Private health insurance exchange eHealth is eliminating 160 jobs, about 15% of its workforce, because of difficulties it has faced signing up younger individuals and families through its online platform.
But the company's downsizing may not be enough to restore it to financial health because the Affordable Care Act's state and federal exchanges have become the dominant enrollment platforms for people in the individual insurance market.
eHealth told investors last week that the layoffs will cost up to $4.7 million, mostly because of severance and benefits payouts. It expects to see savings from the move by the second quarter.
CEO Gary Lauer hinted at an expense-reduction strategy last quarter, saying the company was “taking a close look at the cost structure of our business.” In 2014, eHealth lost $16.2 million on about $180 million in revenue, coming in well below Wall Street's and its own expectations.
About 11.7 million Americans selected or re-enrolled in health plans during the ACA's most recent open-enrollment period, but most signed up through the public exchanges rather than private exchanges such as eHealth. The public exchanges have become eHealth's direct competitors in the individual insurance market, said Steve Halper, senior vice president of equity research at FBR Capital Markets & Co. “ACA exchanges have clearly changed (eHealth's) operating environment,” Halper said.
eHealth also experienced difficulties processing applications for consumers who were eligible for premium subsidies; individual and family applications have dropped 41% year over year.
eHealth could benefit if the U.S. Supreme Court strikes down subsidies offered through the federal exchange. A ruling for the plaintiffs would open up the market in as many as 37 states that rely on HHS, though millions of Americans would lose subsidies and their insurance in the process. “It could collapse HealthCare.gov and in theory create a rebirth for eHealth in the states that don't have an exchange,” Halper said.
To offset its struggling individual insurance business, eHealth intends to expand its Medicare segment. Medicare was one of the few bright spots for the company in 2014, as applications during Medicare's annual enrollment period were up 46%. But the “extreme uncertainty around the (individual and family plan) business overshadows the positive aspects of the Medicare business,” said Steven Rubis, an analyst at Stifel, Nicolaus & Co.
eHealth's stock is down 63% this year and has slumped 80% since the start of 2014.