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Executives

Kate Sidorovich - Vice President of Investor Relations

Gary L. Lauer - Chairman, Chief Executive Officer and Member of Equity Incentive Committee

Stuart M. Huizinga - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Adam Klauber - William Blair & Company L.L.C., Research Division

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Kevin Kopelman - Cowen and Company, LLC, Research Division

eHealth (EHTH) Q3 2013 Earnings Call October 24, 2013 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2013 eHealth, Inc. Earnings Conference Call. My name is Whitney, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Kate Sidorovich, Vice President of Investor Relations. Please proceed.

Kate Sidorovich

Thank you. Good afternoon and thank you all for joining us today either by phone or by webcast for a discussion about eHealth, Inc.'s third quarter 2013 financial results.

On the call this afternoon, we will have Gary Lauer, eHealth's Chief Executive Officer; and Stuart Huizinga, eHealth's Chief Financial Officer. After management completes its remarks, we'll open the lines for questions.

As a reminder, today's conference call is being recorded and webcast from the IR section of our website. A replay of the call will be available on our website following the call.

We will be making forward-looking statements on this call that include statements regarding future events, beliefs and expectations, including those related to future conversion rates, our belief that user activity on our side is a good validation of our daily proposition, our ability to provide access to subsidy-eligible plans and the timing thereof, the number of uninsured entrant individual markets and the timing of entry, future commissions and commission rates, Medicare product sales in the fourth quarter, our ability to help employers and benefit administrators to take advantage of trends we believe to be occurring in the marketplace, our provision of solutions to corporate retiree program beneficiaries, our planned integration with TurboTax and the availability of our platform to TurboTax users and the number of anticipated TurboTax users, CVS offering our platform to its customers, our expectations regarding our relationships with Intuit and CVS, trends in health insurance market moving towards a more consumer-centric digital model and the pace of those trends, projected expansion of the individual insurance market and the increase in online sales, our belief that Medicare will be a capable driver, expectations regarding RFP applications [ph] growth and the timing of such growth and the anticipated impact on the expenses, and finally, our guidance for the full year 2013.

These forward-looking statements are based on management's current expectations and assumptions that are subject to various risks and uncertainties, that could cause actual results to differ materially from those set forth in such forward-looking statements, including risks associated with the direct and indirect impact of healthcare reform in our business, political opposition to the Affordable Care Act, our ability to manage and maintain our strategic relationships, our ability to maintain our relationships with and to extend our product selection from health insurance carriers, our preparation for and ability to manage operational demands from our Medicare business and our participation and ability to sell individual health insurance products through government exchanges.

Other factors that could cause operating, financial and other results to differ are described in eHealth's most recent quarterly report on Form 10-Q or annual report on Form 10-K filed with the Securities and Exchange Commission.

Forward-looking statements on this call represent eHealth's views as of today. You should not rely on these statements as representing our views in the future. We undertake no obligation or duty to update information contained in these forward-looking statements whether as a result of new information, future events or otherwise.

We will be presenting certain financial measures on this call that will be considered non-GAAP under SEC Regulation G. For reconciliation of each non-GAAP financial measure to the most directly comparable GAAP financial measure, please refer to the information included in our press release and in our SEC filings, which can be found in the About Us section of our corporate website, under the heading Investor Relations.

And at this point, I will turn the call over to Gary Lauer.

Gary L. Lauer

Thanks, Kate, and good afternoon, everyone. And thank you for joining us as we review our third quarter 2013 results. During the quarter, we made preparations for the historic launch of the Affordable Care Act, which began enrollment implementation on October 1 and is scheduled to run through the end of March 2014. In addition, we are prepping for this year Medicare annual enrollment period, which kicked off just last week on October 15 and ends on December 7.

What I plan to do today is summarize our financial results for the third quarter; talk about our Individual & Family Plan business, including our initial observations from the open enrollment period; discuss our Medicare business and how we are positioned for this year's selling season; and finally, review some of our new strategic initiatives, including our private exchange activities and recent partnerships.

Third quarter revenues were $42 million, a 12% increase as compared to the third quarter of 2012. GAAP earnings per share was $0.01. EBITDA was $3.6 million and cash flow from operations was $8.7 million. At the end of the quarter, we had $98 million in cash on the balance sheet and no debt.

Third quarter Individual & Family Plan submitted applications grew 3% compared to the third quarter of 2012, reflecting a slowdown in consumer purchasing towards the end of the quarter in anticipation of the Affordable Care Act launch. At the same time, our conversion rates continue to improve, with new Individual & Family Plan members growing at a 13% year-over-year growth rate, well ahead of submitted application growth. We believe that this trend with conversion rates is likely to continue as the guaranteed issue provision of the Affordable Care Act comes into effect for policies effective January 1, 2014. As the open enrollment period began on October 1, eHealth was open for business with a large inventory of mandate-qualifying plans. While many of the government exchanges reported technology difficulties, eHealth continued to offer a high-quality consumer experience. On the first day of the open enrollment period, or the OEP, we observed a significant increase in traffic to our site in submitted applications, and application growth continues to be strong quarter-to-date. While it is premature to extrapolate the rest of the quarter from these first weeks of the OEP, we do believe that our early experience is a good validation of eHealth's value proposition in this new market environment.

We continue to work with the federal government to launch enrollment capabilities for subsidy-eligible individuals in 36 states where the federal government is operating in exchange. eHealth has received necessary information for the implementation of this capability from the centers for Medicaid and Medicare services, which is the federal agency responsible for operating the federal exchange. But we received this later than anticipated, and we are currently in the process of integrating and testing. Assuming the federal exchange is operable, we hope to be able to provide eHealth consumers access to subsidy-eligible plans during this open enrollment period, in time for the January 1, 2014 effective date of coverage. The net impact of the changes that we've seen so far with our broker commission rates in the Individual & Family Plan market is neutral to positive. It also appears that carriers are willing to pay similar commissions on their exchange-listed subsidy-eligible products as they do on plans offered outside of the exchanges. Stuart will provide you with more detailed information on our commission rates later during the call, but we definitely view this as a positive development. It makes the incremental opportunity with millions of uninsured who are expected to enter the individual market over the next 2 to 3 years even more compelling.

Now I'd like to make some comments about our Medicare business. The number of total Medicare products sold during the quarter grew 14%, while the number of estimated total revenue-generating Medicare members that we had at the end of the quarter grew 76% year-over-year. Third quarter 2013 Medicare revenue was $6.7 million, representing a 7% year-over-year growth rate, while Medicare commission revenues grew 33% on the same basis. The midpoint of our 2013 revenue guidance implies meaningfully higher annual growth of Medicare revenues than what we reported during the third quarter. And as a reminder, I'd like to note that second and third quarters are typically -- or seasonally typically low in terms of Medicare enrollments and recognized revenues, with the majority of product sales taking place during the Annual Enrollment Period in the fourth quarter, which we're in the middle of or just begun. eHealth entered this year's Annual Enrollment Period with a significantly broader inventory of plans compared to 2012. Currently, we are offering Medicare plans from Humana; Aetna; Wellpoint; Cigna-HealthSpring; Coventry; Health Net; Fallon; Blue Cross/Blue Shield carriers in Illinois, Michigan, New Mexico, Texas, Oklahoma; and others. Most notably, just in time for this Annual Enrollment Period, we added to our platform products from UnitedHealthcare, one of the leading Medicare carriers in the marketplace. We believe that the expanded selection of quality, well-recognized brands could have a positive impact on our conversion rates during the selling season, which typically translates into stronger revenues and more attractive member economics. It is early in the Annual Enrollment Period, but we are pleased with the activity that we are seeing thus far.

Finally, I'd like to highlight a number of significant strategic partnerships and initiatives that we have underway. First, over the past year, we have been making investments to build our e-commerce platform to support private exchanges. We're very enthused about this opportunity as there is strong interest from a variety of partners and corporate employers to work with us. What we've seen in the past few months is more employers beginning to move toward a defined contribution, multi-carrier model of providing health coverage to their workforce and away from the traditional defined benefit model of a single-carrier environment. We believe that eHealth's online marketplace technology, along with our consumer e-commerce expertise, position us well to support employers and benefit administrators taking advantage of this trend, while offering a robust, user-friendly experience to employees. And our partnership with Aon, recently announced, is an example of our entry into the private exchange market. Just 2 days ago, we announced that eHealth will begin providing solutions for corporate retiree program beneficiaries, offering them access to a broad selection of Medicare and pre-Medicare health insurance choices through an e-commerce platform and a world-class telephonic support from licensed agents. Our first partnership in this space is with Empyrean, an HR technology and services company administering employee benefits for over 100 companies and 1 million individuals. As a result of this partnership, Empyrean's client, Sabre Holdings, a well-known global travel technology company, will begin referring retirees to a co-branded eHealth website, where they can purchase individual Medicare insurance plans. We are also expanding our platform functionality to offer full-time employee platforms for medium and large-size employers. We are very excited about our partnership with Intuit, the maker of TurboTax. Through a planned integration, eHealth's platform is expected to be made available to many of the 25 million people projected to use TurboTax in 2014. TurboTax users will be able to enroll in major medical health insurance, as well as Medicare plans on our platform. And a significant development in our pharmacy partner network in the Medicare business, eHealth signed an important agreement with CVS. Pursuant to what CVS plans to offer our Medicare plan comparison platform to its customers, individuals will be able to access our plan comparison service online at CVS.com or through a consultation with their CVS pharmacist. This partnership combines the trusted CVS brand with our powerful plan comparison technology, which can save seniors hundreds of dollars annually in out-of-pocket, prescription drug costs. We believe that the CVS relationship could be a meaningful demand generator during this Medicare Annual Enrollment Period. We also provide our Medicare plan comparison platform to customers of Rite Aid, Costco and Kroger.

So as you can see, we're in the midst of a very important time for eHealth and really, the health insurance industry in general. We've been talking for a while now about the health insurance market toward a more -- moving toward a more consumer-centric, digital model. I believe that this trend is now accelerating with the introduction of online government exchanges and several high-profile announcements from large employers that are deploying private exchanges for their workers. The individual market is projected to expand like billions of lives over the next few years, and we believe that more and more sales will originate online. We see ourselves well positioned to take advantage of these trends, facing an opportunity to capture a large share of these new individuals coming into our market. We also continue to be very excited about the Medicare opportunity and see it as one of the key growth drivers for the company's revenues and earnings over the next several years. We started this Medicare selling season with what we believe is a better-staffed customer care center, a much enhanced product selection and a new partnership with one of the largest pharmacy chains in the country.

And with that, I'd like to turn the call over to Stuart Huizinga, who will provide more detail on our financial performance. Stuart?

Stuart M. Huizinga

Thanks, Gary, and good afternoon everyone. Our third quarter results reflected continued number membership and revenue growth, combined with a seasonal increase in Medicare-related spent ahead of this year's Medicare Annual Enrollment Period and our ongoing technology investment in preparation for the first-ever Open Enrollment Period under the Affordable Care Act. As you know, both enrollment periods are taking place in the fourth quarter this year, which required significant preparatory work on our product in Q2 and Q3.

Our third quarter 2013 revenue was $42 million, representing 12% annual growth. Commission revenue for the quarter was $36 million, or 15% annual growth. Our Individual & Family Plan commission revenue grew by 8%, or $1.9 million compared to Q3 2012, and our Medicare commission revenue grew by 33% year-over-year. Commission revenue from ancillary products increased over 70% on the same basis. Other revenue, which includes sponsorship, e-commerce on-demand and noncommission Medicare revenue was $6 million, or a 5% decline compared to the third quarter a year ago. The year-over-year decline is driven primarily by the timing of the advertising component of our Medicare revenues. Our total estimated membership at the end of the quarter was approximately 1,147,000, which represents 24% growth over estimated membership reported at the end of the third quarter 2012. The estimated number of revenue-generating Individual & Family Plan members was up 10%, another sequential step-up in this metric, while the estimated number of other members increased 67%, driven by the increase in our Medicare and ancillary product customer bases over this past 12 months. As Gary mentioned, we saw some softening in the purchasing of our Individual & Family major medical products towards the end of the third quarter. IFP-submitted application volume was up 3% for the quarter year-over-year. Similar to the prior 2 quarters, our IFP-approved member growth was much stronger than our submitted application growth. Approved IFP members grew 13% compared to Q3 2012, selecting continued improvement in conversion rates from submitted to approved applications on our platform.

Now I'd like to review our operating expenses for the quarter. Excluding stock-based compensation and the amortization of acquired intangibles, our non-GAAP operating expenses increased in absolute terms but remained flat as a percentage of revenues relative to the comparable period a year ago. A significant year-over-year increase in our technology and content spend during the third quarter was offset by lower marketing and advertising and customer and care enrollment expenses as a percentage of revenues.

Third quarter 2013 non-GAAP marketing and advertising expense, which excludes stock-based compensation expense, was 34% of revenue compared to 36% in the third quarter of last year. This year-over-year decline was due primarily to a significantly lower growth rate in our Individual & Family Plan submitted applications compared to our revenue growth during the quarter. As a reminder, our marketing costs are largely variable and are directly tied to the application volume each quarter. We also saw a positive shift in our customer acquisition channel mix in the IFP business. Our direct channel, which is characterized by a more favorable cost of acquisition per submitted member compared to paid search and marketing partner channels, generated 51% of all IFP applications submitted during the quarter. This was the highest historical percentage contribution by this channel.

Finally, we continue to benefit from better conversion rates from submitted to approved applications on our platform. As we entered the fourth quarter, we saw a strong spike in submitted Individual & Family Plan applications, coinciding with the beginning of the open enrollment period under the Affordable Care Act. Based on our experience with Medicare Annual Enrollment Period, we might experience another significant pickup in Individual & Family Plan application towards the end of Q4, the deadline to apply for a plan effective January 1, 2014, which would impact marketing and advertising expense for the fourth quarter. Non-GAAP customer care enrollment expense, which excludes stock-based compensation expense, was 21% of revenue, down from 23% of revenue in Q3 2012. This year-over-year decrease is partially due to our decision to start hiring Medicare agents earlier in the year compared to 2012. As a result, there was a timing shift of costs related to hiring agents and getting them licensed from Q3 to Q2 this year. Third quarter 2013 non-GAAP tech and content expense, which excludes stock-based compensation expense, was 21% of revenue, up from 14% of revenue in Q3 2012. As we shared in our prior earnings calls, this meaningful increase in technology expense was part of a planned investment in making necessary updates to our platform in preparation for the first open enrollment period under the Affordable Care Act, enhancing our user experience, building out our private exchange capabilities and complying with security and technology requirements in connection with our entering into agreement with the federal government to act as a web-based entity under the Affordable Care Act. Non-GAAP general and administrative expense excluding stock-based compensation and the amortization of acquired intangibles, remain flat as a percentage of revenue at 16%. Third quarter non-GAAP operating income excluding stock-based compensation and the amortization of acquired intangibles, was 6% of revenue, or $2.7 million in Q3 of 2013 compared to $2.8 million, or 7% of revenue, in Q3 last year. EBITDA for the third quarter of 2013 increased to $3.6 million, up from $3.4 million for the third quarter of 2012. Third quarter 2013 GAAP earnings per share were $0.01, same as in Q3 of 2012. Third quarter non-GAAP EPS, which excludes the impact of amortization of acquired intangibles, stock-based compensation and related income tax benefit, was $0.08. Our cash flow from operations was $8.7 million compared to $6.9 million in the third quarter of 2012. Capital expenditures for the third quarter were approximately $2.9 million. As of September 30, 2013 our cash and marketable securities balance is $98 million compared to $90 million at the end of the second quarter of 2013.

Finally, I'd like to comment on what we have seen with our broker commission rates for next year. In our Individual & Family Plan business, we've received rate schedules applicable to plans for 2014 coverage from approximately 60% of our carrier partners based on commission revenue volumes. We project that the new commission rates, which have been communicated to us so far, implies flat to slightly higher commission dollars per average policy, regardless of whether such policies are subsidy-eligible or not. Importantly, this projection represents the impact assuming average policy premiums remain constant. We arrived at this estimated impact by applying the changes in both the first year and renewal year commissions to a subset of our IFP numbers and comparing commission revenues that were actually generated by this number to what these commission revenues would have been under the new rates. We used a subset of our numbers approved after the medical loss ratio requirements went into effect and that were on our books long enough to generate first year and renewal commissions. Of the carriers that provided us with their rate schedules for next year, many have changed to a fixed fee commission payment, but some will continue to base their commissions on a percentage of premium values. We view what we've seen so far as potentially favorable since we anticipated lower rates on exchange-listed subsidized products. Again, this is based on the information that we currently have, and we expect to receive 2014 commission rates from additional carriers during the fourth quarter. In Medicare, we're seeing stable commission rates from carriers for plans effective in 2014. We've seen some of the carriers expand the number of years after enrollment for which they're paying commissions and, in some cases, paying commissions for as long as the policy we sold remains active, which obviously increases the lifetime value of our Medicare members. With respect to guidance and based on information currently available, we are reaffirming the revenue, EBITDA, stock-based compensation expense and earnings per share guidance for the full year 2013 that we provided on our fourth quarter 2012 earnings call. I want to remind you that these comments, as well as our annual guidance, are based on current indications for our business, which are subject to change at any time. We undertake no obligation to further update our guidance.

And now we'd like to open up the call to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of George Sutton of Craig-Hallum.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Gary, you had mentioned that you have received the CMS data, and that was good to hear. Can you be a little more specific as to when you might be able to handle that part of the volume?

Gary L. Lauer

Well, George, as soon as we can. We needed several weeks to integrate all of this, to test it and so on. We don't -- I'm not taking a shot at the federal government. We just don't launch things that don't work. We launch things that do work and have to work well, and that's part of the problem right now, is -- the major news story is the instability and lack of performance of the federal exchange, and we're somewhat dependent on that to be able to process subsidies. So we're hoping there's a little bit of stabilization there and that we can get this going soon. We are also having some discussions with CMS about some ways to expedite all of this as well because frankly, I think we're starting to realize that they need help offloading an awful lot of the volume that they're not able to satisfy and deal with right now. I guess, if there's any good news in this situation, it's not like we're losing these subsidy-eligible individuals to the federal exchange because there is, I think as we've seen, very little transacting there. So, look, we're optimistic and hopeful that we can have this up and available to consumers within the next several weeks, George.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Your point relative to the government site not working is obviously key. They're bringing in a number of new technologists to try to figure that site out. And anytime you bring in a new technologist, one of the things they look at is sort of a buy versus build decision. And I'm wondering, is it naïve for me to assume that you could private label much of what you do and make their site much more effective more quickly?

Gary L. Lauer

Well, I have to say, theoretically, yes. In fact, there's a theory that's been moving around outside of here as well that we could essentially take over the front end enrollment and let the government focus on the back end, i.e. the subsidy verification and validation. But I don't -- everything I know, and what I read -- and I was just reading earlier about the hearings today, and Capitol Hill indicated that they're going to stay the course and try to repair what they've got and get it working. So we shall see. Where we are right now is we're just -- we're obviously getting a lot of media interest as well and attention here, but we're just not interested at this point in talking about what's wrong with the federal exchange from a media standpoint or any other place. We're just looking forward and trying to do everything we possibly can to get as many people, individuals enrolled as we possibly can. I made the comment earlier that we're off to a good start. We're seeing strong growth. And as contrary to what's reported by a lot of these government agencies, this isn't about people who are talking to our call center or starting applications. We're talking about applications that are completed and already in the hands of carriers for people ready to be enrolled. That's a big difference.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Perfect. Last question from me, nice to hear about the CVS partnership. Can you give us a little bit more of a sense of what kind of impact that might have in this open enrollment season?

Gary L. Lauer

Well, we're hoping that it's going to have some very significant impacts. CVS is one of the largest pharmacies in the country. They're very focused on others on having prescriptions filled there. They get an extraordinary number of seniors that use them as a pharmacy. They seem to be very committed to this partnership. They're taking an active marketing role in this with outreach and so on, much more than us just being on the site or a pharmacist answering a question. They're doing outreach to consumers as well. So we think this could be a very good acquisition partner for us.

Operator

Our next question comes from the line of Adam Klauber with William Blair.

Adam Klauber - William Blair & Company L.L.C., Research Division

A couple of different questions. On some of the partnerships, the TurboTax, the SOLO Health, will those be up and running for this enrollment period? Or is that more for next year?

Gary L. Lauer

We'll, TurboTax, we're in the process of implementing right now. And most of that would be starting in January. But we're enthused about that because that's when the tax season start, and the open enrollment period of course goes through March 31. With SOLO Health, we're in the process right now of implementing. And the great thing about SOLO Health is that they're present in a lot of retail locations. They're all over Walmart, for example, and others as well. And just so everyone knows, SOLO Health are these kiosks that you see when you go into a CVS or a Walmart, where you can sit down and take your blood pressure and do a number of different things as well. And it turns out, they become very informational for people as well. So we think it's kind of a unique way to get to people.

Adam Klauber - William Blair & Company L.L.C., Research Division

Going back to the federal exchange, could you have some idea -- technically, I mean, what is the aspect that isn't working with you right now? Is it the eligibility? Or which -- what's the technical aspect that needs to change?

Gary L. Lauer

Well, we need some of their engineering assistance to do some of the testing that we want to do. And as you might imagine, they're very busy there right now. We've got to be able to at least move through the exchange into what's called the federal data hub to be able to do the verification for subsidies and so on. We're not even so sure the federal exchange is doing that yet. So those are some of the things that we're working with right now. We're working closely with them. I'll say this much, I really appreciate the fact that the feds recognized that we can really help when they regulated the ability for someone like us to be able to help subsidy-eligible individuals and they signed the agreement with us. Now we just got these technical issues that we've got to get through. And again, I'm hopeful that we can get this going in the next several weeks. I wish I could give you something more definitive than that, but much of this, as you know and read and hear on television, is out of our hands.

Adam Klauber - William Blair & Company L.L.C., Research Division

Right. Right. Another question. I mean, I realize it's very early in this whole process, but do you have a sense that -- it sounds like you're having a lot of applicants. In general, are you seeing a much bigger share of the market shopping online than you have previously?

Gary L. Lauer

Oh, there's no question about that. We're seeing a lot more demand online. In fact, interestingly, really in September, we saw visits to eHealth and demand really starting to kick up in a pretty substantial way, and that has not abated. That has continued right into where we are right now. The other point I would make is that we're -- as you said, we're very early in this open enrollment period, and consumer behavior is such that typically, purchasing, transacting and so on happens through the ends of these periods. So it's certainly possible that we're just seeing the beginning here of something that could continue to grow in terms of the demand curve.

Operator

Your next question comes from the line of Nat Schindler of Bank of America Merrill Lynch.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

We all know that the federal exchange is having challenges, but there are federal -- there are state exchanges up and running, which you're not connected into. Have you noticed any change in existing customers in those states who are looking -- who are subsidy-eligible and would not be able to get through your system? And have they changed their behavior or started looking to -- or started canceling at a higher rate than normal? Additionally, if we think about past October 1 and the implementation of the guaranteed coverage, how does that affect your conversion rate from application to member. I'm sure it doesn't make it 100%, but how much of the gap does it close?

Stuart M. Huizinga

Yes, Nat, this is Stuart. I'll take the first question. It's really too early to tell on your question of different shopping patterns or customers falling off of the books. We wouldn't get visibility on that until they get commission statements down the road. That would indicate that there's any change and that's -- we're probably a few months from having any visibility on any of that type of behavior.

Gary L. Lauer

But we've also got very active programs as you might imagine in campaigns of outreach to get to every single one of our current members who may be subsidy-eligible. In several of these states like California, we're able to get them subsidy-eligible plan. Believe it or not, we have to do it by hand with an agent because we haven't gotten California yet to embrace this idea of using us online, which I'll just say I'm very critical of and going to continue to be in the media because this -- us hosting subsidy-eligible individuals in the State cost the state nothing and actually expands the enrollment ranks. But we're very aggressively approaching each and every one of those members we have that we think are subsidy-eligible or maybe and helping them through with their choices and so on. But as Stuart said, that's all yet to be determined. But the other point I would make is even for the number of those that we have, we think that there's so much volume in terms of opportunity in front of us here, of new entrants into the market, and new enrollments and so on, that it could very well be a net plus gain. And you asked about a guaranteed issue in conversion rates. We think that's only going to help. As we noted, our conversion rates of new members have increased quite substantially, and we think that's the carriers anticipating the fact that they can't deny anyone any longer. So that's -- as we thought for some time, we're just beginning to see it. That should have a positive impact on our conversion rates at the end of the sales and purchasing process.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

How much -- just a follow-up on that, what -- of the difference between the applications and members, how much of that gap is because they're being denied coverage? And how much of that gap is for any other reason? And can carriers deny coverage on certain types of plans that you will continue to issue and not deny overall coverage and so would still be allowed to say no to certain applications.

Gary L. Lauer

Well, Nat, historically across the industry, 15% to 20% of applicants have been denied for existing chronic medical conditions and so on. In fact, we theorize that a lot of the early enrolling that you're seeing, on the reports you're getting from government exchanges and so on, are likely people who have had pent-up demand or interest to enroll in products because they weren't able to previously, i.e., those that couldn't be for medical reasons. So there's a -- 15% to 20% of the market that wanted to buy was able to buy but wasn't allowed to and now can. So again, that's an uplift and positive from a conversion standpoint.

Operator

[Operator Instructions] Your next question comes from the line of Kevin Kopelman with Cowen and Company.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Can you talk a little bit more about what you're seeing in the Medicare enrollment period that just started? I know it's early, especially any comments you can give us on how conversion rates have been from the call centers and how that compares to your expectations in last year?

Stuart M. Huizinga

Yes, I don't want to get into our current yields and so forth, but we -- throughout this year, we've seen an improvement in our yields from lead to sold members as we've had our agents in their seats longer with more tenure and more experience than we did a year ago. Feel very good about how we are set up for this enrollment period on an agent -- on the number of agents and the experience of those agents. And just as importantly, and possibly more importantly, just the inventory, as we mentioned, the number of plans we've added and the brands that we've brought to bear, we feel very good about what's in front of us with those added to the platform and just -- I'd say a lot more visibility this time around than where we were a year ago based on those 2 factors.

Gary L. Lauer

And as I think I commented, we're off to a good start. It's been a week.

Kevin Kopelman - Cowen and Company, LLC, Research Division

Yes, yes, absolutely. It's still early. And one other question. Could you just talk a little bit more about the corporate retiree initiative that you mentioned? And give -- how big an opportunity is that?

Gary L. Lauer

Well, we think it's very large. It's an area we've been looking at for some time. It's an area where we really didn't have -- how would I describe it, we really didn't have the right kind of access to these large employer-based retiree opportunities. But now, with the announcement we've made with Empyrean and frankly, with several other interested benefits administrators who have these large employer clients, we've gotten now with the product inventory with our online capabilities and certainly our call center capabilities, we think that this is a very interesting one, it's an area we've been looking at for some time. It's lucrative. It scales, and we're really pleased with this first step we've taken to it. It's an area we're going to be doing a fair amount of work to accelerate.

Operator

[Operator Instructions]

Gary L. Lauer

Well, look. Thanks, everyone. We appreciate the time and the interest and look forward to talking with many of you individually and seeing you over the next several months. Thanks, operator.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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