EHTH: Subsidies=Attrition

Takeaway: "If you're lower income right now, you can only go to a government-run exchange," - Gary Lauer, EHTH CEO

EHTH's CEO was on CNBC today (link) discussing the status of the Government Health Insurance Exchanges.  An interesting takeaway was the above quote, which is somewhat surprising since EHTH is a web-approved broker; meaning it is authorized to sell subsidized plans in the 36 states where the federal government is running the exchange.

The issue is functionality.  EHTH and other web-approved brokers can't interface with the federal exchange due to technical issues; therefore it can't sell subsidized plans.

As we laid out in our Best Ideas EHTH Short Call today, subsidy-eligible individuals represent a major attrition risk for EHTH.  In the table below, we quantify the size of the subsidy-eligible population among existing Individual & Family Plan (IFP) members using Census data.  We estimate that at least 45% of existing IFP members are eligible for subsidies.  If EHTH can't sell subsidized plans to its existing members, it will lose many of those members to the exchanges.

EHTH: Subsidies=Attrition  - EHTH   Subsidy Population 4

This is just one of the issues facing EHTH's IFP segment in 2014.  We go into greater detail during our Best Ideas Call.  If you would like access to the replay, please let us know.

Hesham Shaaban, CFA

@HedgeyeInternet