Here is what you’ll find in this week’s newsletter!

1. Important links 🔗 - the best articles we found this week about the Medicare Market along with links to Jared’s recent LinkedIn posts.

2. Deep Dive 📚 - Medicare eBroker’s Q3 ‘23 financials side-by-side.

3. Compliance Chatter 📢 - 2024 Medicare Copays & Deductibles.

4. Sponsor Snapshot 🚀 - brought to you by Telos Actuarial.

5. Data Visual of the week 📊 - Data Visual highlighting Medicare Advantage net profit margins.

It’s only a 5 minute read, but it will make you 10x smarter.

DEEP DIVE 📚

Medicare eBroker’s Q3 ‘23 Financials Side-By-Side 📊

Publicly traded Medicare eBrokers (or sometimes called “Direct-to-Consumer distributors”) collectively sold 341,000 policies, generated $443 million in Revenues, and spent $550 million during Q3 2023.

Last month we looked at Medicare Carrier financials side-by-side. As part of that analysis we saw that Carriers increased their Medicare advantage membership by 8% year-over-year (“YoY”). But, how do those Carriers acquire new customers?

Well, at least partially through eBrokers! Today we are going to look at the following company’s Q3 2023 financial results side-by-side. (note: Q2 results can be found here.)

• GoHealth (“GOCO”)

• eHealth (“EHTH”)

• SelectQuote (“SLQT”)

• e-Telequote (“PRI“) - part of Primerica

Note: There are a few other large eBrokers that are part of publicly traded companies, but they do not report segment financials. Two examples being:

1. Tranzact - part of Willis Towers Watson

2. AssuranceIQ - part of Prudential

3. HealthMarkets - part of UnitedHealth Group

What are eBrokers?

Each of these companies have fairly similar business models.

First, they generate and/or purchase leads through numerous marketing methods. Consumer facing websites, social media, television, mail, search, to name a few. You may have seen a few of these ads lately!

Second, the majority of these leads go to large call centers where agents help consumers pick plans among numerous products, carriers, and plan types.

Finally, the agent helps the consumer complete and submit an application to the chosen insurance carrier.

Note: There is a small but growing portion of consumers who submit applications on their own through the broker’s online application without the help of an agent.

If the policy is approved and sticks, the eBroker gets paid commissions. In the traditional model, the commissions include both initial year, and renewal commissions for the life of the policy.

Recent Results

In recent years, these company’s stock prices and market caps have suffered. Partially due to general economy dynamics, but also due to the following.

• The cost to acquire new customers has gone up ⬆

• The Lifetime Value (“LTV”) of each new customer has gone down⬇

  • note: LTV = commission revenues expected to be earned over the life of a policy

• In addition, capital is needed to generate new sales. The cost of capital (as we all know) is significantly higher now than 2 years ago.

Because of this reality, all of these companies have been focusing on improving customer acquisition costs along with customer retention (to improve LTV).

In addition, there have been some tweaks to strategies.

GOCO has pivoted to a model where they are not the agent of record, don’t receive agent commission, but instead get paid an up-front fee to generate warm leads to carrier partners. They refer to this model as Encompass.

SLQT has added a healthcare vertical in order to increase revenue per customer by cross selling Rx benefits. They now generate a significant amount of revenue from this vertical.

Okay, let’s look at the numbers already… 😀 

Side-By-Side Results

To compare and contrast Q3 2023 results we are looking at the Income Statement, a few key Balance Sheet items, LTV metrics, and Sales metrics.

Note the following:

• Other Revenues: for GOCO this is revenues earned under Encompass model; for SLQT this is revenues earned from SelectRx

• Cost of Revenues: for GOCO this is commissions paid to "downlines"; for SLQT this is cost of goods sold under SelectRx

• LTV: GOCO no longer reports LTV for separate product lines. It's assumed the majority of products fall under MA

• Insurance Approved Policies: GOCO no longer reports for separate product lines. It's assumed the majority of products fall under MA

YoY % Change

Now, let’s look at the year-over-year (“YoY”) % changes.

Observations & Trends

It should be noted that Q3 does not typically look great for these companies because they are ramping up agent counts leading into AEP.

At some point during Q1 2024 we will look at full year results which will smooth out the seasonality.

With that said, here are a few general observations and trends for Q3 ‘23:

Revenues Up Overall

• Overall revenue growth led by EHTH and SLQT

• SLQT increased Healthcare services revenues significantly (Other Revenues)

Expense growth slowed

• Expenses are up, but not at the same rate as revenue growth, pointing to improved efficiency

Profitability Improved

• Everyone is still generating operating losses, but things look significantly better than a year ago.

LTV down slightly

• Overall MA LTV down slightly overall, though 2 of the 4 reported higher MA LTV

Approved Policies up

• Overall approved policies up driven by growth in MA sales.

It will be interesting to see how these companies continue to improve efficiency and also adjust their business models and strategies.

One potential headwind for these companies is the CMS proposed rule which could lower overall compensation for MA.

The reality is, they continue to be important partners for Carriers who want to grow their Medicare membership. Therefore, they should continue to be an important part of the overall Medicare ecosystem.

DATA VISUAL of the Week 📊

This week’s data visual comes from Milliman! It shows the 2022 net profit margin (“Underwriting Ratio”) for Medicare Advantage carriers.

If you’re ready, here are some ways we can help you:

• Newsletter Sponsorship opportunities: Promote your product or services to leaders in the Medicare space. Let’s discuss. (link)

• Market Research: Reports that help you wrap your arms around the Senior focused insurance markets. (link)

• Consulting: We can help you develop new insurance products for the Medicare market, appraise your books of business, and keep you compliant. Let’s discuss. (link)