions, the average premiums of plans purchased through us and health care reform. Our commission revenue per member has in the past decreased, and could in the future decrease, as a result of reductions in contractual commission rates, a change in the mix of carriers whose products we sell during a given period, and increased health insurance plan termination rates, all of which are beyond our control and may occur on short notice. To the extent these and other factors cause our commission revenue per member to decline, our revenue may decline and our business, operating results and financial condition would be harmed. Given that Medicare-related and individual and family health insurance purchasing is concentrated during enrollment periods, we may experience a shift in the mix of Medicare-related and individual and family health insurance products selected by our members over a short period of time. Any reduction in our average commission revenue per member caused by such a shift or otherwise would harm our business, operating results and financial condition.
The determination of constraints is also a factor that requires significant management judgment. Constraints are applied to LTVs for revenue recognition purposes and help ensure that the total estimated lifetime commissions expected to be collected from an approved member's plan are recognized as revenue only to the extent that 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 determine the constraint for each product by comparing prior calculations of LTV to actual cash received and review the reasons for any variations. We then apply judgment in assessing whether the difference between historical cash collections and LTV is representative of differences that can be expected in future periods. We also analyze whether circumstances have changed and consider any known or potential modifications to the inputs into LTV in light of the factors that can impact the amount of cash expected to be collected in future periods including but not limited to commission rates, carrier mix, plan duration, changes in laws and regulations, and cancellations of insurance plans offered by health insurance carriers with which we have a relationship. We evaluate the appropriateness of our constraints on an ongoing basis, and we update our assumptions when we observe a sufficient amount of evidence that would suggest that the long-term expectation underlying the assumptions has changed. If we underestimate the initial constraint applied to LTVs, we might be required to increase the constraint or record an impairment in a future period which would harm our business, operating results and financial condition.
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Our debt obligations contain restrictions that impact our business and expose us to risks that could materially adversely affect our liquidity and financial condition.
We are party to a credit agreement with Royal Bank of Canada and other lenders that enables us to borrow up to $75 million pursuant to a revolving credit facility. This credit agreement imposes certain covenants and restrictions on our business and our ability to obtain additional financing. As of March 31, 2021, we had no outstanding debt under our revolving credit facility.
The credit agreement contains customary affirmative covenants, including covenants regarding the payment of taxes and other obligations, maintenance of insurance, reporting requirements and compliance with applicable laws and regulations. The credit agreement also contains restrictions that, subject to certain exceptions, limit our ability to merge or consolidate, sell or transfer assets outside the ordinary course of business, make certain types of investments and restricted payments, pay dividends, incur additional indebtedness, grant liens, or enter into transactions with affiliates without the lender’s consent. Further, the credit agreement contains a financial covenant requiring the Company to maintain a minimum level of excess availability at any time. The facility contains events of default, including, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to other indebtedness, judgment defaults, collateral defaults, bankruptcy and insolvency defaults and a change of control default.
If we experience a decline in cash flow due to any of the factors described in this “Risk Factors” section or otherwise, we could have difficulty paying interest and principal amounts due on our indebtedness and meeting the financial covenants set forth in our loan facility. If we are unable to generate sufficient cash flow or otherwise obtain the funds necessary to make required payments under the credit facility, or if we fail to comply with the requirements of our indebtedness, we could default under our credit facility. Any default that is not cured or waived could result in the acceleration of the obligations under the credit facility, an increase in the applicable interest rate under the credit facility, and would permit our lender to exercise rights and remedies with respect to all of the collateral that is securing the credit facility, which includes substantially all of our assets. Any such default could materially adversely affect our liquidity and financial condition.
Even if we comply with all of the applicable covenants, the restrictions on the conduct of our business could materially adversely affect our business by, among other things, limiting our ability to take advantage of financings, mergers, acquisitions and other corporate opportunities that may be beneficial to the business. Even if the credit facility were terminated, additional debt we could incur in the future may subject us to similar or additional covenants, which could place restrictions on the operation of our business.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and our stock price.
We have a complex business organization. Ensuring that we have adequate internal financial and accounting controls and procedures in place to help ensure that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently and is complicated by the expansion of our business operations and changing accounting requirements. Our management, including our chief executive officer and chief financial officer, does not expect that our internal control over financial reporting will prevent all errors or all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We cannot assure that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in significant deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding disclosure controls and the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to timely meet our reporting obligations and cause
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investors to lose confidence in our reported financial information, leading to a decline in our stock price and potential lawsuits against us.
Changes in our provision for income taxes or adverse outcomes resulting from examination of our income or other tax returns or changes in tax legislation could adversely affect our results.
Our provision for income taxes is subject to volatility and could be adversely affected by earnings differing materially from our projections, changes in the valuation of our deferred tax assets and liabilities, tax effects of stock-based compensation, outcomes as a result of tax examinations or by changes in tax laws, regulations, accounting principles, including accounting for uncertain tax positions, or interpretations thereof.
To the extent that our provision for income taxes is subject to volatility or adverse outcomes as a result of tax examinations, our operating results could be harmed. Significant judgment is required to determine the recognition and measurement attribute prescribed in U.S. generally accepted accounting principles, or GAAP, relating to accounting for income taxes. In addition, we are subject to examinations of our income tax returns by the Internal Revenue Service, or IRS, and other tax authorities. We assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There may be exposure that the outcomes from these examinations will have an adverse effect on our operating results and financial condition.
Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.
We have net operating loss carryforwards for federal and state income tax purposes to offset future taxable income. Our federal and state net operating loss carryforwards begin expiring in 2034 and 2021, respectively. A lack of future taxable income would adversely affect our ability to utilize these net operating loss carryforwards. In addition, utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership changes that may have occurred or that could occur in the future, as required by Section 382 of the Code and similar state provisions. These ownership change limitations may limit the amount of net operating loss carryforwards and other tax attributes that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points (by value) of the outstanding stock of a company by certain stockholders. Our ability to use the remaining net operating loss carryforwards may be further limited if we experience a Section 382 ownership change as a result of future changes in our stock ownership.
Risks Related to our Technology
Our ability to sell Medicare-related health insurance plans as a health insurance agent depends upon maintenance of functioning information technology systems.
The success of our Medicare plan customer care center operations is dependent upon information technology systems. Many of our Medicare plan members utilize our customer care center in connection with their purchase of a Medicare plan. CMS rules require that our health insurance agent employees utilize CMS-approved scripts in connection with the sale of Medicare plans and that we record and maintain the recording of telephonic interactions relating to the sale of Medicare plans. We rely on telephone, call recording, customer relationship management and other systems and technology in our Medicare customer care center operations, and we are dependent upon third parties for some of them, including our telephone and call recording systems. These systems have failed temporarily in the past and may experience additional disruption due to systems upgrades, power outages, an increase in remote work or other impacts as a result of the COVID-19 pandemic. The effectiveness and stability of our Medicare customer care center systems and technology are critical to our ability to sell Medicare plans, particularly during the Medicare enrollment periods, and the failure or interruption of any of these systems and technology or any inability to handle increased volume would harm our business, operating results and financial condition.
System failures or capacity constraints could harm our business and operating results.
The performance, reliability and availability of our ecommerce and telephony platforms and underlying network infrastructures are critical to our financial results, our brand and our relationship with members, marketing partners and health insurance carriers. Although we regularly attempt to enhance our platforms and system infrastructure, system failures and
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interruptions may occur if we are unable to accurately project the rate or timing of increases in our website or call center traffic or for other reasons, some of which are completely outside our control. We could experience significant failures and interruptions, which would harm our business, operating results and financial condition. If these failures or interruptions occurred during the Medicare annual enrollment period, the Medicare Advantage open enrollment period or during the open enrollment period under health care reform, the negative impact on us would be particularly pronounced.
We rely in part upon third-party vendors, including data center, cloud infrastructure, and bandwidth providers, to operate our ecommerce and telephony platforms. We cannot predict whether additional network capacity will be available from these vendors as we need it, and our network or our suppliers’ networks might be unable to achieve or maintain a sufficiently high capacity of data transmission. Any system failure that causes an interruption in or decreases the responsiveness of our services would impair our revenue-generating capabilities and harm our business and operating results and damage our reputation. In addition, any loss of data could result in loss of customers and subject us to potential liability. Our facilities and our database and systems are vulnerable to damage or interruption from human error, fire, floods, power loss, telecommunications failures, physical or electronic break-ins, computer viruses, acts of terrorism, other attempts to harm our systems and similar events. In addition, our operations are vulnerable to earthquakes, fire, severe weather conditions, including those brought about by climate change, and other natural disasters in the San Francisco Bay Area and elsewhere in Northern California, China, and as well as in other parts of the U.S. where we or our outsourced health insurance agents maintain offices.
We may not be able to adequately protect our intellectual property, which could harm our business and operating results.
We believe that our intellectual property is an essential asset of our business and that our technology currently gives us a competitive advantage in the distribution of Medicare-related, individual and family and small business health insurance. We rely on a combination of copyright, trademark and trade secret laws as well as confidentiality procedures and contractual provisions to establish and protect our intellectual property rights in the United States. The efforts we have taken to protect our intellectual property may not be sufficient or effective, and our trademarks may be held invalid or unenforceable. Moreover, the law relating to intellectual property is not as developed in China, and our intellectual property rights may not be as respected in China as they are in the United States. We may not be effective in policing unauthorized use of our intellectual property, trade secrets and other confidential information, and even if we do detect violations, litigation may be necessary to enforce our intellectual property rights. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive, could divert our management’s attention and may result in a court determining that our intellectual property or other rights are unenforceable. If we are not successful in cost-effectively protecting our intellectual property rights, trade secrets and confidential information, our business, operating results and financial condition could be harmed.
Consumers depend upon third-party service providers to access our website and services, and our business and operating results could be harmed as a result of technical difficulties experienced by these service providers.
Consumers using our website and accessing our services depend upon Internet, online and other service providers for access to our website and services. Many of these service providers have experienced significant outages, delays and other difficulties in the past and could experience them in the future. Any significant interruption in access to our call centers or our website or increase in our website’s response time as a result of these difficulties could damage our relationship with insurance carriers, marketing partners and existing and potential members and could harm our business, operating results and financial condition.
Risks Related to Ownership of Our Common Stock
Our actual operating results may differ significantly from our guidance.
From time to time, we have released, and may continue to release guidance in earnings conference calls, earnings releases, or otherwise, regarding our future performance that represents our management's estimates as of the date of release. This guidance, which includes forward-looking statements, has been and will be based on projections prepared by our management. Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our
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guidance is only an estimate of what management believes is realizable as of the date of release. Our actual results have, and may in the future, vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our common stock.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. Among these factors, the assumptions underlying our estimates of commission revenue as required by ASC 606, may vary significantly over time. We may state possible outcomes as high and low ranges. Any range we provide is not intended to imply that actual results could not fall outside of the suggested ranges. Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section could result in the actual operating results being different from our guidance, and the differences may be adverse and material. The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors and we may decide to suspend guidance at any time. We do not accept any responsibility for any projections or reports published by any such third parties.
The price of our common stock has been and may continue to be volatile, and the value of your investment could decline.
The trading price of our common stock has been volatile and is likely to continue to fluctuate substantially. For the quarter ended March 31, 2021, the closing price of our common stock fluctuated from $47.85 to $85.09 per share. The trading price of our common stock depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid. Factors that could cause fluctuations in the trading price of our common stock include the following:
•price and volume fluctuations in the overall stock market from time to time, including as a result of the COVID-19 pandemic;
•volatility in the market prices and trading volumes of our competitors' shares, including high technology stocks, which have historically experienced high levels of volatility;
•new laws or regulations or new interpretations of existing laws or regulations applicable to our business, including developments relating to the health care industry and the marketing and sale of Medicare plans;
•actual or anticipated changes in our operating results or the growth rate of our business;
•changes in operating performance and stock market valuations of other technology companies generally, and of our competitors;
•failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
•sales of shares of our common stock by us or our stockholders;
•announcements by us or our competitors of new products or services;
•the public reaction to our press releases, other public announcements, and filings with the SEC;
•rumors and market speculation involving us or other companies in our industry;
•negative publicity about us, including accurate and inaccurate third-party commentary or reports regarding us;
•actual or anticipated developments in our business, our competitors' businesses, or the competitive landscape generally;
•our ability to control costs, including our operating expenses;
•litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;
•developments or disputes concerning our intellectual property or other proprietary rights;
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•announced or completed acquisitions of businesses or technologies by us or our competitors;
•changes in accounting standards, policies, guidelines, interpretations, or principles;
•any significant change in our management; and
•general economic conditions and slow or negative growth of our markets.
The effect of such factors on the trading market for our stock may be enhanced by the lack of a large and established trading market for our stock. In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. Additionally, as a public company, we face the risk of shareholder lawsuits, particularly if we experience declines in the price of our common stock. In the past, following periods of volatility in the overall market and the market prices of a particular company's securities, securities class action lawsuits have often been instituted against affected companies. We have been, and may in the future be, subject to such legal actions.
The issuance of shares of common stock underlying our Series A preferred stock would dilute the ownership and relative voting power of holders of our common stock and may adversely affect the market price of our common stock.
The Series A preferred stock is convertible at the option of the holders at any time after May 31, 2021 into shares of common stock based on the then applicable conversion rate as determined in the certificate of designations for the Series A preferred stock, which conversion would dilute the ownership interest of existing holders of our common stock. In addition, because holders of our Series A preferred stock are entitled to vote, on an as-converted basis (subject to certain voting limitations and conversion calculations set forth in the certificate of designations for the Series A preferred stock), together with holders of our common stock on all matters submitted to a vote of the holders of our common stock, the issuance of the Series A preferred stock effectively reduces the relative voting power of the holders of our common stock.
Any sales in the public market of the common stock issuable upon conversion of the Series A preferred stock could adversely affect prevailing market prices of our common stock. Pursuant to the investment agreement, holders of our Series A preferred stock will receive customary resale registration rights for common stock issued upon conversion of the Series A preferred stock upon closing. Any resale of our common stock would increase the number of shares of our common stock available for public trading. Sales by our Series A preferred stockholder of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.
Our Series A preferred stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stockholders, which could adversely affect our liquidity and financial condition, result in the interests of holders of our Series A preferred stock differing from those of our common stockholders and make an acquisition of us more difficult.
Holders of our Series A preferred stock have (i) a liquidation preference (ii) rights to dividends, which are senior to all of our other equity securities, (iii) redemption rights beginning on April 30, 2027, (iv) the right to require us to repurchase any or all of their Series A preferred stock in connection with certain change of control events, and (v) conversion price adjustments in connection with certain corporate transactions, each subject to the terms, conditions and exceptions contained in the certificate of designations for the Series A preferred stock.
These dividend and share repurchase and redemption obligations could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions, and other general corporate purposes.
The terms of our investment agreement with H.I.G., the initial purchaser of our Series A Preferred Stock, could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition. The preferential rights could also result in divergent interests between H.I.G. and holders of our common stock. Furthermore, a sale of our company, as a change of control event, may require us to repurchase Series A preferred stock, which could have the effect of making an acquisition of our company more expensive and potentially deterring proposed transactions that may otherwise be beneficial to our stockholders.
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H.I.G. may exercise influence over us, including through its ability to designate up to two directors on our board of directors.
Our investment agreement with H.I.G. contains certain negative operating covenants that will remain in effect for so long as H.I.G. continues to own at least 30% of the shares of Series A preferred stock originally issued to it. As of the date of this report, H.I.G. has conditionally waived certain of these negative operating covenants.
Further, the investment agreement entitles H.I.G. to nominate one individual for election to our board of directors for so long as it continues to own at least 30% of the common stock issuable or issued upon conversion of the Series A preferred stock originally issued to it. In addition, if we fail to maintain certain levels of commissions receivable and liquidity, H.I.G. will be entitled to nominate one additional director. The director designated by H.I.G. will also be entitled to serve on committees of our board of directors, subject to applicable law and stock exchange rules. Notwithstanding the fact that all directors will be subject to fiduciary duties to us and to applicable law, the interests of the director designated by H.I.G. of our Series A preferred stock may differ from the interests of our security holders as a whole or of our other directors. As of the date of this report, H.I.G. has conditionally waived its director nomination rights.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our certificate of incorporation, bylaws, and Delaware law contain provisions which could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:
•creating a classified board of directors whose members serve staggered three-year terms;
•authorizing undesignated preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock;
•limiting the liability of, and providing indemnification to, our directors and officers;
•limiting the ability of our stockholders to call and bring business before special meetings;
•requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;
•controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and
•providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.
Any provision of our certificate of incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
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ITEM 6. EXHIBITS
(a) Exhibits
Except as so indicated in Exhibits 32.1 and 32.2, the following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Exhibit Number |  |  |  | Incorporation by Reference Herein
| Description of Exhibit |  | Form |  | Date
3.1 |  | Amended and Restated Certificate of Incorporation of the Registrant |  | Registration Statement on Form S-1, as amended (File No. 333-133526) |  | April 25, 2006
3.2 |  | Certificate of Designations of Series A Preferred Stock, par value $0.001, of eHealth, Inc. |  | Current Report on Form 8-K (File No. 001-33071) |  | May 3, 2021
10.1 |  | Investment Agreement, dated as of February 17, 2021, by and between eHealth, Inc. and Echelon Health SPV, LP |  | Current Report on Form 8-K (File No. 001-33071) |  | February 18, 2021
10.2 |  | Cooperation Agreement, dated March 10, 2021 by and between eHealth, Inc. and Hudson Executive Capital LP, on behalf of itself and its affiliates and its affiliated funds |  | Current Report on Form 8-K (File No. 001-33071) |  | March 10, 2021
10.3* |  | Form of Indemnification Agreement adopted in 2021 |  | Annual Report on Form 10-K (File No. 001-33071) |  | February 26, 2021
10.4* |  | Severance Agreement, dated as of February 10, 2021, between Timothy Hannan and eHealth, Inc. |  | Annual Report on Form 10-K (File No. 001-33071) |  | February 26, 2021
10.5* | † | Severance Agreement, dated as of February 8, 2021, between Phillip Morelock and eHealth, Inc. |  |  |  |
10.6* | † | Severance Agreement, dated as of March 15, 2021, between Gregg Ratkovic and eHealth, Inc. |  |  |  |
31.1 | † | Certification of Scott N. Flanders, Chief Executive Officer of eHealth, Inc., pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  |  |
31.2 | † | Certification of Derek N. Yung, Chief Financial Officer of eHealth, Inc., pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  |  |
32.1 | ‡ | Certification of Scott N. Flanders, Chief Executive Officer of eHealth, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  |
32.2 | ‡ | Certification of Derek N. Yung, Chief Financial Officer of eHealth, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  |
101.INS | † | XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |  |  |  |
101.SCH | † | Inline XBRL Taxonomy Extension Schema Document |  |  |  |
101.CAL | † | Inline XBRL Taxonomy Extension Calculation Linkbase Document |  |  |  |
101.DEF | † | Inline XBRL Taxonomy Extension Definition Linkbase Document |  |  |  |
101.LAB | † | Inline XBRL Taxonomy Extension Label Linkbase Document |  |  |  |
101.PRE | † | Inline XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |
104 |  | The cover page from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2021, formatted in Inline XBRL and contained in Exhibit 101 |  |  |  |

† Filed herewith.
‡ Furnished herewith.
* Indicates a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  | EHEALTH, INC.
Date: | May 10, 2021 | /s/ Scott N. Flanders
|  | Scott N. Flanders Chief Executive Officer (Principal Executive Officer)
Date: | May 10, 2021 | /s/ Derek N. Yung
|  | Derek N. Yung Chief Financial Officer (Principal Financial Officer)