Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 eHealth, Inc. Earnings Conference Call. My name is Sean, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Kate Sidorovich, Vice President of Investor Relations. Please proceed.

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 Second 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 will 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. These statements will be regarding future events, beliefs and expectations, including those regarding eHealth's ability to expand its plan and product offerings; the availability of individual health insurance products meeting the ACA requirements and the timing of such availability; eHealth's ability to service an enrollment source for subsidized and non-subsidized individuals; the features and terms of our relationship with Aon Hewitt and their anticipated benefits; our ability to capture significant share of consumers who are expected to enter the individual market; our financial performance for the full year 2013; our financial performance for the third quarter of 2013 compared to Q3 2012 and the second quarter of this year; and the rate of our expected earnings growth during 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, 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…

Good afternoon, everyone, and thanks for joining us today as we review our second quarter 2013 results. Second quarter revenue was $39.8 million, a 12% increase as compared to the second quarter of 2012. GAAP earnings per share was $0.06, reflecting our planned investment in eHealth's technology platform as we near a major implementation stage of the Affordable Care Act. EBITDA was $4.9 million and cash flow from operations was $6.6 million. At the end of the quarter, we had $90 million in cash on the balance sheet and no debt. During the second quarter, we completed our fourth share repurchase program, which was initially authorized for $30 million in September of 2012 and later expanded to $60 million in March of this year. As a reminder, we have now completed 4 share repurchase programs totaling $150 million and repurchased over 30% of the fully diluted shares that we had outstanding when the first program was implemented in late 2008. We are now a few months away from the expected October 1 launch of state and federal health insurance exchanges. As we approach this important date, our Individual & Family Plan business or sometimes referred to as the IFP business, continues to be robust. Second quarter Individual & Family Plan submitted applications grew 7% compared to the second quarter of 2012. Our Individual & Family Plan approved members grew 15% from the second quarter of last year, the strongest year-over-year growth rate we've observed since the first quarter of 2009, reflecting continued demand and improved conversion rates. Our Individual & Family Plan commission revenues grew by 8% or $1.8 million year-over-year. We are very pleased with the strength across these pertinent metrics in our Individual & Family Plan business. We also generated strong second quarter growth in excess of 75%…

Thanks, Gary, and good afternoon, everyone. Our second quarter financial results reflect the strong performance of our Individual & Family Plan business, our continued execution in Medicare, as we prepare for this year's Annual Enrollment Period, and our ongoing investment in eHealth's technology platform. Our second quarter 2013 revenue was $39.8 million, representing 12% annual growth. Commission revenue for the quarter was $34.9 million or 14% annual growth. Our Individual & Family Plan commissions grew by 8% or $1.8 million compared to Q2 2012, driven by acceleration in individual and family membership growth and stabilization in commission revenues per member. We are very pleased to have continuing improvement in our individual business, which contributed over 40% of the total increase in commission revenues this quarter. Medicare commissions grew by 31% year-over-year while commissions from ancillary products increased 77% on the same basis. Other revenue, which include sponsorship, eCommerce On-Demand, Government Systems and noncommissioned Medicare revenue was $4.9 million. This represented a 1% decline compared to the second quarter a year ago. As Gary mentioned, we continued to see solid demand for our individual and family major medical products with individual and family submitted application volume up 7% year-over-year. We also observed an improvement in our conversion rates from submitted applications to carrier approval. As a result, approved Individual & Family Plan members grew 15% compared to the second quarter of 2012, more than double the growth in submitted applications. Total approved members for all products were up 28%. Our total estimated membership at the end of the quarter was approximately 1,091,000 members, which represents 24% growth over estimated membership reported at the end of the second quarter of 2012. The number of revenue-generating Individual & Family Plan members was up 9% while the number of other members increased 78%, driven…

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

This is Jason on for George. Gary, so HHS and the Obama administration announced a number of delays this quarter related to the Affordable Care Act. And I was just kind of wondering if you could spend some time talking about that and how meaningful that would be for eHealth.

Sure. Well, first of all, we are planning working toward and investing in the October 1 launch dates when our products become available. We fully expect that that's on track and going to occur. The administration made several announcements recently. I think the most noteworthy was that the mandate for employers with more than 50 employees to have to offer health insurance starting January 1, 2014, was being relaxed or deferred to January 1 of 2015. That really has no impact on our business at all. We do think there's opportunity with those larger employees who, at some point, some of whom may choose to migrate their employees away from employer coverage into the individual market. But we only view this as giving them a little more time to plan for that. Our real focus is on these 25-plus million individuals who will be coming into the individual market over the next several years and our plan is to, as we said, be the online destination of choice to help them get Affordable Care Act mandate-meeting coverage. And I think specifically, and the question I get a lot is where are we on subsidy-eligible individuals, because we think it's so important that we're there to help enroll subsidy -- subsidized people as well. And these are individuals who are at 400% of the federal poverty level or below. We're working with several of the states. But as you probably know, there are 36 states that the federal government will be putting -- operating an exchange in because they're either not ready or in many cases, have elected not to develop their own exchange. And the discussions we're having with the federal government in this area are progressing well. They're constructive and we're very optimistic about our ability to operate as a web-based or a web broker entity in these 36 states. In the other remaining 16 states, we're having conversation with each and every one of them. Understandably, they've got an awful lot of work to do to be up and ready on October 1. But we're thinking many of them will be there with the ability to host subsidy-eligible individuals as well.

Okay. And then just more specifically on the small business exchange or the SHOP. That seems that, that could be a meaningful opportunity for you. Do you see that as an opportunity or am I misreading that?

No, we see it as a very significant opportunity because the small business exchange, which is really the SHOP, which is focused on employers with 50 employees or less. There's kind of been a fundamental issue there for a long time, which is that these group products for small businesses are in many cases, prohibitively expensive, and the reason is that you've got a very small employee base to spread risk across. So as a result, it gets mitigated by very high premiums. We think that there's a really unique and could be significant opportunity in this area with the 50-employee size businesses and less to offer them individual products. And in fact, we've got a pretty vibrant business today and have for several years, that have been built above people who are full-time employed in small businesses coming to us for individual products because the employer doesn't offer them anything. And we think this could be even more interesting going into 2014, especially with the guaranteed issue element of the Affordable Care Act, which will leave no one behind.

Okay. And then just switching gears on the Medicare side. You talked the last couple of quarters about some new initiatives that you're putting in place to improve on the conversion rates there. And I'm just wondering what kind of expectations do you have as we head into the enrollment period. And what we should be thinking about as far as for the changes in the supply of Medicare policies or adding additional vendors on that side of the business.

Yes, Jason, we've actually been adding inventory. We'll continue to right up until the Annual Enrollment Period. We -- in fact, I talked today about Cigna. We've got other product coming on as well. We've got many more people in the call centers who are going to be much more experienced. We're going to have yet more online offerings. We're going to have more partnerships. I mean, this business just continues to grow and broaden for us. And work, it's -- we continue to be really excited about it. It's got the attention of all the large carriers in a meaningful way. We think that because of some pricing that's going on, there could be quite a bit of transitional or product-switching activity in this Annual Enrollment Period, which we think we could capitalize on and do quite well with as well. So we're coming into this Annual Enrollment Period with a lot more experience, a lot more inventory, a lot more resource on hand and we're going to be very assertive about how we approach this business in this Annual Enrollment Period, as we have been this year.

And the next question we have comes from the line of Andrew Marok of Cowen and Company.

I just have a couple of quick questions. I was just wondering what you're seeing in Q3 to date in the IFP market. And on the Medicare side, Medicare came out to about 20% of total revenue in 2012, I was just wondering if you guys are targeting anything in 2013 along those lines?

Let me take the first part of the question, and Stuart can take the second. In the IFP market, we don't, as a matter of policy and practice, comment on any trends or metrics during a quarter. I'll just say this. This is expected to be a big transition year because of the implementation of the Affordable Care Act. There has been a lot of speculation that the market would freeze. In our first quarter, we saw a 10% application growth. In the second quarter, we saw a 7% application growth. This business has turned profitable again for us, in fact, in a very nice fashion this past quarter. And we're really optimistic about what we see in this business for the remainder of the year. So I'd say that we're -- we've been pleased with the volume that we've seen of both new applicants in the marketplace and I also want to note, new members as well. We grew our Individual & Family Plan applicants by 7%, but the approved members grew by 15%. Better conversions on our websites, better acceptance by the carriers, I think it speaks to the way that we're able to help people find a product that best matches their needs and requirements. We're very pleased about that, especially in light of the fact that we may soon be seeing some very significant volume as a result of the implementation of the Affordable Care Act. And that's one of the reasons that we've been investing so heavily in the technology side of this business, as Stuart commented and I did as well. We're doing an awful lot right now on the site itself to make it a very, very consumer-centric, very consumer-friendly experience, where people can understand what these products are about, where they can interact with them, we give them decision-support tools to help them through this process and we're building what we think are going to be some really innovative tools to help people post enrollment as well. That is once they've got health insurance on their hands, how do they utilize it, what are the features, what are the benefits, and I think most importantly, how do they best spend their health care dollars.

And on the Medicare question, we haven't given specific guidance on Medicare. I can say that, last year, like you said, it was 20% of our total revenue. I would expect it to be in the high 20s as a percentage of our total revenue for the year. And you'll see what our guidance range is, so you can back into those numbers there. If you look at the midpoint of our range this year, it implies about $15.5 million, $16 million of revenue growth year-over-year and a significant portion of that is Medicare. So again, you can take that number and compare it to the $31 million of Medicare revenue that we had last year, a couple of ways to go back.

The next question we have comes from the line of Scott Fidel of Deutsche Bank.

This is Shawn Bevec for Scott. A couple of questions. Do you guys still expect a slowdown or decline in IFP enrollment in the back half as people get ready for the exchanges and enrollment in exchanges, I know WellPoint reported yesterday and they said that they are already seeing some individual and small group attrition. So I'm wondering if -- what you're seeing? It certainly doesn't sound like that from the numbers you reported today. But I'm just curious as to what you're thinking for the back half.

Yes, Shawn, this Gary. I'll pretty much repeat what I said earlier and I'd let Stuart to, probably, make some comments as well. But we're very pleased with what we've seen in the first half both in terms of applications, conversions, new members, retention, all of these metrics are very, very good for us in this business. You can probably tell by our commentary, we're feeling very optimistic about this, moving into the second half. October 1, is when essentially we've got a much larger market to address because we're going to have people who are subsidy-eligible and very many others as well, who are going to be thinking about having to buy health insurance because of the federal mandate. And we -- as Stuart said, we're, today, feeling good about the guidance that we described at the beginning of the year. So we're very optimistic about this Individual & Family Plan business. So the big question for us right now is when we get to this fourth quarter, how much pre-enrollment can we do for the January 1 effective dates, and we think that it's going to be really interesting, let me say that.

Okay. I'm sorry if I missed this. But you haven't yet formally contracted with any of the states or the federal government to work with the online exchanges for subsidy-eligible individuals, right?

Yes, that's right. We're in deep in process with the federal government right now, the same with many of the states. And as soon as we have some news on that, we'll let you know it. We need some things to happen soon because the clock is ticking. And all these government entities are -- they seem to be working 24/7 to try to get this exchange ready to be up and going and we think it's -- we believe that we've got a very compelling proposition because it cost government nothing, in fact, we save government money and it's the same products at the same prices, and all we're going to do is expand enrollment. So as soon as we have some news on some of these, you'll know right after us.

And what portion of your IFP membership today is subsidy-eligible?

Well, we don't disclose that. But someplace around 40% of the U.S. population is. We're -- our average income level is a little bit higher than the national average. So you can construe from that, that it's going to be less the national average. But there's definitely a number in there and we're working right now with how to transition those people into subsidy-eligible products and bring in -- bring new members in as well, who are going to be subsidy-eligible.

Okay. And then just a couple of more, last couple of ones on the commission rates. Have you had any pushback from your Medicare partners on commissions for next year, given the headwinds that they're seeing? I know that you guys -- I think 2% to 3% range is what you get for a commission on the Medicare piece and I know that's relatively low compared to what it is on the IFP business. But given the headwinds that the Medicare plans are seeing next year, just in talking to some of consultants and whatnot, they're thinking that sometimes, some of the broker commissions are going to come down in Medicare and I'm just wondering what you guys are hearing?

Yes, we haven't seen anything change in our commission rates on Medicare at this stage, nothing to report there. If anything, we've actually seen some of the carriers expand the number of years that they're paying out. Some of our contracts, they pay a certain number of years, let's say 5 or 6 years of the member life, and we've seen some of those expand the number of years or even make it open-ended and perpetual.

Which increases the lifetime revenue value. The other point I would make is that, these 2014 products, which will be sold in the Annual Enrollment Period are either filed or being filed right now with CMS and commission everything else is part of that, no, we've seen no degradation there at all. It's important to note, and you referenced this, but in the individual business, we earn, on average, about 7% of the premium value every month. With the Medicare Advantage product, it's typically a little bit less than 3%. That is a very -- although the dollars are high, it's a very, very low distribution cost. And we think, in many cases, it is lower than the direct efforts of the carriers themselves. So it's -- we believe that what we offer here, especially with the volume, is an efficient, economically favorable way for us to get these products into the hands of the consumers.

Okay. The next caller is from Adam Klauber of William Blair. Adam Klauber - William Blair & Company L.L.C., Research Division: Do you expect the Aon partnership to produce some critical mass next year or is that more of a 2015 type event?

Adam, this is Gary. Aon is actively marketing this right now. We think it's got the potential to contribute. Yes, maybe even a bit this year but certainly next year as well. You're talking about some extremely large clients they have with very, very large part time and contractor employee basis. All of whom have got a need for health insurance and Aon view this as a unique and hopefully, powerful way to give them access. So we think this is something that actually could be rather immediate in terms of its impact and contribution. Adam Klauber - William Blair & Company L.L.C., Research Division: Okay. And is it -- are there other potential, I guess, markets that, that partnership could be used for, is it mainly that part-time market?

Well, it's also the early retiree market where you've got people who are presumably in their late 50s, early 60s, retiring before they're eligible for Medicare at 65. No longer going to have the employer health benefit and need a solution to bridge themselves to Medicare. That's actually a good-sized population. And of course, then beyond that you've got the opportunity to transition people like that into Medicare products as well. So we think with Aon that this has the potential to be a really interesting partnership. We've got the platform, the technology and the product inventory and they've really got the access or the pipe into some of these very large groups of individuals who are in need of these products. Adam Klauber - William Blair & Company L.L.C., Research Division: Sure, sure, they've got a pretty big subset. As far as individual rates for 2014, what's the range that you're hearing? And what do you think that will do to retention from the existing base and this is for IFP?

We -- At this stage, we haven't had anything of note that's changed with our individual and family commission rates. I think we'll comment on our next call. It'll probably be the time to talk about that but at this stage, really nothing to report.

Yes. There's -- yes, and that's -- we really -- we have no news there. So I wouldn't expect that our comments may be very well be the same in the next earnings call as well. I've said this before and I'll say it again. I do think that these qualified health plans, the subsidy-eligible plans for lower-income people, may have a lower commission rate because it may be a higher risk profile for the carriers, but we see it mostly as incremental to us anyway. Adam Klauber - William Blair & Company L.L.C., Research Division: Okay, okay. And also, I was wondering, what about premium rate increases for next year, do you have a sense on how high those are going to be?

Well, you see a lot of these reported in the media. There was a fair amount of attention in New York recently that the premium prices may come down. In other states, they may go up, California made some announcements here about the California Exchange and so on. So -- and we've done some research into this as well and we're not seeing anything that looks alarming in terms of premium increases in aggregate, and we hope that's not the case. What we don't want to have happen here is premiums rise so quickly or so high that they're prohibitively expensive for a lot of people. In fact, that's a big part of the proposition we have for government to allow us to host subsidy-eligible individuals that the more enrollment that you have, the more balance you have in these pools, the more likely it is that premiums are going to stabilize and stay in check. And if there's one thing we can do is to help increase enrollment substantially. So we think we're a really important cog in all of this for government and frankly, for the President to achieve the goals that are -- that they set out with -- that he set out with the Affordable Care Act. Adam Klauber - William Blair & Company L.L.C., Research Division: When will you or we get better visibility in what the rate outlook is going to look like for next year?

Well, we're seeing it now. I mean, we've seen some of the rates in California, we've seen some in New York, we've seen some in Oregon and in some other states as well. And I can give you a few examples. They, purportedly, are coming down in New York but New York has been a guaranteed issue, non-mandated state. So New York has been the most expensive state in the country for years and years. In fact, the cost of individual product in New York for several years has been about 3x the national average. So in some ways, it's not surprising that prices would come down there, especially with the mandate. In California, like-for-like, they seem to be relatively stable and in some other states as well, we've got a few that are higher but we're seeing them right now. They're rolling out and they're developing, and we haven't seen anything, again, to us that seems real anomalous in terms of radical change. But we're watching it very carefully.

[Operator Instructions]

Okay. Well, listen, thanks, everybody. We really appreciate your interest and continued support and look forward to talking with many of you one-on-one as well. Have a good afternoon. Thanks again.