eHealth's (EHTH) CEO Scott Flanders on Q3 2018 Results - Earnings Call Transcript

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About: eHealth, Inc. (EHTH)
by: SA Transcripts

eHealth, Inc. (NASDAQ:EHTH) Q3 2018 Earnings Conference Call October 25, 2018 5:00 PM ET

Executives

Kate Sidorovich – Vice President-Investor Relations

Scott Flanders – Chief Executive Officer

Dave Francis – Chief Operating Officer

Derek Yung – Chief Financial Officer

Analysts

George Sutton – Craig-Hallum

Dave Styblo – Jefferies

Joseph Thompson – Suntrust

Steven Wardell – Chardan Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2018 eHealth Incorporated Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference Kate Sidorovich, Company’s Vice President of Investor Relations. Ma'am, you may begin.

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 2018 financial results.

On the call this afternoon, we'll have Scott Flanders, eHealth's Chief Executive Officer; Dave Francis, eHealth's Chief Operating Officer; and Derek Yung, Chief Financial Officer.

After management completes its remarks, we'll open the line 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 statements relating to our expectations regarding components of our business and our initiative, strategic partnerships, digital marketing and other channels, our plans for credit facility, our expectations regarding our individual and family business, including our expectations relating to sales of alternative non-ACA plans and the impact of reduced huge fee enrollment on our business, and as our expectations regarding the annual enrollment period, seasonal patterns, conversion rates, acquisition costs, Medicare enrollment growth, plan applications growth, estimated membership, as well as 2018 full year guidance and our ability to deliver on our guidance.

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

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in our forward-looking statements. We described these and other risks and uncertainties in our annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission, which you may access through the SEC website or from the Investor Relations section of our website.

We will be presenting certain financial measures on this call that are 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 Scott Flanders.

Scott Flanders

Thank you, Kate, and welcome, everyone. I am pleased with eHealth’s solid third quarter performance and our increased momentum as we enter the important fourth quarter selling season.

Third quarter revenue of $40.8 grew 30% on a year-over-year basis. The Company's strongest growth rate since 2015. Third quarter adjusted EBITDA was negative $6.9 million an improvement a $5.6 million compared to the same quarter a year ago.

Third quarter GAAP net loss was $9 million. Our financial performance in the third quarter was largely driven by one the acceleration in new Medicare enrollment growth compared to the rates we've posted in the first half of the year combined with an increase in the lifetime values of our Medicare Advantage and Medicare Supplement plan members.

Second a significant increase in sponsorship revenue from insurance carriers, which serves as a direct validation of our value proposition. And third our new initiative to optimize our investments and direct to consumer marketing by creating a market for customer leads that are not fulfilled in-house.

During the quarter, we made the final preparation to deliver strong growth at attractive acquisition costs during the Medicare annual enrollment period, which started on October 15. We entered this AEP from a position of strength on many months of expanding and strengthening our strategic partner channel, refining our direct to consumer marketing strategies, expanding our telesales agent capacity and improving the overall digital enrollment experience for our customers.

I'd like to give you a better sense for how this selling season compares to the Medicare AEP a year ago in terms of our ability to generate and effectively convert consumer demand.

This AEP we have approximately 850 Medicare agents between in-house and outsourced call centers an 80% increase compared to a year ago. Our partner channel is now much broader and more diversified. Just in the hospital vertical alone our addressable opportunity grew threefold compared to last year to include 1.4 million Medicare eligible consumers.

In addition to higher volumes that we expect from the partner channel we now have a stronger direct to consumer strategy including revamped digital marking capabilities and our first ever TV infomercial to drive consumers directly to both our web properties and our call center agents.

Finally we have larger carrier commitments for sponsorship revenues compared to a year ago driven by increased carrier competition and the Medicare Advantage market and the importance of our platform to carrier demand generation efforts. We are increasingly confident in our growth and profitability objectives as set forth in our annual guidance.

And now let me provide you with more information on our third quarter execution across our three key business areas. In our Medicare business submitted application growth was at 17% compared to a year ago driven primarily by 95% growth in Medicare Supplement applications.

Our variable marketing costs per approved Medicare member continued to improve declining 10% compared to the third quarter of last year. Total Medicare revenue grew 42% and Medicare commission revenue grew 20% compared to a year ago. Sponsorship revenues from carriers grew six fold as insurers recognized the growth potential of eHealth’s customer engagement platform and looked to take advantage of our increased market reach ahead of the AEP.

During the quarter, we worked closely with our strategic partners to align our efforts for the upcoming selling season. In addition to having an expanded portfolio of strategic partners across the hospital, pharmacy and affinity markets we are also benefiting this AEP from having more time to apply our learnings from last year's partner activities to implement our programs more effectively.

We expect our investments to leverage each partner's unique brand and customer relationships will result in significant enrollment growth that creates the unique win-win-win scenario for our customers, for our partners, and for eHealth that only our platform can deliver.

We also expect to see a significant increase in enrollment volume from our digital marketing efforts. As I shared on prior earnings calls the marketing team assembled over the last year by our new CMO Tim Hannan has established a substantially more efficient and cost effective customer acquisition program using paid search, social media and other digital strategies that lever our core assets.

We've been refining these strategies in the second and third quarters and believe we are well positioned to deliver strong enrollment growth through our digital channel that was largely a non-factor for our business a year ago.

We expect that our strategic partner and digital marketing initiatives will be especially impactful in accelerating growth in our Medicare Advantage enrollments during this AEP. Lastly, our focus on driving digital Medicare enrollment activity continues to show growth.

In the third quarter 10% of our Medicare Advantage applications were submitted online. A 41% increase compared to the third quarter of last year. For all Medicare products including prescription drug plans 16% were submitted online. A 30% increase compared to a year ago. We continue to believe that the online channel holds great promise for revolutionizing the Medicare market and that eHealth’s unique portfolio of digital education, decision support and enrollment capabilities position us well to grow this part of the business during the AEP and beyond.

During the third quarter in the individual market, we continue to make solid progress in driving new customer growth reversing negative membership trends we've observed over the past several years. While the major medical market remains challenged the short-term health insurance opportunity is attractive and allowed us to grow the total number of our approved members in the individual market over the same quarter last year for the second consecutive quarter.

The demand for alternative non-ACA plans is growing, driven by sustained premium spikes for Obamacare major medical coverage. The removal of the individual mandate at the end of this year and importantly the extension of the maximum allowed duration for short-term plans in many states.

As a result, we expect to see more consumers come into the market and use these alternative plans as a more affordable substitute for major medical coverage. Our platform allows us to leverage this trend in a cost effective, consumer friendly manner.

In the third quarter approved members on short-term plans grew 36% year-over-year and 26% sequentially. This performance allowed us to post annual growth of 18% in total approved members in the under 65 market consisting of individual and family and short-term plans. This was an acceleration relative to the last quarter. We also expect to see further increases in our short-term plan enrollments during this open enrollment period.

Even though these products can be sold year round, we still see a seasonal pattern with fourth quarter being the strongest in terms of enrollment volumes. At the end of the third quarter we bolstered the leadership of our IFP business by expanding the role of Seth Teich the head of our Small Business health insurance unit to head both individual and family as well as Small Business health insurance.

As I will describe momentarily, Seth has performed well in putting our Small Business health insurance business on a strong growth trajectory while managing costs aggressively.

The mandate with the IFP business is to transition the business to not only growth in approved membership as we've done in the past two quarters but to also start generating revenue and profit growth.

Turning to the small business market the number of approved groups grew 31% compared to the third quarter of 2017. But the ancillary product enrollments growing over 66% as we gained traction with cross-selling efforts. Commission revenue increased 14% over the same period last year. Conversion rates improved for the second quarter in a row growing 7% compared to a year ago.

During the quarter, we continued to invest in enhancing our technology platform and pursuing technology integration with our top small business carriers with a goal to improve consumer experience and bring more enrollments online in this traditionally call center intensive market.

To wrap up, we had a solid third quarter that creates important momentum for eHealth as we enter the critical fourth quarter selling season. In our Medicare business our focus on execution has resulted in strong progress across all key operational areas. We've added growth levers for this AEP with a much larger and diversified network of partners, a fully developed directed consumer marketing strategy and strong commitments from our carrier partners.

In the under 65 business we continue to successfully shift our focus to selling short-term plans and non-ACA insurance packages at more attractive price points to meet our customer needs. And our small group health insurance business continues to perform well. As we move to implement a technology platform that results in market disruption and significant growth.

And with that, I'll turn the call over to Derek.

Derek Yung

Thank you, Scott and good afternoon everyone. Our third quarter results reflect continued execution of the company's growth strategy in Medicare market and our investment to prepare for the important fourth quarter selling season. Third quarter revenue was $40.8 million, an increase of 30% compared to the third quarter of 2017.

Third quarter commission revenue was $33.6 million, reflecting a 14% growth compared to the third quarter a year ago. In the Medicare segment, our third quarter revenue of $32.7 million grew 42% compared to the third quarter of 2017, driven by the growth in approved Medicare members and an increase in non-commissioned revenue of over 500%.

We also saw an increase in member lifetime values or LTVs of our Medicare supplement and Medicare Advantage members of 9% and 3% respectively, compared to a year ago. As a reminder, under the ASC 606 accounting standard, members LTVs have a direct impact on commission revenue that we recognized during the quarter.

Third quarter submitted Medicare applications increased 17%, compared to the third quarter a year ago, while approved members grew 14%. At the product level, Medicare Supplement applications grew 95%, while Medicare Advantage application growth was flat. The growth in Medicare Supplement application volume reflects the significant investment that we have made in the GoMedigap business acquired in January. As well as our increased strategic focus on a Medicare Supplement business.

We expect Medicare Advantage application growth to accelerate in the fourth quarter as a result of the annual enrollment period allowing the broader Medicare population to enroll in the new plan. And when our considerable investments in marketing and sales capacity, as well as the marketing investments of our strategic partners take full effect. We also expect for our marketing investments to yield significantly more enrollments per dollar spent during the AEP compared to outside AEP as customer conversions are substantially better across both the Medicare Advantage and Medicare Supplement business line resulting in more attractive costs about acquisition.

Third quarter profit from our Medicare segment was $0.5 million, compared to a loss of $5.8 million for third quarter 2017. Year-to-date, our Medicare segment profits was $2.2 million, compared to a loss of $8.7 million for the same period in 2017. Our estimated number of Medicare members was 409,888 at the end of the third quarter, an increase of 30% compared to estimated Medicare membership at the end of the third quarter of 2017.

Third quarter 2018 revenue from our Individual, Family and Small Business or IFP segment was $8 million, a decline of 5% compared to a year ago. This represents a significant improvement compared to a 31% decline reported in the second quarter. As we work to establish this segment and eventually returned at the top line growth. During the quarter, a decline in approved IFP members was offset by better than expected member retention on Qualified Health Plans.

Growth and commission revenue from sales of our short-term and small business products, as well as an increase in non-commission revenue, the third quarter loss from our Individual, Family and Small Business segment was $0.6 million compared to a loss of $0.4 million in the third quarter of last year. Approved members on our major medical IFP products declined 65%, compared to a year ago, while applications declined 68%.

In addition to a challenging market environment, the year-over-year decline in major medical enrollments also reflects our decision to shift our marketing spend towards non-ACA products. Our estimated individual and family plan membership at the end of third quarter was 161,371 down 29% compared to estimated membership. We reported at the end of the third quarter a year ago.

We also had approximately 25,000 members on short-term plan as of the end of the third quarter, a 15% increase compared to a year ago. That's made a number of members on small business products was approximately 38,000 and 16% annual increase. It is worth noting that CMS announced last week that HealthCare.gov had encountered a security breach exposing personal information but as many as 75,000 individuals.

In response, CMS has taken actions to prohibit web-based entities including eHealth to enroll customers through the government portal at the time. I would further note that because of the significant decline in subsidy based enrollments that we have experienced in the last several years and our shift in marketing emphasis away from the subsidy-eligible channel.

Our expectations for the new business coming from this channel during the OEP were very low. And we did not expect actions of CMS relative to HealthCare.gov to have any meaningful impact on our business in the fourth quarter or going forward.

Before I get to our operating expenses, I wanted to provide more color on our non-commission revenues. During the third quarter, we generated $7.1 million in non-commission revenue with approximately $5 million coming from Medicare carrier advertising. In addition, we generated $1.4 million from the sale of Medicare and individual and family plan leads that represented excess lead capacity that would have otherwise been lost.

As Scott mentioned at the beginning of the call, the sale of excess lead to the new initiative which serves to bolster the returns on our marketing investment by monetizing the leads that we cannot immediately convert in-house. This year, we have created a market for these lead at attractive rates with established business partners that giving us the ability to be more aggressive on Medicare and marketing initiatives. We expected the establishment of this marketplace to be especially impactful during the high volume selling season.

Turning to our operating expenses. Third quarter GAAP operating cost of $56.2 million, grew 19%, compared to a third quarter a year ago and non-GAAP operating cost of $48.3 million, which excludes stock-based compensation change and fair value of earn-out liability of $3.8 million and amortization of intangibles through 8% but declined as a percentage of revenue compared to the third quarter a year ago.

Third quarter 2018 non-GAAP marketing and advertising expense which excludes stock-based compensation expense grew approximately $2.5 million and was 38% of revenue compared to a 42% of revenue in the third quarter a year ago. In our Medicare business, we posted a double-digit percentage decline in acquisition cost per approved member for the fourth quarter in a row with total variable marketing spend growing just 5% despite a much faster growth in new enrollments.

In our Individual, Family and Small Business segment, we continue to invest in marketing spend related to growth opportunities in a small group and short-term markets. Third quarter 2018 non-GAAP customer care and enrollment expenses, which excludes stock-based compensation grew by approximately $1.4 million and represented 42% of revenue compared to 50% of revenue in the third quarter of 2017.

During the quarter, we continue to ramp the count of in-house Medicare agents as well increase our outsourced agent footprint ahead of the AEP to position the company to convert to significant Medicare demands volume we expect. IFE related customer care and enrollment spend declined year-over-year, reflecting primarily lower volumes enrollment in major medical products and a focus of our online enrollment platform for customer conversion.

Third quarter non-GAAP technology and content costs which excludes stock-based compensation expense and non-GAAP general and administrative expense which also excludes stock-based compensation declined by $0.4 million combined compared to the third quarter of 2017.

Adjusted EBITDA for the third quarter of 2018 was negative $6.9 million, compared to negative $12.5 million for the third quarter of 2017. We calculate adjusted EBITDA by adding stock-based compensation, change in fair value of earn-out liability, depreciation and amortization including the amortization of acquired intangibles, acquisition costs, restructuring charges, other income expense and income tax benefit to our GAAP net operating income.

Third quarter 2018 GAAP net loss per diluted share was $0.47, compared to a net loss per diluted share of $0.12 for the third quarter of 2017. Non-GAAP loss per diluted share was $0.22 compared to net loss of $0.04 per diluted share for the third quarter of 2017. The year-over-year decline in non-GAAP EPS despite an improvement in revenue and EBITDA is due to a significant tax benefit that we recorded in the third quarter of last year.

Our third quarter 2018 cash flow from operations was negative $4.9 million, compared to negative $12.9 million in the third quarter of 2017. Capital expenditures for the third quarter of 2018 were approximately $2.3 million. Our quarter-end cash balance was $20.3 million, and our commission receivable balance was approximately $266 million.

As previously announced, last month we signed an agreement with Royal Bank of Canada for 40 million revolving credit facility secured by our commission receivables. This credit facility allows us for greater operational flexibility given the seasonal nature of our business and a greater potential to invest in our growth plans in the Medicare market. Currently with no balance outstanding against the revolver.

With respect to guidance and based on the information currently available, we are reaffirming the revenue, adjusted EBITDA, segment revenue and profitability and earnings per share guidance for the full year 2018 that we provided on our first quarter 2018 earnings call. We undertake no obligation to further update our guidance.

In closing, to echo Scott’s earlier comment, we are confident in our operational readiness with the selling season, our ability to generate strong Medicare enrollment growth and our ability to deliver on our full year guidance for our financial performance.

And now we will open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from George Sutton with Craig-Hallum. Your line is now open.

George Sutton

Thank you and nice results.

Scott Flanders

Thank you, George.

George Sutton

Scott, I’m curious if you could talk about the CMS aggressiveness towards trying to drive people to Medicare Advantage. What is that doing from your perspective relative to carrier activity and just sort of the number of plans out there right now, I would – I'm asking this because my assumption is this would all be very beneficial for you and your ability to transact more with the carriers?

Scott Flanders

Right, I mean, I was at the White House last week and met with the Council of Economic Advisors team. And they are very bullish on Medicare Advantage. They forecasted an 11%, 12% EMA enrollment growth this year. They've put their money where their mouth is with stronger reimbursement for 2019. Yes, it's very clearly on their agenda and carriers with a strong EMA presence are being very competitive in the market. There was a lot of plan design changes this year compared to last year that we think will create a more robust market for comparison shopping which obviously plays well into our decision support tools and our comparison shopping engine as well as the value of the 80% increase in agents.

So there's definitely a regulatory environment that's supportive of the MAA that we see continuing for at least the next three years. But we see no reason why that doesn't continue well beyond. And it's showing up in our financials this quarter with that strong sponsorship number that we think will also carry through to strong sponsorship in Q4.

George Sutton

Now we're obviously very early in the open enrollment period but you do have a much larger number of reps and you're also getting a much higher proportion of your applications coming direct. Can you talk about the productivity of these reps and sort of the number is that the right number for you right now or if you see excess demand, do you have the ability to scale up quickly?

Scott Flanders

I'm going to punt that to Dave for a minute.

Dave Francis

Thanks Scott, a good question, George. So thus far we see perfect demand in the channel as we went through the process earlier in this year of gearing up on both the marketing and the sales production investments that we were going to make for this year.

We saw opportunities obviously to significantly increase our total sales capacity as well as invest in that online channel. We've made some investments in improving the ability of our customers that come to us digitally to stay on that digital channel and enroll with us through that channel and you saw that in some of the improvements that Scott and Derek mentioned in the prepared remarks. But we absolutely see that the investments that we've made on the marketing side are coming through nicely and the productivity increases that we expect to see over that larger group of agents to come through in terms of enrollment growth that will again allow us to continue to point towards the financial guidance numbers that we have for the year.

George Sutton

Now last question for me, you had a good start to the open enrollment season last year and one of your key partners had some issues. I'm just curious how does it, does it feel different this year relative to that partner and your partnerships in general in terms of your preparations going into this?

Dave Francis

Yes. Great question and we came into this year with a conscious effort to make sure that we significantly diversified not just the partner channel but all of the different marketing channels and volume creation channels that we were coming into with AEP this year. So as Scott mentioned, we've significantly bolstered our presence among the different partners that we're working with but have significantly diversified that partner channel as well.

So that we're not relying on any specific partner to drive an oversized portion of volume to the platform but if you look at the marketing side as well with Tim Hannan and his team having had a full year now to get after all of the different channels on the direct marketing side be that direct mail, direct TV, the online channel in particular we feel very, very good about the portfolio of customer generation opportunities that we've got driving into the platform. So to answer your question, specifically no outsized relying on any specific partner or any specific part of the customer generation channel.

George Sutton

Got you. Perfect. Thank you very much.

Dave Francis

Thanks George.

Scott Flanders

Thank you.

Operator

Thank you. And our next question comes from Dave Styblo with Jefferies. Your line is now open.

Dave Styblo

Hi there, gentlemen. Thanks for the questions. Just to start out make sure understand the 3Q results, so with the Medicare that had upside relative to us. And the second quarter was up $6 million or $7 million or so even though submitted apps were pretty similar. Is the reason for that revenue increase primarily the sponsorship revenue that you guys had talked about and if that's the case, can you help us understand more about how that works? Is that recurring revenue or sort of just gets pushed into third quarter only sort of the seasonality of that business?

Scott Flanders

Yes, thanks Dave. On your first question, the street versus your estimate well on the revenue side is primarily driven by non-commissioned revenue which is primarily carrier sponsorship revenue but also as well as calls on revenue. And on your second question related to that around expectations for that is as we had discussed in the prepared remarks. The sponsorship revenue really represents our partners believe in our value proposition as a broker in providing volumes for their businesses.

And they are lumpier relative to what you would see in commission revenue per share because they are agreements that have to be worked through as we put together our plans for AEP, the recurring nature of it will come in the form of our performance in working with these partners in driving volumes would tend to be around AEP. So you would see these revenues in Q3 and Q4 just like we had previously in the past and also this year.

Dave Styblo

Okay, that's helpful. And then on the submitted apps being up 17%, I guess that's largely driven by Medigap, which is partially driven by GoMedigap acquisition is there a way to kind of parse out how much of that growth was organic versus inorganic?

Derek Yung

Yes, We have not provided a break out of that but certainly you're correct that the application growth with this quarter within Medicare was driven by Medicare Supplement and because of the investments we've made in GoMedigap acquisition. But also because we have increased investment in focus in Medicare Supplement in general and we certainly see the acquisition as a opportunistic way to bring in both the book of business and also capabilities that we didn't have.

As an example, the GoMedigap lifetime values of their book is better than ours because their ability to have retention that is better than what we have seen historically at eHealth for Medicare Supplement. Let me maybe comment on the Medicare Advantage application number, which was not the driver of the application growth but as we've discussed previously what we're seeing is really the opportunity for growth within MAA comes from our ability to drive when people are looking to switch plans which is doing AEP. And there are several components to add. Number one is the partner channel which we discussed earlier and Dave commented on further which tends to happen around AEP because our partners also can invest during that period of the year.

The second dynamic is from an investment perspective as we mentioned in our prepared remarks. We do expect a better return on investments in Medicare Advantage and marketing investments because of higher conversion during AEP than outside AEP. So it has been our plan to drive more growth, disproportionate growth during AEP in Q4 period than outside of that period.

Dave Styblo

Okay, that's really helpful because I guess that hasn't been growing much year-over-year in the second and third quarter, something that almost begs the question of why is it going to do so well on the fourth but it sounds like it's just really a more intentional focus having the partner channels and all the investments that. And this is going to lead to my last question is like what gives you confidence that the year-over-year growth goes from call it 12% or 13% so far this year for Medicare up to 40% in the fourth quarter. But it seems like it's all those initiatives coming together with the partner channels the digital marketing and so forth.

I guess that 40% is sort of been what we were thinking for a while but it seems like you guys have made more progress towards that each and every quarter. Do you have more confidence than you did maybe three, six months ago relative to that number?

Scott Flanders

Yes, good question. The answer is yes, because we are also in the [indiscernible] period and we have been articulating all the hard work that we have put in getting prepared for it. I think to kind of get back to your first question connecting the dots here, I think the three legs of a stool we've already discussed is all three of them. But let me put it all back together. The first two I mentioned around the partnership channel and also the investment, in direct to consumer where the conversion being higher we wanted to devote those investments are an AEP. The third leg of the stool is really the agent investments, Dave commented earlier and Scott did as well in his prepared remarks.

We are positioned very well to be able to service all the calls that we can service with the agent capacity we have in place. So, for sure we would expect a acceleration of growth and MAA in Q4.

Dave Styblo

Okay. Thanks.

Operator

Thank you. And our next question comes from Tobey Sommer with Suntrust. Your line is now open.

Joseph Thompson

Hi this is Joseph Thompson on the line for Tobey. Thank you for taking my question. My first question is you talked a little bit about the acceleration in the short-term plans. What are some important swing factors that are affecting the membership rate in these short-term plans. Thank you.

Dave Francis

Yeah I'll take that one. Let me see if I understand your questions around the factors that could be influencing the growth you expect in short term is. I think it's what I heard. So, a few things that we discussed previously and also today and what we'll expect going forward is. There is market evidence and in all the results that suggest that people are looking for alternatives to major medical because of the increasing premiums that we read about all the time every month relative to affordable healthcare.

And short-term has emerged as a viable product for certain people to use as a coverage as opposed to no coverage. Given the dynamics of increasing premiums in major medical. So I think that is one.

Second is as many of you already know that there has been a legislative change to allow short term to increase its duration from three months to almost the entire year that change does not impact policies for this year but it does impact policies that will become effective in 2019.

And then lastly this is very late breaking news. There's been news around the potential ability for states to be able to allow for subsidy to apply to non-ACA compliant medical plans. And that's very recent news but kind of armed with the first two items I mentioned those are all kind of major factors that we see driving potential in short-term.

Scott Flanders

I know we published this morning a survey that we feel is taking consumer sentiment relative to the increasing premiums in the major medical marketplace and consumers willingness to look at more affordable plans to just identify covered options that are perhaps a little bit less extensive than the ACA compliant plans that are certainly a lot more affordable and would point you towards the results of that survey, which points a significant increase in interest in short-term plans particularly given the longer duration now available in the market.

Joseph Thompson

Thanks for the color guys. My next question is what do you think the contribution to fourth quarter revenue – or what part of fourth quarter revenue do you think will come from commissions or from commission revenue. Thank you.

Scott Flanders

Good question. We don't guide specifically to the quarter on our line item. So, we did reaffirm our guidance for the full year. And the commission portion of our business is still the predominant portion of our business relative to what we do as a company. So, I think that's all we can say about that relative to your specific question.

Kate Sidorovich

And we also said that we expect, we see carrier commitments growing into this AEP as larger compared to a year ago. So, you can look at the breakdown last year. We are not going to provide the specific growth rate year-over-year but it is a step-up

Joseph Thompson

Thanks I'll jump back in the queue now.

Operator

Thank you. And our next question comes from Steven Wardell with Chardan Capital Markets. Your line is now open.

Steven Wardell

Hey guys, thanks for the question. So, I'm wondering can you tell us more about what your sales and marketing is seeing in the main market, the main markets that you sell into. So, what's going on in the lives of people who are choosing Medicare Advantage what – how are their preferences changing. How is that market growing and changing.

Dave Francis

Steve a couple quick comments. Number one is as Scott mentioned previously the dynamic relative to government reimbursements and payments being put into the Medicare Advantage market are creating an environment in which the carriers are investing those dollars in more attractive benefit packages.

So the Medicare Advantage portfolio of product opportunities available to consumers is improving in terms of expanded networks of physicians, drug reimbursements and all that. The other dynamic to keep in mind is that if you look at the economic spread of the senior demographic about 80% of the seniors in the U.S. are putting the accumulated wealth aside, have incomes that are generally within about three clicks of the poverty line. So, there is an economic drive for more of those folks to move into Advantage plans rather than more expensive supplement plans.

So you put the improved benefit packages together with the fact that Advantage plans are for a income sensitive group, a more attractive private insurance alternative for them. And we just, we continue to see demand for Medicare Advantage growing in the marketplace. That's not to say that Medicare Supplement demand is shrinking by any stretch of the imagination. Keep in mind that only about 50% of the senior market has a private insurance plan outside of original Medicare right now.

So, we continue to see growing demand across both the advantage and supplement side of our business and is a big reason that we've invested so strongly into the supplement side of the business. This year to be able to provide a broader portfolio of products across the entire senior community. So, we're seeing strong demand on both sides.

Steven Wardell

Great thank you.

Operator

Thank you. [Operator Instructions] And at this time I see no further questions in queue. Pardon me. We do have a question from George Sutton from Craig-Hallum. Your line is now open.

George Sutton

You had referred to your small group platform being disruptive and I wanted to make sure I understood what you meant by that?

Scott Flanders

Well George disruptive in the sense that right now that is an entirely agent based paper based enrollment and after enrollment, engagement in customer service business. And we're in the process of automating all of that from enrollment to ads into leads and benefit changes putting all of that online.

And we know through research and anecdotally that this micro market two to 20 employees is just woefully under served by physical agents who don't find that business attractive, in terms of the quantity of commissions they generate. So, now this is a very big market. It's commission rates are half of the Medicare market. So, there's a big market for small business for us if we cracked that code on the disruptive user experience.

George Sutton

Okay. Thank you very much. Appreciate it.

Operator

Thank you. This concludes today's Q&A session. I would now like to turn the call back over to CEO Scott Flanders closing remarks.

Scott Flanders

Thank you. Now as we conclude I just want to say that eHealth’s team optimism is at a high level and that's based on what we're seeing on a daily basis. On what we control and our increasing confidence is based upon the improving operating metrics that we're tracking and monitoring on a literally daily basis.

The business has never been managed with the intensity and confidence it's now experiencing. And I really believe that we are at the beginning of what will be seen in the future as a multi-year growth of market share by eHealth and what we previously discussed is a rapidly growing Medicare market.

And so I just want to conclude by saying I appreciate all your support. Together, we're going to create a fabulously successful business. Thank you.

Operator

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program, you may all disconnect. Everyone have a great day.