Whenever an industry faces sweeping changes, players in that
industry face both opportunity and risk.
That's certainly the case for health insurance specialists
looking to navigate their way through the regulatory changes
brought on by President Obama's Affordable Care Act.
One of those specialists,Health Insurance Innovations (
), is an online insurance company that connects insurance
carriers, brokers, agents and consumers to its portfolio of
The company specializes in 12-month Short-Term Medical plans,
or STMs. These plans serve as an alternative to traditional plans
that provide long-term renewable coverage. Health Insurance
Innovations looks to serve the segment of the U.S. population
that is uninsured or underinsured.
STMs are expected to grow in popularity under ObamaCare
because they are cheaper than comprehensive major medical plans,
but provide many of the same types of benefits and coverage.
As a general rule, STMs are easier to qualify for than major
medical insurance plans. On the downside, short-term medical
coverage is not as comprehensive as other types of coverage
because it usually doesn't cover prescription drugs or preventive
care, says Carl McDonald, an analyst at Citigroup.
"However, it does offer healthy individuals a way to protect
against major claims at a fraction of the cost of other insurance
alternatives," McDonald noted in a recent report initiating
coverage on Health Insurance Innovations.
Those lower costs are expected to be a big selling point for
STMs in the changing regulatory environment. As demand for STMs
rises, Health Insurance Innovations should see opportunities to
grow its business, analysts say.
"The company has a timely opportunity to strengthen and build
its network of distributors, while navigating the looming changes
from health insurance expansion in 2014," Credit Suisse analyst
Glen Santangelo noted in a recent report on the stock.
At the same time, there are numerous challenges. For one
thing, there are the unknowns surrounding the new health care
For another, there are low barriers to entry from an industry
that is already chock full of large, well-funded managed care
firms such asUnitedHealth Group (
) andAetna (AET) that might decide to make a move into STMs.
One of the keys for Health Insurance Innovations is to create
more awareness about its products while it is still in a pretty
unique space, analysts say.
"Consumers are generally unaware the short-term medical
product exists, and even many insurance brokers aren't all that
familiar," Citigroup's McDonald said.
Health Insurance Innovations intends to use part of the
proceeds from its February initial public offering to advance
commissions to brokers, McDonald said. This will create "a new
incentive for agents to learn more and offer the short-term
The company went public Feb. 8 at an opening price of $14.
Shares spent the next few weeks in choppy waters before a recent
rally pushed the stock price back above 15.
Health Insurance Innovations raised $61 million its IPO after
underwriters' discounts and fees. A portion of the proceeds were
used to repay outstanding debt. The remaining proceeds were
earmarked to grow the business by adding distribution
Although Health Insurance Innovations was founded only five
years ago, its management team, including Chief Executive Mike
Kosloske, has decades of experience in the business.
In 1987, Kosloske joined Health Plan Administrators, or HPA,
as president. He later bought the company.
"The business at HPA was essentially the same thing as what
Health Insurance Innovations does today, with the key difference
that HPA was far less technology-focused," McDonald noted. "Much
of the current Health Insurance Innovations management team
worked with Kosloske at HPA, and the experience running HPA has
given them a solid base for understanding what to do and not
In addition to experience, the company has a number of other
things working in its favor.
Analyst Santangelo cites its "highly scalable" proprietary
technology, a competitive edge in pricing and distributor
economics, and a low market share of the individual insurance
market that allows plenty of room to grow.
The company also has "a large cross-selling opportunity with
core customers and ancillary products, and a significant runway
to add distributors," Santangelo said.
Health Insurance Innovations' short-term medical enrollment at
the end of 2012 was about 23,500 lives, McDonald says. He reckons
that figure can grow to 40,000 this year and 55,500 in 2014.
The company had about 58,000 total policies in force at the
end of 2012, including those that did not involve STM enrollment.
That figure was up from 30,000 the prior year. In a
fourth-quarter earnings report, management said its distribution
network at the end of the year included 46 licensed agent call
centers, 262 wholesalers and more than 8,275 licensed
Revenue in 2012 rose 40% from the prior year to $42 million.
Net income increased 37% to $3.3 million. Health Insurance
Innovations' revenue mainly comes from commissions and fees
related to the sale of products to its members.
Two analysts polled by Thomson Reuters expect Health Insurance
Innovations to report full-year earnings of 58 cents a share in
2013 and $1.22 in 2014.