eHealth Annual Report 2015

FY2015 Annual Report · eHealth
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Annual Report 2015

CONSUMER

FOCUSED

We made health insurance simple for over 5 million customers,
allowing them to master everything else.

i

i

.

.

.

.

f

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.

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15,000+
PLANS

~200

INSURANCE
CARRIERS

1.1
MILLION
ESTIMATED
PAYING
MEMBERS

G A RY  L .   L A U E R
Chairman and Chief Executive(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)

Fellow Shareholders,

(cid:21)(cid:19)(cid:20)(cid:24)(cid:3) (cid:90)(cid:68)(cid:86)(cid:3) (cid:68)(cid:3) (cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:73)(cid:82)(cid:85)(cid:3) (cid:72)(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:17)(cid:3) (cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:92)(cid:72)(cid:68)(cid:85)(cid:3) (cid:90)(cid:72)(cid:3) (cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:74)(cid:68)(cid:76)(cid:81)(cid:3) (cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)
traction in our Medicare business. At the same time, the market environment in the individual 
and  family  health  insurance  business  was  challenging  following  the  implementation  of  the 
Affordable  Care Act  two  years  ago.  In  light  of  these  dynamics,  we  made  a  strategic  shift 
towards further investment in our Medicare business while managing our individual and family 
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(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3)(cid:27)(cid:8)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:15)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:191)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)
compared to a year ago and forecast another year of revenue and earnings growth in 2016. 
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(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:88)(cid:83)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:7)(cid:20)(cid:17)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:191)(cid:81)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:7)(cid:25)(cid:22)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
balance sheet and no debt.

(cid:50)(cid:88)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:79)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:29)

•  1,144,500 estimated total members as of December 31, 2015, a 2.4% 

increase over 2014

•  228,900 estimated Medicare members as of December 31, 2015, a 60% 

increase over 2014

•  Annual revenue of $189.5 million, a 5% increase over 2014

•  EBITDA of $11.1 million, a 129% increase over 2014

•  GAAP net loss of $4.8 million compared to net loss of $16.2 million in 2014 

• (cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:192)(cid:82)(cid:90)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:22)(cid:17)(cid:26)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:20)(cid:17)(cid:27)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)(cid:3)

eHealth ANNUAL REPORT 2015 

1

 
(cid:48)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)

Our total estimated Medicare membership at the end of 2015 grew 60% and estimated Medicare 
Advantage membership grew 73% compared to the end of 2014. Medicare commission revenue 
for 2015 grew 63% and represented 33% of eHealth’s total commission revenue, up from 22% 
in 2014. We expect the contribution of our Medicare business to increase again in 2016. Part of 
our success in our Medicare business stems from our ability to leverage our assets and experi-
ence developed over many years of serving the individual and family health insurance market, 
including our advanced technology platform, our longstanding relationships with leading health 
insurance carriers, and our expertise in generating and converting consumer demand online. 

(cid:55)(cid:75)(cid:72)(cid:3)(cid:48)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:87)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:72)(cid:43)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)
opportunities  available.  Based  on  recent  industry  data,  over  28  million  consumers  are  cov-
ered through Medicare Advantage and Medicare Supplement plans. Our estimated Medicare 
Advantage and Medicare Supplement plan membership represents just 1% of this large market. 
In addition, it is forecasted that on average 10,000 individuals in the United States will be having 
their 65th birthday each day over the next 15 years, positioning the Medicare market for strong 
organic growth. We are taking advantage of these favorable demographic trends and have also 
been growing faster than the overall market by taking share from our competitors. 

An important part of our Medicare strategy is to make it more of a year-round business. The vast 
majority of enrollments in this market occur during the fourth quarter Medicare Annual Enrollment 

We are very excited about the Medicare
opportunity in front of us and see eHealth
emerging as the leading private online
marketplace for Medicare products.

2 

eHealth ANNUAL REPORT 2015

Period, or AEP. We are alleviating some of this traditional seasonality by selling an increasing 
number of Medicare plans outside of the AEP, primarily to individuals aging into Medicare. In 
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that we submitted outside of the AEP contributed more than half of our total Medicare Advantage 
submitted applications for the year. 

I would like to stress that we are pursuing growth in Medicare membership and revenue in a 
disciplined way. In fact, in 2015 we materially improved our cost of acquisition per submitted 
Medicare application for a second year in a row. We hope to continue making progress with cost 
of acquisition over time by expanding and diversifying our customer generation sources, making 
our customer care agents more productive and transacting more Medicare enrollments online. 

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(cid:44)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:85)(cid:72)(cid:192)(cid:72)(cid:70)(cid:87)(cid:3)
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program to better align our cost structure with the Affordable Care Act market environment. As a 
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(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:191)(cid:91)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:68)(cid:70)(cid:75)(cid:3)
to new member acquisition in the individual and family plan business. Our strategy for the third 
Affordable Care Act Open Enrollment Period that ran from November 15, 2015 through January 
31, 2016 was to only pursue opportunities that we viewed to be cost effective. For the full year 
2015, our individual and family health insurance plan submitted application volume declined 
(cid:24)(cid:17)(cid:24)(cid:8)(cid:3) (cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3) (cid:87)(cid:82)(cid:3) (cid:21)(cid:19)(cid:20)(cid:23)(cid:15)(cid:3) (cid:85)(cid:72)(cid:192)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:80)(cid:72)(cid:68)(cid:81)(cid:76)(cid:81)(cid:74)(cid:73)(cid:88)(cid:79)(cid:3) (cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3) (cid:76)(cid:81)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:81)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3) (cid:82)(cid:73)(cid:3) (cid:82)(cid:88)(cid:85)(cid:3) (cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)
and family plan customer care and enrollment agents, lower variable marketing expense in our 
individual and family plan business as well the challenging market environment.

Our  estimated  individual  and  family  plan  membership  at  the  end  of  2015  was  approximately 
503,300 - down 11% compared to the estimated membership we reported at the end of 2014. Our 
average commission dollars per individual and family plan member increased in 2015 compared 
to 2014 allowing us to mitigate the impact of lower estimated membership on individual and family 
plan commission revenue, which was down 9% in 2015 compared to 20141. 2015 results in our 
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Our member economics remained very attractive in 2015 for Medicare and individual and family 
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acquiring a new Medicare or individual and family plan member, which consist of marketing 
and call center variable expenses, the average lifetime contribution margin we project for these 
members was above 50%. This projected contribution margin is even higher if we include 
commission revenues from ancillary products, which are typically cross-sold into members 
holding major medical plans. 

1. Individual & Family plan commission revenue excluding commission revenues from ancillary and small business products.

eHealth ANNUAL REPORT 2015 

3

 
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Looking  forward,  we  are  very  excited  about  the  Medicare  opportunity  in  front  of  us  and  see 
eHealth emerging as the leading private online marketplace for Medicare-related health insur-
ance. We expect to deliver another year of double digit growth in our Medicare membership and 
commission revenues. In fact, our 2016 Medicare commission revenue is projected to exceed 
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in generating and converting Medicare demand. 

Our individual and family health insurance business remains an important part of eHealth and 
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consumer demand we observed during the last Open Enrollment Period and in-line with our deci-
sion not to pursue growth at the expense of margins, we expect for our individual and family plan 
membership to decline again in 2016. At the same time, we expect for this business to remain 
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pursue growth opportunities in this market should they emerge and if we see favorable changes 
in the regulatory and macro-environment.

Based on these considerations, as part of our fourth quarter 2015 earnings report we provided 
2016 annual guidance with 6% estimated revenue growth and 34% estimated EBITDA growth at 
the midpoint of the guidance ranges. 

I want to thank all of our employees for their contribution to a great year and our shareholders for 
their continuing support. We look forward to another year of successful execution.

GARY L. LAUER
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Forward Looking Statements: 
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looking statements under the federal securities laws. These forward looking statements include, 
but  are  not  limited  to,  statements  regarding  our  strategy  to  manage  our  individual  and  family 
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our expectations to achieve double digit growth in our Medicare membership and commission 
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statements. Factors that could cause or contribute to such differences include, but are not limited 
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and enroll a large number of new members during the annual healthcare reform open enrollment 
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of individual and family health insurance products, including the selection of products for which 

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timely receive and accurately predict the amount of commission payments from health insurance 
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need for health insurance carrier and regulatory approvals in connection with the marketing of 
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(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:38)(cid:75)(cid:76)(cid:81)(cid:68)(cid:30)(cid:3)(cid:71)(cid:76)(cid:73)(cid:191)(cid:70)(cid:88)(cid:79)(cid:87)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:71)(cid:72)(cid:79)(cid:68)(cid:92)(cid:86)(cid:15)(cid:3)(cid:88)(cid:81)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:70)(cid:76)-
(cid:83)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:86)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:70)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:79)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:30)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:74)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
regulations, including in connection with healthcare reform and/or with respect to the marketing 
(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:48)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:86)(cid:30)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:86)(cid:88)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:79)(cid:68)(cid:90)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:30)(cid:3)(cid:72)(cid:91)(cid:83)(cid:82)(cid:86)(cid:88)(cid:85)(cid:72)(cid:3)
(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:85)(cid:72)(cid:79)(cid:76)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
underlying network infrastructure and those risks discussed under the heading “Risk Factors” in 
(cid:51)(cid:68)(cid:85)(cid:87)(cid:3)(cid:20)(cid:15)(cid:3)(cid:44)(cid:87)(cid:72)(cid:80)(cid:3)(cid:20)(cid:36)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)(cid:16)(cid:46)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:72)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:22)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)
undertake no obligation to update, revise or publicly release the results of any revision to these 
forward looking statements.

4 

eHealth ANNUAL REPORT 2015

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015
OR

‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from

to

001-33071
(Commission File Number)

EHEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

56-2357876
(I.R.S Employer Identification No)

440 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices)
(650) 584-2700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. YES ‘ NO È

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. YES ‘ NO È

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. YES È NO ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES È NO ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not

be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. È

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):

Large accelerated filer ‘

Accelerated filer È

Non-accelerated filer ‘ Smaller reporting company ‘

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ‘ NO È
Based on the closing price of the registrant’s common stock on the last business day of the registrant’s most recently completed
second fiscal quarter, which was June 30, 2015, the aggregate market value of its shares (based on a closing price of $12.69 per share) held
by non-affiliates was $97,512,232. Shares of the registrant’s common stock held by each executive officer and director and by each entity
or person that owned five percent or more of the registrant’s outstanding common stock were excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of February 29, 2016

was 18,145,163 shares.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for the 2015 Annual Meeting of Stockholders, which is expected to be filed

within 120 days after the Company’s fiscal year ended December 31, 2015, are incorporated by reference into Part III of this Annual
Report on Form 10-K to the extent stated herein.

EHEALTH, INC. FORM 10-K

TABLE OF CONTENTS

PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . .
Item 14.
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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[THIS PAGE INTENTIONALLY LEFT BLANK]

ITEM 1. BUSINESS

PART I

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements

within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements include, among other things, statements regarding our expectation relating to
submitted application and our membership; our expectations relating to revenue (including commission revenue,
advertising revenue and other revenue), sources of revenue, costs of revenue, the collectability of our accounts
receivable, operating expenses, marketing and advertising expenses, customer care and enrollment employees
and expenses, technology and content expenses, general and administrative expenses and profitability; our
ability to simplify the Medicare plan purchasing process with our technology along with our ability to enhance
our technology platforms; expectations regarding the potential costs and impact of our cost reduction measures
and reduction in headcount; our expectations regarding the impact of healthcare reform on our business; our
ability to enroll and plans relating to the enrollment of individuals and families into qualified health plans
through government health insurance exchanges; our ability to enter into agreements with and meet
requirements to offer qualified health plans through state and federal health insurance exchanges; our
expectations relating to the commission rates that health insurance carriers will pay and our ability to manage
our arrangements and relationships with the carriers; our expectations relating to the seasonality of our
business; our expectations relating to the renewal of Medicare-related health insurance plans and the timing of
our generation of renewal commission revenue on those plans; the timing of our receipt of commission
payments; our expectations relating to seasonal trends in our business relating to the sale of Medicare-related
health insurance; estimations of our membership and related assumptions that we make in our membership
estimations; our expectations relating to membership attrition and retention rates; the shift between marketing
partner and direct marketing channels as sources of individual and family health insurance plan (“IFP”)
submitted applications during 2015; our ability to manage the growth of anticipated premiums in jurisdictions
selling IFPs while balancing the possibility of IFP reductions in connection with potential increases in cost that
may impact the demand for IFPs; our critical accounting policies and related estimates; our expectation that we
will experience an increase in submitted applications during annual open enrollment periods (“OEPs”); our
belief that cash generated from operations and our current cash and cash equivalents will be sufficient to fund
operations for the next twelve months; our beliefs relating to the potential for collection of our accounts
receivable; expected competition from government-run health insurance exchanges and other sources; our
ability to adjust headcount to respond to changes in demand due to annual OEPs; our ability to convert subsidy-
eligible individuals and families into members; the timing of annual OEPs including restrictions on changes
outside of such periods and our readiness therefore; the timing and source of our Medicare-related revenue; the
impact of the healthcare reform laws on the healthcare industry in future periods; the potential impact of
lawsuits challenging certain aspects of the Affordable Care Act (“ACA”); the merits of any lawsuits filed against
us; our ability to manage and diversify our future capital requirements with the opportunities to enter new
business areas; our need for additional regulatory licenses and approvals; as well as other statements regarding
our future operations, financial condition, prospects and business strategies. These forward-looking statements
are subject to certain risks and uncertainties that could cause our actual results to differ materially from those
reflected in the forward-looking statements. Factors that could cause or contribute to such differences include,
but are not limited to, those risks associated with the impact of healthcare reform and court decisions relating to
healthcare reform; our ability to retain existing members and enroll a large number of individuals and families
during the annual OEP; our ability to align our expenses with our revenue; the impact of annual enrollment
period for the purchase of IFP health insurance and its timing on our recognition of revenue; our ability to sell
qualified health insurance plans to subsidy-eligible individuals and to enroll subsidy eligible individuals through
government-run health insurance exchanges; competition, including competition from government-run health
insurance exchanges; political, legislative and legal challenges to the ACA; seasonality of our business and the
fluctuation of our operating results; our ability to retain existing members and limit member turnover; changes
in consumer behaviors and their selection of IFP health insurance products, including the selection of products
for which we receive lower commissions; product offerings among carriers and the resulting impact on our

1

commission revenue; the impact of healthcare reform on the cost of health insurance; the cost of health
insurance in the upcoming annual OEP; the impact of increased health insurance costs on demand; our ability to
timely receive and accurately predict the amount of commission payments from health insurance carriers;
variability in timing of commission payments from health insurance carriers; medical loss ratio requirements;
delays in our receipt of items required to recognize Medicare revenue; changes in member conversion rates; our
ability to accurately estimate membership; the evolving nature of ACA implementation; our relationships with
health insurance carriers; our success in marketing and selling health insurance plans and our unit cost of
acquisition; our ability to hire, train and retain licensed health insurance agents and other employees; the need
for health insurance carrier and regulatory approvals in connection with the marketing of Medicare-related
insurance products; our ability to successfully market and sell Medicare-related health insurance plans; the
operations of our customer care center; costs of acquiring new members; scalability of the Medicare business;
lack of membership growth and retention rates; consumers’ satisfaction with our service; changes in the
competitive landscape; our ability to attract new members and to convert online visitors into paying members;
changes in products offered on our ecommerce platform; changes in commission rates; maintaining and
enhancing our brand identity; our ability to derive desired benefits from investments in our business, including
membership growth initiatives; system failures, capacity constraints, data loss or online commerce security
risks; dependence on acceptance of the Internet as a marketplace for the purchase and sale of health insurance;
our ability to develop an effective process for purchasing of health insurance over the Internet on smartphones,
tablets and devices other than desktop or laptop computers; dependence upon Internet search engines; reliance
on marketing partners; timing of receipt and accuracy of commission reports; payment practices of health
insurance carriers; general economic factors; dependence on our operations in China; dependence on our
carrier partners for timely information about membership changes; success of our sponsorship and advertising
business; protection of our intellectual property and defense against intellectual property rights claims; legal
liability and regulatory penalties; changes in our management and key employees; maintenance of relationships
with business development partners; difficulties, delays, unexpected costs and an inability to achieve anticipated
cost savings from the organizational restructuring and cost reduction program we implemented in March 2015;
potential acquisitions; potential consolidation in the health insurance industry; maintenance of proper and
effective internal controls; potential changes to accounting standards and interpretations; impact of provisions
for income taxes; changes in laws and regulations, including in connection with health care reform and/or with
respect to the marketing and sale of Medicare-related plans; compliance with insurance and other laws and
regulations; exposure to security risks; and the performance, reliability and availability of our ecommerce
platform and underlying network infrastructure. Other risks include the risks discussed under the heading “Risk
Factors” in Part I, Item 1A of this report and those discussed in our other Securities and Exchange Commission
filings. The following discussion should be read in conjunction with our audited consolidated financial
statements and related notes contained therein that appear elsewhere in this report. We undertake no obligation
to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and
uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.

General

eHealth, Inc. is the parent company of eHealthInsurance, the nation’s first and largest private health
insurance exchange where individuals, families and small businesses can compare health insurance products
from leading insurers side-by-side and purchase and enroll in coverage online through our websites
(www.eHealth.com, www.eHealthInsurance.com, www.eHealthMedicare.com, www.Medicare.com, and
www.PlanPrescriber.com) or telephonically through our customer care centers. We make available powerful
online and pharmacy-based tools to help seniors navigate Medicare health insurance options, choose the right
plan and enroll in plans online or telephonically. In addition, we offer thousands of individual and family, small
business and ancillary health insurance plans from the nation’s leading health insurance carriers, which can be
purchased online. Our ecommerce platform can be accessed directly through our websites as well as through our
network of marketing partners. We are licensed to sell health insurance in all 50 states and the District of
Columbia. Our ecommerce technology also enables us to deliver consumers’ health insurance applications

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electronically to health insurance carriers. As a result, we simplify and streamline the complex and traditionally
paper-intensive health insurance sales and purchasing process.

We were incorporated in Delaware in November 1997. Our headquarters are located at 440 East Middlefield

Road, Mountain View, California 94043, and our telephone number is (650) 584-2700. We make our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports, available free of charge on the Investor Relations page of our web site (www.ehealth.com) as soon as
reasonably practicable after we file these reports with the Securities and Exchange Commission. The information
that can be accessed on or through our websites is not part of this Annual Report on Form 10-K. Further, a copy
of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling
the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information
statements and other information regarding our filings at http://www.sec.gov.

Our Business Model

Medicare-Related Health Insurance Plans

We actively market the availability of Medicare-related health insurance plans through our Medicare
ecommerce platforms (www.eHealthMedicare.com, www.Medicare.com and www.PlanPrescriber.com). Our
Medicare ecommerce platforms and telephonic enrollment capabilities enable consumers to research, compare
and purchase Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and
Medicare Part D prescription drug plans. To the extent that we assist in the sale of Medicare-related insurance
plans as a health insurance agent, either online or telephonically, we generate revenue from commissions we
receive from health insurance carriers. In the first plan year of a Medicare Advantage and Medicare Part D
prescription drug plan, after the health insurance carrier approves the application but during the effective year of
the plan, we are paid a fixed commission that is prorated for the number of months remaining in the calendar
year. Additionally, if the plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to
the member, we may receive a higher commission rate that covers a full twelve-month period, regardless of the
month the plan was effective. Beginning with and subsequent to the second plan year, we typically receive fixed,
monthly commissions for Medicare Advantage plans and fixed, annual commissions for Medicare Part D
prescription drug plans. We earn commission revenue for Medicare Advantage and Medicare Part D prescription
drug plans for which we are the broker of record, typically until either the policy is cancelled or we otherwise do
not remain the agent on the policy. Commission payments we receive for Medicare Supplement policies sold by
us typically are a percentage of the premium on the policy and paid to us until either the policy is cancelled or we
otherwise do not remain the agent on the policy. As a result, much of our Medicare commission revenue for a
given financial reporting period relates to policies that we sold prior to the beginning of the period and is
recurring in nature. Additionally, Medicare Advantage and Medicare Part D prescription drug plan pricing is
approved by the Centers for Medicare and Medicaid Services, or CMS, an agency of the United States
Department of Health and Human Services, and is not subject to negotiation or discounting by health insurance
carriers or our competitors. Similarly, Medicare Supplement plan pricing is set by the health insurance carrier
and approved by state regulators and is not subject to negotiation or discounting by health insurance carriers or
our competitors.

Individual and Family, Small Business and Ancillary Health Insurance Plans

We actively market the availability of individual and family, small business and ancillary health insurance

plans through our ecommerce platforms (www.eHealth.com and www.eHealthInsurance.com), and generate
revenue from commissions we receive from health insurance carriers whose health insurance plans are purchased
through us, as well as commission override payments we receive for achieving sales volume thresholds or other
objectives. Historically, the commission payments we receive for IFP, small business and ancillary health
insurance plans we sold were a percentage of the premium our customers pay for those plans. Effective

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January 1, 2014, many carriers began paying our IFP health insurance commissions at a flat amount per member
per month. Commission payments are typically made to us on a monthly basis until either the policy is cancelled
or we otherwise do not remain the agent on the policy. As a result, much of our revenue for a given financial
reporting period relates to policies that we sold prior to the beginning of the period and is recurring in nature.
Additionally, health insurance pricing, which is set by the health insurance carrier and approved by state
regulators, is not subject to negotiation or discounting by health insurance carriers or our competitors.

Online Sponsorship and Advertising

We generate revenue from our online sponsorship and advertising program that allows carriers to purchase

advertising space in specific markets in a sponsorship area on our website and allows Medicare-related carriers to
purchase advertising on a separate website developed, hosted and maintained by us. In return, we are typically
paid a flat fee or, with respect to individual and family health insurance plans, a monthly fee and a performance-
based fee based on metrics such as submitted health insurance applications.

Technology Licensing

We generate revenue from licensing the use of our health insurance ecommerce technology. Our technology

platform enables health insurance carriers and agents to market and distribute health insurance plans
online. Health insurance carriers or agents that license our technology typically pay us implementation fees and
performance-based fees that are based on metrics such as submitted health insurance applications.

Lead Referrals

We generate revenue from referral fees paid to us based on Medicare-related and individual and family
health insurance leads generated by our ecommerce platforms and our marketing activities that are delivered and
sold to third parties.

Additional financial information about our company is included in Part II, Item 8, Financial Statements and

Supplementary Data of this Annual Report on Form 10-K.

Industry Background

The purchase and sale of health insurance has historically been a complex, time-consuming and paper-
intensive process. This complexity can make it difficult to make informed health insurance decisions. In addition,
the human error that arises from traditional paper-intensive distribution has historically resulted in a high number
of incomplete and inaccurate applications being submitted to health insurance carriers. Incomplete and inaccurate
paper applications often result in back-and-forth communications, delay and additional cost. The Internet’s
convenient, information-rich and interactive nature offers the opportunity to provide consumers with more
organized information, a broader choice of plans and a more efficient process than have typically been available
from traditional health insurance distribution channels.

Medicare is a federal program that provides persons sixty-five years of age and over, and some persons
under the age of sixty-five who meet certain conditions, with hospital and medical insurance benefits. CMS,
which administers this original Medicare program, also contracts with private health insurance carriers under the
Medicare Advantage and Medicare Part D prescription drug programs for these health insurance carriers to
provide health insurance and prescription drug benefits to Medicare-eligible individuals. Medicare Advantage
plans replace original Medicare. Medicare Part D prescription drug plans provide prescription drug coverage that
original Medicare does not provide. In addition, health insurance carriers offer Medicare Supplement health
insurance plans, which help to pay health care costs not covered through original Medicare. Medicare-related
insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug
plans, are typically marketed and sold by insurance carriers, also known as plan sponsors, through a combination

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of dedicated internal sales representatives and licensed independent brokers and agents. CMS also offers plan
information, comparison tools, call centers and online enrollment for Medicare Advantage and Medicare Part D
prescription drug plans.

Individual, family and small business health insurance has historically been sold by independent insurance

agents and, to a lesser degree, directly by insurance companies. Most of these agents are self-employed or part of
small agencies, and they typically service only their local communities. In addition, many of these agents sell
health insurance from a limited number of insurance carriers (in some cases only one), resulting in a reduced
selection of plans for the consumer. The implementation of health care reform and the federal Patient Protection
and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act has given
rise to greater availability of health insurance over the Internet from various sources, including government-run
health insurance exchanges and companies that offer health insurance in a manner similar to us.

Health Care Reform

In March 2010, the federal Patient Protection and Affordable Care Act and related amendments in the
Health Care and Education Reconciliation Act were signed into law. These health care reform laws contain
provisions that have changed and will continue to change the health insurance industry in substantial ways.
Among several other provisions, these laws and the regulations implementing them include a mandate requiring
individuals to maintain health insurance or face tax penalties; a mandate that certain employers offer and
contribute to their employees group health insurance coverage or face tax penalties if they do not do so;
prohibitions against insurance companies using pre-existing health conditions as a reason to deny an application
for health insurance; requirements for minimum individual and small business health insurance benefit levels,
including prohibitions on lifetime coverage limits and limitations on annual coverage limits; medical loss ratio
requirements that require each health insurance carrier to spend a certain percentage of their premium revenue on
reimbursement for clinical services and activities that improve health care quality; establishment of state and/or
federal health insurance exchanges to facilitate access to, and the purchase of, health insurance; an open
enrollment period for the purchase of individual health insurance; Medicaid expansion so that a greater number
of individuals will be insured under Medicaid programs; and subsidies and cost-sharing credits to make health
insurance more affordable for those below certain income levels if they are eligible and purchase individual or
small business health insurance through the state or federal health insurance exchange. While many aspects of
health care reform became effective in 2014, health insurance carriers have been required as a part of health care
reform to maintain medical loss ratios of eighty percent in their individual and family health insurance business
since the beginning of 2011. Under health care reform an eighty-five percent medical loss ratio requirement for
Medicare Advantage plans became effective in 2014.

The initial open enrollment period under health care reform began in October 2013 and ended in March

2014 for coverage effective in 2014. Subsequent open enrollment periods for individual and family health
insurance began on November 15, 2014 and ended on February 15, 2015 for coverage effective in 2015 and
began on November 1, 2015 and ended on January 31, 2016 for coverage effective in 2016. Individuals and
families cannot purchase individual and family health insurance outside the annual open enrollment period until
the open enrollment period for the following year, unless they qualify for a special enrollment period as a result
of certain events, such as losing employer-sponsored health insurance, moving to another state or becoming
eligible or ineligible for a government subsidy for their health insurance. Moreover, in order to be eligible for a
subsidy, qualified individuals must purchase subsidy-qualifying health plans, known as qualified health plans,
through a government-run health insurance exchange during the open enrollment period or a special enrollment
period. Recently a number of insurance carriers have indicated that they have seen higher medical utilization
rates in their individual and family health insurance plan membership enrolled during the special enrollment
period that has impacted these carriers’ profitability. For this and other reasons, some carriers have notified the
company that they are reducing or eliminating broker commissions on enrollments within the special enrollment
period. CMS has tightened the requirements for individuals to qualify for enrollment during a special enrollment

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period starting in 2016, has eliminated a number of events that would make an individual eligible for such
enrollment and has taken steps to enhance the special enrollment period eligibility verification process.

During 2015, we renewed our agreement with CMS to allow us to enroll subsidy-eligible individuals in
qualified health insurance plans over the Internet and through the government-run health insurance exchange
operated by the Federal government in the 37 states where the federal government is operating all or some part of
the health insurance exchange. Pursuant to the agreement as well as applicable law and regulations, we must
satisfy a number of conditions and requirements to enroll subsidy eligible individuals in qualified health plans,
and we may experience difficulty in satisfying them. Because a large number of individuals have become eligible
for subsidies as a result of health care reform, if we are not able to maintain functioning relationships with
government-run health insurance exchanges to be able to enroll subsidy-eligible individuals over the Internet, we
will have greater difficulty competing with government-run health insurance exchanges for members, could lose
existing members and would be unable to enroll as many new individual and family health insurance members.
Recently CMS directed us to make changes to our process for enrolling subsidy-eligible individuals into
qualified health plans through the federal health insurance exchange, including changes to the application form
and process and to consumer disclosures provided on our website. These changes could impact the rate at which
we are able to convert visitors to our website into submitted applications for qualified health plans during the
next open enrollment period.

While we have entered into relationships with state health insurance exchanges that are not part of the

federal exchange to be able to enroll individuals into qualified health plans, those state health insurance
exchanges have not adopted qualified health insurance plan enrollment processes for health insurance agents that
are efficient or entirely online. As a result, we generally do not enroll individuals and families in qualified health
plans in these states.

Our Strategy

Our objective is to continue to strengthen our position as the leading private online distribution platform for

health insurance sold to individuals, families and small businesses and to enter new business areas where this
platform may be leveraged.

Key elements of our strategy are to:

Offer the Best Consumer Experience. We believe that providing the best consumer experience increases

market adoption of our services, builds our brand awareness, drives word-of-mouth referrals and improves our
visitor-to-member conversion rates. We intend to continue to further develop an online experience that empowers
consumers with the knowledge, choice and services they need to select and purchase health insurance plans that
best meet their needs.

Grow Our Medicare Opportunity and Make it a Year-Round Business. Our technology can be used to

streamline and simplify the Medicare plan purchasing process. Our Medicare membership has expanded
significantly since we entered the Medicare-related health insurance market, and we plan to continue investing
for growth in this important area. We seek to enhance the technology behind our online and telephonic Medicare
platforms and further develop demand generation programs in the Medicare market, which includes broadening
our network of marketing partners and enhancing our Internet search engine algorithmic rankings for high-
volume Medicare-related search terms.

The majority of our Medicare-related health insurance enrollments historically took place during the
Medicare annual enrollment period in the fourth quarter of each year. In 2015 we successfully increased our
Medicare Advantage enrollments outside of the annual enrollment period to over half of our total annual
Medicare Advantage enrollments and plan to further grow the contribution from non-annual enrollment period
sales. If we are successful in doing so, we expect to increase Medicare-plan related sales and mitigate some of
the traditional seasonality in the Medicare business.

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Increase Our Brand Awareness. We believe that building greater awareness of our brand is critical for our
continued growth. A significant percentage of our website traffic is direct, and we intend to attempt to grow our
direct website traffic by strengthening our brand awareness through a variety of marketing and public relations
efforts.

Extend Our Technology Leadership. We believe that our technology infrastructure and online platforms give

us a significant competitive advantage for the distribution of Medicare-related, individual and family and small
business health insurance. To extend our leadership position, we plan to continue to enhance our platforms and
their capabilities to increase functionality, reliability, scalability and performance.

Enhance Our Carrier Network and Product Portfolio. Our goal is to provide consumers with a selection of
products to meet their health insurance needs and enhance and optimize the health insurance carriers and health
insurance plans that we offer to consumers on our ecommerce platform, including our offerings of major medical
health insurance and a broad variety of ancillary products. We seek to deepen our technology integration with
health insurance carriers, allowing us to further streamline the sales and member fulfillment processes and
increase revenue opportunities for us and health insurance carriers. We also seek to enter into relationships with
carriers and government health insurance exchanges mandated as part of health care reform to be able to offer
subsidy-eligible health insurance.

Manage Our Individual and Family Health Insurance Plan Business for Profit Maximization. In March of

2015, we put in place a cost reduction program to better align our operating expenses with our outlook for the
individual and family health insurance plan market and our individual and family health insurance plan
membership. We plan to manage our individual and family health insurance plan business for profitability and
invest profits that we expect to generate from this business into growing our Medicare-related health insurance
plan business. At the same time, we expect to carefully monitor the regulatory and competitive environment in
the individual and family health insurance plan market, and retain the flexibility to pursue membership growth in
the future should we see an opportunity do so at attractive cost of acquisition levels.

Diversify Our Revenue. We plan to continue to diversify our revenue by entering into new business areas

where our technology, experience and relationships can be leveraged.

Our Platforms and Technology

Our ecommerce platforms organize and present voluminous and complex health insurance information in an

objective format that empowers individuals, families and small businesses to research, analyze, compare and
purchase a wide variety of health insurance plans. The plans we offer include Medicare-related health insurance,
major medical individual and family health insurance coverage such as preferred provider organization, health
maintenance organization and indemnity plans, health savings account-eligible insurance plans, and ancillary
health insurance plans, which primarily consist of short-term, dental, life, vision and accident insurance plans.

Elements of our platforms include:

Online Rate Quoting and Comprehensive Plan Information. Our ecommerce platforms instantly provide

consumers online rate quotes and comprehensive plan benefit information from a large number of health
insurance carriers. After entering a minimal amount of relevant information on our website, our platforms allow
consumers to instantly receive a list of applicable health insurance plans and rate and benefit information in an
easy-to-understand format. The consumer can sort through the quoted plans based on price, health insurance
carrier or deductible amount, or search the list of quoted plans to obtain a subset based on certain consumer
preferences. Medicare-eligible individuals may also obtain annualized cost comparisons that include out-of-
pocket estimates for their prescription drugs.

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Plan Comparison and Recommendations. We offer online comparison and recommendation tools that
condense voluminous health insurance information. Our ecommerce platform enables consumers to compare and
contrast health insurance plans in a side-by-side format based on plan characteristics such as price, plan type,
deductible amount, co-payment amount and in-network and out-of-network benefits. Our Medicare plan
comparison tool enables Medicare-eligible individuals to compare plan premiums, deductibles, out-of-pocket
drug expenses, coverage limitations on medications and other aspects of Medicare plans. Our automated
recommendation capability for individual and family health insurance presents a short series of questions and
recommends health insurance plans based on the consumer’s input.

Online Application and Enrollment Forms. Health insurance applications vary widely by carrier and

state. Our proprietary graphical Application Designer Tool allows us to capture each individual and family health
insurance application’s unique business rules and build a corresponding online application in XML format. Our
online application process offers our consumers significant improvements over the traditional, paper-intensive
application process. It employs dynamic business logic to help individuals and families complete application and
enrollment forms correctly in real-time. This reduces delay resulting from application rework, a significant
problem with traditional health insurance distribution, where incomplete applications are mailed back and forth
between the consumer, the traditional agent and the carrier. We further simplify the enrollment process by
accepting electronic signature and electronic payment from our consumers.

Electronic Processing Interchange. Our Electronic Processing Interchange, or EPI, technology integrates
our online application process with health insurance carriers’ technology systems, enabling us to electronically
deliver our consumers’ applications to health insurance carriers. This expedites the application process by
eliminating manual delivery and reducing the need for data entry and human review. Through EPI, we also
receive alerts and data from carriers, such as notification of underwriting approval or a request from a carrier for
a consumer’s medical records for underwriting purposes, which we then relay electronically to the consumer.
These features of our service help prevent applications from becoming delayed or rejected through inactivity of
the consumer or the carrier.

Back Office Systems. Our proprietary back office customer relationship management systems enable us to

provide a full range of customer service tasks in an efficient, highly scalable and personalized manner. Using
these tools, we can track each consumer throughout the application process, obtain real-time updates from the
carrier, generate automated emails specific to each consumer and access a cross-sell engine and dashboard to
identify and track cross-sell opportunities. Our auto-email system is feature-rich with HTML capability,
customizable merge tags, granular segmentation and tracking capability.

Carrier Relationships

We have developed strategic relationships with leading health insurance carriers in the United States,
enabling us to offer thousands of health insurance plans online. We have relationships with a large number
of Medicare-related, individual, family, small business and ancillary health insurance carriers, including large
national carriers and well-established regional carriers. We typically enter into contractual agency relationships
with health insurance carriers that are non-exclusive and terminable on short notice by either party for any
reason. In addition, health insurance carriers often have the ability to terminate or amend our agreements
unilaterally on short notice, including provisions in our agreements relating to our commission rates. The
amendment or termination of an agreement we have with a health insurance carrier may adversely impact the
commissions we are paid on health insurance plans that we have already sold through the carrier.

Revenue derived from Humana represented approximately 21%, 23% and 23% of our total revenue in 2013,
2014 and 2015, respectively. Revenue derived from carriers owned by Anthem represented approximately 12%,
11% and 9% of our total revenue in 2013, 2014 and 2015, respectively. Revenue derived from carriers owned by
UnitedHealthcare represented approximately 11%, 10% and 11% of our total revenue in 2013, 2014 and 2015,

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respectively. Revenue derived from carriers owned by Aetna represented approximately 10%, 10% and 10% of
our total revenue in 2013, 2014 and 2015, respectively.

Marketing

We focus on building brand awareness, increasing website visitors and converting visitors into buyers. Our

marketing initiatives are varied and numerous. They include:

Direct Marketing. Our direct member acquisition channel consists of consumers who access our website
addresses (www.eHealth.com, www.eHealthInsurance.com, www.Medicare.com, www.eHealthMedicare.com and
www.PlanPrescriber.com) either directly or through algorithmic search listings on Internet search engines and
directories. Our direct marketing programs include direct mail, email marketing, retargeting campaigns and
television, radio and print advertising.

Online Advertising. Our online advertising member acquisition channel consists of consumers who access
our website or call centers through paid keyword search advertising from search engines such as Google, Bing
and Yahoo!, as well as various Internet marketing programs such as display advertising. Our online advertising
programs are delivered across all Internet-enabled devices, including desktop computers, tablet computers and
smart phones.

Marketing Partners. Our marketing partner member acquisition channel consists of consumers who access

our website and call centers through a pay-for-performance network, comprised of hundreds of partners that
drive consumers to our ecommerce platform and call centers. These partners include online advertisers and
content providers that are specialists in paid and unpaid (algorithmic) search, as well as specialists in other types
of Internet marketing; financial and online services partners in industries such as banking, insurance, mortgage
and association partners; affiliate programs, including our marketing programs managed through Commission
Junction; and off-line lead generators who specialize in traditional direct marketing channels, such as direct mail
and television advertising.

We generally compensate our marketing partners for referrals based on the consumer submitting a health
insurance application on our platform, regardless of whether the consumer’s application is approved by the health
insurance carrier. If a marketing partner is licensed to sell health insurance, we may share a percentage of the
commission revenue we earn from the health insurance carrier for each member referred by that partner.

Technology and Content

We have a technology and content team that is responsible for ongoing enhancements to the features and
functionality of our ecommerce platform, which we believe are critical to maintaining our technology leadership
position in the industry. A large number of our technology and content employees are located in our subsidiary in
Xiamen, China. There are many risks associated with having an operation and doing business in China.
Information regarding risks involving our operations in China is included in Part I, Item 1A Risk Factors of this
Annual Report on Form 10-K.

Government Regulation and Compliance

We distribute health insurance plans in all 50 states and in the District of Columbia. The health insurance

industry is heavily regulated. In addition to the Patient Protection and Affordable Care Act, each of these
jurisdictions has its own rules and regulations pertaining to the offer and sale of health insurance plans, typically
administered by a department of insurance. State insurance departments have administrative powers relating to,
among other things: regulating premium prices; granting and revoking licenses to transact insurance business;
approving individuals and entities to which, and circumstances under which, commissions can be paid; regulating
advertising, marketing and trade practices; monitoring broker and agent conduct; and imposing continuing

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education requirements. We are required to maintain valid life and/or health agency and/or agent licenses in each
jurisdiction in which we transact health insurance business.

In addition to state regulations, we also are subject to regulations and guidelines issued by CMS that place a
number of requirements on health insurance carriers and agents and brokers in connection with the marketing and
sale of Medicare Advantage and Medicare Part D prescription drug plans. We are subject to similar requirements
of state insurance departments with respect to our marketing and sale of Medicare Supplement plans. CMS and
state insurance department regulations and guidelines include a number of prohibitions regarding the ability to
contact Medicare-eligible individuals and place many restrictions on the marketing of Medicare-related
plans. For example, our health insurance carrier partners are required to obtain CMS or state department of
insurance approval of certain aspects of our platforms, call center scripts and other marketing materials we use to
market Medicare-related plans. In addition, the laws and regulations applicable to the marketing and sale of
Medicare-related plans are ambiguous, complex and, particularly with respect to regulations and guidance issued
by CMS for Medicare Advantage and Medicare Part D prescription drug plans, change frequently.

We are subject to various federal and state privacy and security laws, regulations and requirements. These

laws govern our collection, use, disclosure, protection and maintenance of the individually-identifiable
information that we collect from consumers. For example, we are subject to the Health Insurance Portability and
Accountability Act, or HIPAA. HIPAA and regulations adopted pursuant to HIPPA require us to maintain the
privacy of individually-identifiable health information that we collect on behalf of health insurance carriers,
implement measures to safeguard such information and provide notification in the event of a breach in the
privacy or confidentiality of such information. The use and disclosure of certain data that we collect from
consumers is also regulated in some instances by other federal laws, including the Gramm-Leach-Bliley Act, or
GLBA, and state statutes implementing GLBA, which generally require brokers to provide customers with notice
regarding how their non-public personal health and financial information is used and the opportunity to “opt out”
of certain disclosures before sharing such information with a third party, and which generally require safeguards
for the protection of personal information. Violations of these federal and state privacy and security laws may
result in significant liability and expense.

Intellectual Property

We rely on a combination of trademark, copyright and trade secret laws in the United States and other

jurisdictions as well as confidentiality procedures and contractual provisions to protect our proprietary
technology and our brand. We also have filed patent applications that relate to certain of our technology and
business processes.

Competition

The market for selling health insurance plans is highly competitive. Our competitors include government

entities, including government-run health insurance exchanges established as a result of health care reform;
health insurance carriers; other health insurance agents and brokers; and companies that use the Internet and
other means to attract individuals interested in purchasing health insurance and generate revenue by referring
these individuals to us or one of our competitors.

Government. In connection with our marketing of Medicare related health insurance plans, we compete with
the Federal government’s original Medicare program. CMS offers Medicare plan online enrollment, information,
comparison tools, and has established call centers for the sale of Medicare Advantage and Medicare Part D
prescription drug plans. CMS has regulatory authority over the Medicare Advantage program and can influence
the competitiveness of Medicare Advantage and Medicare Part D prescription drug plans compared to the
original Medicare program as well as the compensation that health insurance carriers are allowed to pay us.

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As a part of health care reform, each state was required to establish a health insurance exchange by October

2013 where individuals, families and small business can purchase health insurance. For states that are not
operating a health insurance exchange, the federal government has implemented and is operating the exchange
for that state. The Federally-Facilitated Marketplace, or FFM, operated some part of the health insurance
exchange in 37 states during 2015. Among other things, the FFM and government exchanges in the states not
served by the FFM have websites where individuals and businesses can shop for and purchase health insurance,
and they also have offline customer support and enrollment capabilities. Qualified health insurance plans that
individuals, and families must purchase in order to receive health care reform related financial assistance in the
form of subsidies to purchase health insurance must be purchased through government health insurance
exchanges.

Government exchanges have invested significant amounts to raise consumer awareness and drive consumers

to their health insurance marketplaces through Internet, television, radio and print advertising. In addition,
government exchanges rank highly in algorithmic Internet search rankings for terms related to health insurance.
Government exchange marketing efforts have resulted in significant competition and also have increased the cost
of generating demand for individual and family health insurance online. We have entered into an agreement with
CMS to allow us to enroll subsidy-eligible individuals in qualified health insurance plans over the Internet
through the FFM. While we have entered into agreements with states that operate their own health insurance
exchanges to be able to offer qualified health plans in those states, these states have not implemented qualified
health insurance enrollment process for health insurance agents that are efficient or entirely online, and we
generally do not enroll individuals in qualified health plans in those states. Notwithstanding our relationships
with government-run health insurance exchanges to enroll individuals into qualified health plans through them,
government-run health insurance exchanges are a significant source of competition given the large number of
subsidy-eligible individuals that must purchase their health insurance through the exchanges to receive their
subsidies and given that those individuals and families that we enroll through government exchanges establish a
relationship with the government exchanges when we do so and may receive marketing directly from the
government exchanges.

Insurance carriers. Many health insurance carriers directly market and sell their plans to consumers through

call centers and their own websites. Although we offer health insurance plans for many of these carriers, they
also compete with us by offering their plans directly to consumers. Health insurance carriers have become more
experienced in marketing their products directly to consumers both over the Internet and through more traditional
channels, which has resulted in increased competition.

Other agents and brokers. We compete with agents and brokers who offer and sell health insurance plans

utilizing traditional offline distribution channels as well as the Internet. Our current competitors include the tens
of thousands of local insurance agents across the United States who sell health insurance plans in their
communities. A number of these agents operate websites and provide an online shopping experience for
consumers interested in purchasing health insurance. In addition, a number of online health insurance agents like
us generate demand over the Internet and sell health insurance to individuals over the Internet and using call
centers. Some of these online agents have agreements with CMS, similar to us, that allow them to enroll subsidy-
eligible individuals in qualified health insurance plans over the Internet in the states where the federal
government is operating the health insurance exchange. As a result, we compete with these companies for
subsidized business as well as for consumers who are not subsidy eligible.

Internet marketers. There are many internet marketing companies that use the Internet to find consumers
interested in purchasing health insurance and are compensated for referring those consumers to agents and health
insurance carriers. We compete with internet marketing companies for individuals who are looking to purchase
health insurance.

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Seasonality

Historically, the majority of our Medicare enrollments took place during the annual open enrollment period,
which occurs during our fourth quarter. In 2015, we successfully increased our enrollments outside of the annual
open enrollment period to over half of our total annual Medicare enrollments and plan to further grow the
contribution from non-annual open enrollment period sales. This increases our total annual Medicare sales and
also helps to mitigate some of the traditional seasonality in the Medicare business. Additionally, substantially all
Medicare Advantage and Medicare Part D prescription drug policies renew on January 1 of each year, resulting
in our recognizing substantially all Medicare Advantage and Medicare Part D prescription drug plan annual
renewal commission revenue in our first quarter. Accordingly, Medicare plan-related commission revenue is
highest in our first quarter and lowest in our second and third quarters.

The most recent open enrollment period for individual and family health insurance began on November 1,
2015 and ended on January 31, 2016 for coverage effective in 2016; the next annual open enrollment period is
scheduled to run from November 1, 2016 through January 31, 2017 for coverage effective in 2017. Individuals
and families generally will not be able to purchase individual and family health insurance outside of these open
enrollment periods, unless they qualify for a special enrollment period by meeting certain qualifying events, such
as losing employer-sponsored health insurance, moving to another state or becoming eligible or ineligible for a
government subsidy for their health insurance, in which case they may purchase individual and family health
insurance during the special enrollment period. The current special enrollment period began on February 1, 2016
and runs through October 31, 2016. As a result, we expect the number of applications submitted for individual
and family health insurance will be highest during the first and fourth quarters of 2016 as a result of the annual
open enrollment period and lowest during the second and third quarters of 2016, outside of the annual open
enrollment period.

Since a significant portion of our marketing and advertising expenses are driven by the number of health

insurance applications submitted on our ecommerce platform, those expenses are influenced by seasonal
submitted application patterns. As a result, we expect marketing and advertising expenses for individual and
family health insurance will be highest during the first and fourth quarters of 2016 as a result of the annual open
enrollment period and lowest during the second and third quarters of 2016, outside of the annual open enrollment
period. Similarly, we expect marketing and advertising expenses for Medicare-related plans will be highest
during the fourth quarters of 2016 as a result of the Medicare annual open enrollment period and lower during the
first, second and third quarters of 2016, outside of the annual open enrollment period.

Our net income (loss) in a given quarter is significantly impacted by the factors above. Accordingly, we

expect our net income will be highest during our first quarter when we recognize substantially all of our
Medicare Advantage and Medicare Part D prescription drug plan annual renewal commission revenue and our
net income will be lowest (or net loss will be highest) during our fourth quarter when we incur a significant
portion of our marketing and advertising expenses.

This seasonality is subject to change in future periods, particularly in connection with any change in the

timing of the annual open enrollment periods.

Employees

As of December 31, 2015, we had 869 full-time employees, of which 31 were in marketing and advertising,

391 were in customer care and enrollment, 283 were in technology and content and 164 were in general and
administrative. On March 11, 2015 we announced a strategic downsizing of the company’s workforce in order to
better align our expenses with our revenue. The reduction was equal to approximately 15% of the company’s
worldwide workforce. Information regarding the reduction in force is included in Part I, Item 1A Risk Factors
and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of
this Annual Report on Form 10-K.

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None of our U.S. employees are represented by a labor union. As required under Chinese law, the

employees in our Xiamen, China office established a labor union in January 2014. We have not experienced any
work stoppages and consider our employee relations to be good.

ITEM 1A. RISK FACTORS

In addition to other information in this Annual Report on Form 10-K and in other filings we make with the

Securities and Exchange Commission, the following risk factors should be carefully considered in evaluating our
business as they may have a significant impact on our business, operating results and financial condition. If any
of the following risks actually occurs, our business, financial condition, results of operations and future
prospects could be materially and adversely affected. Because of the following factors, as well as other variables
affecting our operating results, past financial performance should not be considered as a reliable indicator of
future performance and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to Our Business

Changes and developments in the health insurance industry or in the health insurance system in the

United States as a result of health care reform could harm our business.

Our business depends upon the private sector of the United States health insurance system, its relative role

in financing health care delivery and health insurance carriers’ use of, and payment of commissions to, agents
and brokers to market health insurance plans. In March 2010, the federal Patient Protection and Affordable Care
Act and related amendments in the Health Care and Education Reconciliation Act were signed into law. These
health care reform laws contain provisions that have and will continue to change the industry in which we
operate in substantial ways. Among several other provisions, health care reform includes a mandate requiring
individuals to maintain health insurance or face tax penalties; a mandate that certain employers offer their
employees group health insurance coverage or face tax penalties; requirements relating to employer contribution
to employee health coverage; prohibitions against insurance companies using pre-existing health conditions as a
reason to deny an application for health insurance; prohibitions on rescission of health insurance; prohibitions on
lifetime coverage limits; requirements for guaranteed renewability of health insurance plans; health insurance
premium setting guidelines; limitations on deductibles and cost-sharing; medical loss ratio requirements that
require each health insurance carrier to spend a certain percentage of their premium revenue on reimbursement
for clinical services and activities that improve health care quality and, if they do not, to provide rebates to
policyholders; minimum benefit levels for health insurance plans, including actuarial value standards and
limitations on annual coverage limits; taxes and assessments on health insurance carriers; establishment of state
and/or federal health insurance exchanges to facilitate access to, and the purchase of, health insurance; open
enrollment periods for the purchase of individual and family health insurance; assistance for member run health
insurance issuers; creation of multi-state health insurance plans to be offered on the exchanges and with oversight
from the Office of Personnel Management; requirements for uniform disclosure relating to the costs and benefits
of health insurance; government subsidized high risk pools; an expansion of Medicaid so that more individuals
will be insured under state Medicaid programs; and subsidies and cost-sharing credits to make health insurance
more affordable for those below certain income levels. Many of the significant aspects of health care reform went
into effect in 2014, although certain provisions were effective prior to 2014, such as medical loss ratio
requirements for individual and family and small business health insurance and a requirement that persons
26 years of age and younger be able to stay on a parent’s health insurance plan. Health care reform legislation
required various departments of the executive branch to adopt regulations implementing its provisions. In
addition, state governments have adopted, and will continue to adopt, changes to their existing laws and
regulations in light of federal health care reform legislation and regulations. The implementation of health care
reform has increased and could further increase our competition and could reduce or eliminate the need for health
insurance agents or demand for the health insurance for individuals, families or small businesses that we sell;
decrease the number of health insurance plans that we sell as well as the number of health insurance carriers

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offering them; cause a substantial reduction in our membership and revenue; cause us to incur increased expense
across our business and cause health insurance carriers to further reduce our commissions and other amounts they
pay for our services or change our relationship with them in other ways, any of which could materially harm our
business, operating results and financial condition. In addition, various aspects of health care reform have caused
and could continue to cause health insurance carriers to determine to limit the type of health insurance plans we
sell and the geographies in which we sell them, to reduce or eliminate the commissions we receive from them on
the sale of health insurance plans, to exit the business of selling insurance plans in a particular jurisdiction, to
eliminate certain categories of products or attempt to move members into new plans for which we receive lower
or no commissions, any of which could materially harm our business, operating results and financial condition.

Beginning in 2014, health insurance carriers offering coverage in the individual or small business health

insurance market must ensure that such coverage meets certain actuarial value standards, includes certain
minimum health benefits and is not subject to lifetime or, for most health insurance benefits, annual dollar
amount coverage limits. Moreover, health insurance carriers cannot deny individuals health insurance for health
reasons. Individuals also are required to hold plans providing minimum essential coverage to meet the mandate
for health insurance and avoid a tax penalty. The cost of health insurance has generally increased and several
health insurance carriers have indicated that they are suffering financial losses in their individual and family
health insurance businesses, particularly with respect to their sale of qualified health plans offered through
government-run health insurance exchanges. As a result, health insurance carriers could exit the business of
selling individual and family health insurance in certain markets or altogether. Moreover, in the jurisdictions
where they continue to sell individual and family health insurance, we anticipate that premiums for individual
and family health insurance will generally increase. If the cost of health insurance increases or carriers exit the
business of selling qualified health plans or individual and family health insurance in general, we could
experience a reduction in demand for the individual and family health insurance that we sell, which could cause
us to suffer a substantial reduction in our membership, and materially harm our business, operating results and
financial condition. Moreover, compared to the increased cost of individual and family health insurance plans,
government subsidies to purchase health insurance and the health care reform tax penalty may not be sufficient
enough to drive a substantial number of new entrants into the individual and family health insurance market or
incentivize our existing members to maintain their individual and family health insurance plans, which could
contribute to a decline in our membership and materially harm our business, operating results and financial
condition.

If we are not successful in retaining our existing members and enrolling a large number of individuals

and families into individual and family health insurance plans during the health care reform open enrollment
period, our business will be harmed.

As a result of health care reform, individual and family health insurance is required to be purchased during

an open enrollment period. The most recent open enrollment period for individual and family health insurance
began on November 1, 2015 and ended on January 31, 2016 for coverage effective in 2016. Outside of the open
enrollment period, individuals and families can only purchase new or change their existing individual and family
health insurance if they qualify for a special enrollment period, which requires certain qualifying events such as
losing employer-sponsored health insurance, moving to another state or becoming eligible or ineligible for a
government subsidy for their health insurance. Our revenue depends in large part on the number of paying
individual and family health insurance members we are successful in retaining and the number of individual and
family health insurance members we acquire during the health care reform open enrollment period. We may not
be successful in retaining or acquiring individual and family health insurance plan members for a number of
reasons. If we are unsuccessful, our business, operating results and financial condition would be harmed. For
example, we have experienced increased member attrition rates since the implementation of health care reform.
We also experienced lower than expected individual and family health insurance application volumes during the
last two open enrollment periods. These circumstances have resulted in lower individual and family health
insurance plan membership. Open enrollment periods of limited duration in the individual and family health
insurance markets have resulted, and may in the future result in a reduction in our membership and revenue; an

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increase in our expenses, particularly during the open enrollment periods; and otherwise may harm our business,
operating results and financial condition, particularly given that the open enrollment period for individual and
family health insurance overlaps with the annual enrollment period for the Medicare plans that we sell.

It may be difficult for the health insurance agents we employ and our systems and processes to handle as a

business the increased volume of health insurance transactions that occur in a short period of time during the
health care annual open enrollment period and/or the Medicare annual enrollment period. We hire a significant
number of additional employees on a temporary or seasonal basis in a limited period of time to address the
expected increase in the volume of health insurance transactions during the Medicare annual enrollment period.
We must ensure that these employees are timely licensed, trained and certified and have the appropriate authority
to sell health insurance in a number of states. We depend upon state departments of insurance, government
exchanges and health insurance carriers for the licensing, certification and appointment of our health insurance
agent employees. If our ability to market and sell individual and family health insurance or Medicare-related
health insurance is constrained during an enrollment period for any reason, such as technology failures, reduced
allocation of resources, any inability to timely license, train, certify and authorize our employees to sell health
insurance, interruptions in the operation of our website or systems, or issues with government-run health
insurance exchanges, we could suffer a reduction in our membership and our business, operating results and
financial condition could be harmed. In addition, we have reduced our employee and other resources as a part of
expense reduction measures. Our expense reductions measures have negatively impacted the resources that we
dedicate to the sale of individual and family health insurance, have caused us to sell less individual and family
health insurance, and could harm our business, operating results and financial condition in the future.

If investments we make in enrollment periods do not result in a significant number of paying members,

our business, operating results and financial condition would be harmed.

In an attempt to attract and enroll a large number of individuals during the Medicare annual enrollment
period and the health care reform open enrollment period, we may invest in areas of our business, including
technology and content, customer care and enrollment, and marketing. During 2014, our technology and content
expense increased as a result of our investment in our technology platform. We also increased staffing in our
customer care center in anticipation of higher demand and application volume during the open enrollment period
for coverage effective 2015. Despite our investment in these and other areas, our individual and family health
insurance membership declined. While we may not determine to invest heavily in the health care reform open
enrollment period, any investment we make in either the Medicare annual enrollment period or the health care
reform open enrollment period may not result in a significant number of paying members. If it does not, our
future profitability will be negatively impacted and our business, operating results and financial condition would
be harmed.

Our business may be harmed if we are not successful in enrolling subsidy-eligible individuals through

government-run health insurance exchanges.

As a part of health care reform, each state is required to implement a health insurance exchange where

individuals and small businesses can purchase health insurance. For states that do not implement a health
insurance exchange, the federal government has implemented and is operating the exchange for that state. The
Federally-Facilitated Marketplace, or FFM, operated some part of the health insurance exchange in 37 states for
the open enrollment period that began November 1, 2015 and ended on January 31, 2016. It may operate the
health insurance exchange for a fewer or greater number of states in the future. Beginning in 2014, individuals
and families whose incomes are between 133% and 400% of the federal poverty level are generally entitled to
subsidies in connection with their purchase of health insurance. A federal regulation promulgated under the
Patient Protection and Affordable Care Act clarifies that states may, but are not required to, allow agents and
brokers such as us to market the qualified health plans offered on government-run health insurance exchanges
and that are the plans that subsidy-eligible individuals must purchase in order to receive their subsidies. In order
to offer qualified health plans, agents and brokers must meet certain conditions, such as receiving permission to

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do so from the health insurance exchange, entering into an agreement with the health insurance exchange,
ensuring that the enrollment and subsidy application is completed through the state’s health insurance exchange
(or the FFM in states that did not establish their own exchange) and complying with privacy, security and other
standards, some of which have been recently issued and contain requirements that are new to us. In the event
Internet-based agents and brokers such as us use the Internet for completion of qualified health plan selection
purposes, their websites are required to meet certain additional conditions, such as compliance with standards for
display of health plan and related information; providing consumers the ability to view all health plans offered on
the government-run exchange; displaying certain health plan and other data available on the exchange; and
providing a mechanism for consumers to withdraw from the application process on the agent or broker’s website.
A large segment of the population is eligible for subsidies in connection with the purchase of health insurance,
and a substantial number of our existing members may be eligible for subsidies. We have determined to focus on
enrolling individuals in qualified health plans through FFM as opposed to states operating their own health
insurance exchanges. As a result, we may lose existing members who reside in states not supported by FFM and
may not gain new subsidy-eligible members in those states, which could harm our business, operating results and
financial condition. In addition, we may experience difficulty in satisfying the conditions and requirements to
offer qualified health plans to our existing members and new potential members and in enrolling them through
the FFM and other government-run health insurance exchanges should we determine to offer qualified health
plans through those other exchanges. If we are not able to satisfy these conditions and requirements, or if we are
not able to successfully adopt and maintain solutions that allow us to enroll large numbers of individuals and
families in qualified plans over the Internet both during and outside of open enrollment periods, we will lose
existing members and new members, and may incur additional expense, which would harm our business,
operating results and financial condition.

In order to sell qualified health plans to subsidy eligible individuals during the open enrollment period, we

must establish and maintain relationships with government-run health insurance exchanges, particularly the FFM,
and given that at least a part of the qualified health insurance plan enrollment process must occur through the
health insurance exchanges, we must maintain our technology platform to be able to enroll consumers in
qualified health plans through the FFM and other government-run health insurance exchanges in a scalable
manner. If we are not able to adopt and maintain solutions to integrate with government-run health insurance
exchanges or if the health insurance exchange websites and other processes are not consumer friendly, efficient
and compatible with the process we have developed for enrolling individuals and families into qualified health
plans through the exchanges, we would not be successful in retaining and acquiring members, and our business,
operating results and financial condition would be harmed. For example, CMS directed us to alter our method of
enrolling subsidy eligible individuals into qualified health insurance plans beginning February 2016. The change
required us to cease using the online process we developed for enrolling individuals into qualified health plans
through the FFM and use a prescribed FFM process. As a result of the changes that we made to our online
process in response to CMS requirements, we may have difficulty enrolling, and may not be able to enroll,
individuals in qualified health plans in an efficient and scalable manner both during and outside of the annual
open enrollment period and our number of qualified health plan enrollments could decline, which would result in
our loss of existing members and new potential members, a reduction in our individual and family health
insurance plan membership and harm our business, operating results and financial condition. While CMS has
indicated that it is investigating whether it will make changes to the prescribed FFM process, it may not do so in
time for the upcoming open enrollment period or at all, which would harm our ability to enroll individuals in
qualified health plans and our business, operating results and financial condition. We may also be required to
incur additional expense in enrolling subsidy eligible individuals in qualified health plans which would increase
our cost of acquisition. In addition, health insurance exchange websites, systems and infrastructure must be
operational and not suffer significant outages or technical problems as a result of the number of individuals
attempting to enroll in qualified health plans or for other reasons. If exchanges experience these problems,
particularly the FFM, we would not be successful in retaining and acquiring new individual and family health
insurance plan members, and our business, operating results and financial condition would be harmed.

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We have entered into agreements with CMS relating to our ability to enroll individuals in qualified health
plans through the FFM. The agreements contain comprehensive privacy and security and other requirements. In
order to be able to enroll individuals into qualified health plans, we also must satisfy several other regulatory
requirements and comply with additional laws and regulations. There are risks and uncertainties relating to our
ability to enroll individuals into qualified health plans online through the FFM. Among other things, we must
maintain our agreements with the FFM which need to be renewed every year; satisfy the requirements contained
in the relevant agreements as well as applicable laws and regulations; maintain a compliant Internet platform
incorporating those requirements; maintain qualified health plan information from health insurance carriers and
CMS and incorporate it into our web platform; maintain a privacy and security program to conform to the
privacy and security requirements of our agreement with CMS as well as applicable laws and regulations; and
adopt and maintain solutions to integrate with the FFM so that information may be passed to and from us relating
to enrollment in qualified health plans and subsidy eligibility. If we are not successful in these regards, we will
not be successful in enrolling individuals and families into qualified health plans, which would harm our
business, operating results and financial condition. We also depend upon the Federal government for a number of
things relating to our ability to enroll individuals online into qualified health plans through the FFM, including
certain qualified health plan information that is required under the applicable regulations to be displayed on our
website. In addition, the FFM may at any time cease allowing us to enroll individuals in qualified health plans
and must allocate resources to ensuring, and otherwise ensure, that its technology platform functions properly to
enroll individuals online with an adequate customer experience and that results in our receiving credit for
enrollments so that we may be paid a commission. We also depend on the FFM to maintain and permit us to use
certain access points to the FFM in order for us to be able to assist individuals in applying for subsidies and
enrolling in qualified health plans online. If the FFM does not maintain or permit us to use these access points, if
the FFM changes them so that the technology we developed to integrate with the FFM does not work or results in
errors, if CMS requests changes to our online process for enrolling individuals into qualified health plans, or if
our technology and website or the FFM’s technology or website do not function or work together properly to
allow us to assist with subsidy applications and enroll large numbers of individuals into qualified health plans in
a short period of time, our business, operating results and financial condition would be harmed, particularly if we
were not able to scalably and efficiently enroll individuals into qualified health plans online during the open
enrollment period for individual and family health insurance. In addition, instability or changes to either the FFM
website, particularly the portions used by agents and brokers, or other FFM operations relating to agent and
broker assisted enrollment in qualified health plans, could negatively impact our ability to retain existing
members and add new members. A negative impact to our ability to retain existing members and add new
members would harm our business, operating results and financial condition.

While the FFM has developed a platform that we can use to assist individuals and families in applying for

subsidies and enrolling in qualified health plans online, none of the states that operate their own health insurance
exchanges have developed this capability. As a result, while we have assisted subsidy eligible individuals in
applying for qualified health insurance plans in non-FFM states, we are not able to do so entirely online. If these
state exchanges do not adopt processes and technology that allow us to assist subsidy-eligible individuals in
enrolling through these exchanges over the Internet and without use of health insurance agents in our customer
care centers, we will not be able to effectively enroll subsidy eligible individuals in these states, and our business,
operating results and financial condition will be harmed.

In part to attempt to satisfy the conditions necessary for us to use our Internet technology platform to enroll
individuals into qualified health plans as a health insurance agent, and assist individuals in applying for subsidies
through government-run health insurance exchanges, we have incurred significant operating expenses. The
operating expenses that we incur may not result in increased revenue for a number of reasons both within and
outside of our control. If our revenue does not offset our costs and operating expenses, our financial condition
and results of operations could be negatively affected. For instance, we incurred significant technology and
content expense in part to develop the capability to enroll individuals into qualified health insurance plans
through exchanges. Despite our investment in this regard, our individual and family health insurance plan
membership has declined. Furthermore, CMS has recently directed us to make changes to that process. If we are

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not successful in leveraging our technology to enroll subsidy-eligible individuals through the FFM in a scalable
and efficient manner, do not successfully adopt solutions that enable online enrollment through government-run
health insurance exchanges in an ecommerce friendly experience, or either we or the government-run exchanges
experience technical or other problems in connection with the enrollment of individuals in qualified health plans,
we will lose existing members and new members or may not receive commissions for the plans that we sell
through the government-run exchanges. We have also reduced headcount and other expenses across our business.
We anticipate this reduction, implemented in March 2015, will make it more difficult for us to enroll individuals
through health insurance exchanges and otherwise, which could result in a reduction in our membership and our
commission revenue.

We depend upon health insurance carriers and government-run health insurance exchanges to adopt and
maintain systems and processes that can handle sales of individual and family health insurance outside of the open
enrollment period to those who qualify for special enrollment periods, which may include systems and processes
that verify whether individuals and families are permitted to purchase individual and family health insurance outside
of the open enrollment period. The failure of health insurance exchanges to develop these systems and processes has
negatively impacted our ability to sell qualified health plans using our technology platform outside of the open
enrollment period. If these systems and processes are not developed, are not maintained or are not compatible with
our platform and processes for selling individual and family health insurance, our ability to sell individual and
family health insurance outside of the open enrollment period will be negatively impacted, which could harm our
business, operating results and financial condition, particularly given that we have reduced headcount relating to our
ability to sell individual and family health insurance and will need to rely more on our technology to do so. In
addition, CMS recently announced that it was eliminating certain exceptions that would allow individuals and
families to enroll in health insurance during a special enrollment period and individuals and families will be subject
to increased verification of the grounds for any special enrollment period that they claim, which could reduce the
number of individuals and families that are able to purchase health insurance in special enrollment periods and harm
our business, operating results and financial condition.

If we do not successfully compete with government-run health insurance exchanges, our business may be

harmed.

We compete with government-run health insurance exchanges, among others. Among other things, the

exchanges may elect whether or not we are able to enroll subsidy-eligible individuals in qualified health plans
through them and determine the manner in which we may do so. The exchanges have websites where individuals
and small businesses can shop for and purchase health insurance, and they also have offline customer support and
enrollment capabilities. Individuals who are eligible for government subsidies in the form of premium tax credits
and cost sharing reductions must apply for their subsidy and purchase qualified health plans through a
government exchange to receive their subsidy. In the aggregate, government exchanges have greater resources,
larger marketing budgets and greater public outreach capability than we do. They may also impact the process we
use to enroll individuals and families through them in a manner that results in a reduction of the individuals and
families that we are able to enroll through exchanges. Government exchanges may invest heavily in paid search
advertising to a degree that increases paid search advertising cost for health insurance related Internet search
terms. In addition, individuals that utilize our platform and services to apply for subsidies and health insurance
through government exchanges receive marketing and communications from the government exchanges after
they do so. In the event our existing members purchase health insurance directly through health insurance
exchanges without using us as their health insurance agent, as a result of their being eligible for a subsidy or
otherwise, we will no longer receive commission revenue as a result of our sale of health insurance to them. The
exchanges also compete with us for new members, and under regulations adopted as a part of health care reform,
government-run health insurance exchanges are required to automatically re-enroll individuals and families into a
qualified health insurance plan purchased through the exchange if the individuals or families do not take
affirmative action, which may inhibit our ability to grow our membership. Competitive pressure from
government-run health insurance exchanges has resulted, and may in the future result, in our experiencing
increased marketing costs, decreased traffic to our website, a reduction in our individual and family health

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insurance membership and revenue and may otherwise harm our business, operating results and financial
condition.

Our revenue will be adversely impacted if commission rates decline or if consumers choose health

insurance products for which we receive lower or no commissions.

Our revenue will be adversely impacted if our commission rates decline. The commission rates we receive
are impacted by a variety of factors, including the particular health insurance plans chosen by our members, the
carriers offering those plans, our members’ states of residence, the laws and regulations in those jurisdictions, the
average premiums of plans purchased through us and health care reform. Our commission revenue per member
has in the past decreased, and could in the future decrease, as a result of either reductions in contractual
commission rates, unfavorable changes in health insurance carrier override commission programs, or the mix of
carriers whose products we sell during a given period, all of which are beyond our control and may occur on
short notice. To the extent these and other factors cause our commission revenue per member to decline, our
revenue may decline and our business, operating results and financial condition would be harmed.

Our revenue will be adversely impacted if consumers enroll in Medicare or individual and family health
insurance plans that reduce our average commission revenue per member. Due in part to health care reform,
some health insurance carriers have exited or reduced individual and family health insurance selling efforts in
certain markets, leading to changes in the health insurance carrier composition of our commission revenue. Since
our commission rates vary by carrier, a shift in the mix of products selected by our new members will have an
impact on our average commission revenue per member. Some health insurance carriers, including large national
health insurance carriers, have recently reduced or eliminated our commission rates for individual and family
health insurance products because they no longer want us to sell them. As a result, we may not offer those
carriers’ individual and family health insurance products for sale on our website. Any reduction in the supply of
the individual and family health insurance offered on our website may adversely impact demand for the
individual and family health insurance we sell, and if individuals and families do not purchase health insurance
through us as a result of these circumstances, our business, operating results and financial condition would be
harmed. While the health insurance carriers that have reduced or eliminated individual and family health
insurance commissions have generally informed us that they anticipate paying us commissions for individual and
family health insurance that we sell during the upcoming open enrollment period, if they do not do so or if they
do not increase our commission rates to pre-reduction levels, our business, operating results and financial
condition would be harmed. In addition, we are required to display all qualified health insurance plans available
through the FFM in our qualified health plan shopping process regardless of whether we receive commissions for
the sale of those plans. If consumers choose health insurance products for which we receive lower or no
commissions, our commission revenue per member could decline and our business, operating results and
financial condition would be harmed.

Given that Medicare related and individual and family health insurance purchasing is concentrated during

the annual open enrollment periods, a reduction in our average commission revenue per member could occur
over a short period of time and could adversely impact our revenue in future periods, which would harm our
business, operating results and financial condition.

Our business may be harmed if we lose our relationship with health insurance carriers or our

relationship with health insurance carriers is modified.

We typically enter into contractual agency relationships with health insurance carriers that are non-exclusive

and terminable on short notice by either party for any reason. In many cases, health insurance carriers also may
amend the terms of our agreements unilaterally on short notice. Carriers may be unwilling to allow us to sell their
existing or new health insurance plans, or desire to amend our agreements with them, for a variety of reasons,
including for competitive or regulatory reasons, dissatisfaction with the economics of the members that we place
with them or because they do not want to be associated with our brand. We may also terminate our relationship

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with health insurance carriers. In addition, many aspects of health care reform have caused, and may in the future
cause, carriers to modify their relationship with us given the substantial changes in the industry in which we
operate. For instance, in addition to the medical loss ratio requirements, health care reform contains taxes and
assessments on health insurance carriers that may make their businesses less profitable. Carriers may choose to
exclude us from their most profitable or popular plans or may determine not to distribute health insurance plans
in the Medicare, individual and family and small business markets in certain geographies or altogether. A small
number of health insurance plans have limited our relationship with them so that we are able to only sell their
qualified health plans through government-run health insurance exchanges and do not permit us to sell their
individual and family health insurance plans outside of those exchanges. In the event we are not successful in
gaining or maintaining the ability to sell Medicare, individual and family and qualified health insurance plans, if
health insurance carriers pay us no commissions or reduced commissions in connection with the sale of these
plans or if health insurance carriers change our relationship with them in other ways, we could lose a substantial
number of existing and potential members and commission revenue, which would materially harm our business,
operating results and financial condition. The termination of our relationship with a health insurance carrier by us
or the health insurance carrier or the amendment of or change in our relationship with a carrier could reduce the
variety of health insurance plans we offer or have other adverse impacts, which could harm our business,
operating results and financial condition. It also could adversely impact, or cause the termination of,
commissions for past and future sales, which would materially harm our business, operating results and financial
condition. Our business could also be harmed if in the future we fail to develop new carrier relationships and are
unable to offer consumers a variety of health insurance plans in each jurisdiction.

Some health insurance carriers have recently publicly indicated that they are suffering losses in their
individual and family health insurance businesses as a result of the impact of health care reform and have
recently reduced or eliminated our individual and family health insurance commissions for new sales of
individual and family health insurance products. While these health insurance carriers have indicated that they
plan to increase commission rates for individual and family health insurance sold in the open enrollment period,
if they do not increase them to levels that existed prior to the reductions, our business, operating results and
financial condition could be materially harmed. In addition, the reduction in contractual commission rates and
these carriers’ desire to not sell individual and family health insurance outside of the open enrollment period will
reduce the plans that we are able to offer on our websites, which could result in less consumer demand for the
individual and family health insurance that we sell, a reduction in our membership and harm our business
operating results and financial condition. Additionally, in the future and as a result of health care reform or for
other reasons, we cannot assure you that an increasing number of health insurance carriers will not decide to
reduce our commissions, rely on their own internal distribution channels, including in-house agents and carrier
websites, to sell their own plans, determine not sell individual and family health insurance or otherwise limit or
prohibit us from selling their plans on their ecommerce platform.

Significant consolidation in the health insurance industry could alter our relationships with carriers and

harm our business and financial results

The health insurance industry in the United States has experienced a substantial amount of consolidation,

resulting in a decrease in the number of health insurance carriers. Significant additional consolidation may occur
given the proposed acquisition of Humana by Aetna and the proposed acquisition of Cigna by Anthem.
Consolidation in the health insurance industry could cause a loss of or changes in our relationship with carriers
and reduction in our commission or other revenue, which could harm our business, operating results and financial
condition. In the future, we may be forced to offer health insurance from a reduced number of insurance carriers
or to derive a greater portion of our revenue from a more concentrated number of carriers as our business and the
health insurance industry evolve. Revenue derived from Humana represented approximately 21%, 23% and 23%
of our total revenue in 2013, 2014 and 2015, respectively. Revenue derived from carriers owned by Anthem
(WellPoint) represented approximately 12%, 11% and 9% of our total revenue in 2013, 2014 and 2015,
respectively. Revenue derived from carriers owned by UnitedHealthcare represented approximately 11%, 10%
and 11% of our total revenue in 2013, 2014 and 2015, respectively. Revenue derived from carriers owned by

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Aetna represented approximately 10%, 10% and 10% of our total revenue in 2013, 2014 and 2015, respectively.
We have several agreements that govern our sale of health insurance plans with these health insurance carriers.
They may be unilaterally amended or terminated by the carrier on short notice and the amendment or termination
could adversely impact or cause the termination of the commission payments that we receive from these health
insurance carriers, including commissions on plans that we have already sold, which could materially harm our
business, operating results and financial condition. Our revenue could be adversely impacted if we are unable to
maintain currently-existing levels of business with any of our significant health insurance carriers if we are
unable to offset any loss of business with alternative health insurance carriers. We expect that a small number of
health insurance carriers will account for a significant portion of our revenue for the foreseeable future and any
impairment of our relationship with, or the material financial impairment of, these health insurance carriers could
adversely affect our business.

Our business may be harmed if certain aspects of the Patient Protection and Affordable Care Act that are

beneficial to our business are successfully challenged and held unenforceable by the courts or if the Patient
Protection and Affordable Care Act is changed as a result of elections.

A number of lawsuits have been filed challenging various aspects of the Patient Protection and Affordable
Care Act and related regulations. In the event these lawsuits are successful and result in the unenforceability of
aspects of the law or regulations that are beneficial to our business or cause changes in the health insurance
industry that are adverse to our business, our business, operating results and financial condition could be harmed.
In addition, the efficacy of the Patient Protection and Affordable Care Act is the subject of much debate among
members of Congress and the public. Efforts to date to amend or repeal the law have generally been unsuccessful
as a result of the balance of power in Congress and the President’s veto power. However, the upcoming
Presidential election and future Congressional elections may result in the election of individuals that have
different views with respect to health care reform compared to the current administration and Congress. If the
Patient Protection and Affordable Care Act is amended or repealed as a result of any change in the balance of
power in Congress or as a result of the election of a new President, the amendment or repeal could harm our
business, operating results and financial condition. In addition, even if the Patient Protection and Affordable Care
Act is not amended or repealed, the President and the executive branch of the Federal government have a
significant impact on the implementation of the provisions of the law, and the new President or his or her
administration could make changes impacting the implementation of the Patient Protection and Affordable Care
Act, which could harm our business, operating results and financial condition.

Our future operating results are likely to fluctuate and could fall short of expectations.

Our operating results are likely to fluctuate as a result of a variety of factors, including the factors described

elsewhere in this Risk Factors section, many of which are outside of our control. As a result, comparing our
operating results on a period-to-period basis may not be meaningful and you should not rely on our past results as
an indication of our future performance, particularly in light of the fact that our business and industry are
undergoing substantial change as a result of health care reform. If our revenue or operating results differ from our
guidance or fall below the expectations of investors or securities analysts, the price of our common stock could
decline substantially. In the past, when our revenue and operating results differed from our guidance and the
expectations of investors or securities analysts, the price of our common stock was impacted.

Our business model is characterized primarily by revenue based on commissions we receive from insurance

carriers whose policies are purchased by our members. For both Medicare Advantage and Medicare Part D
prescription drug plans, we record commission revenue on an annual basis but may receive commission
payments from insurance carriers on either a monthly or annual basis typically for a period of at least six years,
depending on the carrier arrangement, provided that the policy remains active with us and we remain the agent on
the policy. We receive commissions and record related revenue for an individual and family, small business,
ancillary or Medicare Supplement health insurance policy, typically on a monthly basis, until the health
insurance policy is cancelled or we otherwise do not remain the agent on the policy. A significant component of

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our marketing and advertising expenses consists of expenses incurred in search engine advertising at the time a
consumer clicks on an advertisement and payments owed to our marketing partners in connection with
applications submitted on our ecommerce platform by potential members referred to us by our marketing
partners. As a result of any timing difference between expense and associated revenue recognition, our operating
results and cash flows may be adversely affected in periods where we experience a significant increase in new
applicants. For example, the Medicare annual enrollment period and the implementation of health care reform
open enrollment periods for individual and family health insurance have in the past caused a substantial number
of health insurance applications to be submitted through us in a short period of time and a substantial increase in
marketing and advertising expenses. Because commission revenue related to any submitted applications that
result in paying members is not recognized until future periods, the marketing and advertising expense associated
with the submitted applications has a negative impact on operating results and cash flows in the period in which
the submitted applications were received. In addition, if we incur other unanticipated or one-time expenses in a
particular quarter, lose a significant amount of our member base for any reason or our commission rates are
reduced, through a change in the health insurance products chosen by our members, carrier reduction in our
commission rates or otherwise, the impact of our incurring increased marketing and advertising expenses would
be especially pronounced and we would likely be unable to offset these expenses by increasing sales within that
quarter or to replace lost revenue in the quarter with revenue from new members and our business, operating
results and financial condition would be harmed.

Seasonality may cause fluctuations in our financial results.

The seasonality of our business is outside of our control. For example, the health care reform open

enrollment period has changed the seasonality of our individual and family health insurance business. Since the
fourth quarter of 2013, we have experienced a greater number of individual and family health insurance
submitted applications in the fourth quarter and first quarter and a lower number of submitted applications in the
second and third quarter of the year compared to periods prior to the introduction of open enrollment
periods. The seasonality in our business could change in the future for a number of reasons, including as a result
of changes in timing of the Medicare or individual and family health plan annual open enrollment periods and
changes in, and the enforceability of, the laws and regulations that govern the sale of health insurance. We may
not be able to timely adjust to changes in the seasonality of our business. For example, if the timing of the open
enrollment periods for Medicare-related health insurance or individual and family health insurance change, we
may not be able to timely adapt to changes in customer demand. If we are not successful in responding to
changes in the seasonality of our business, our business, operating results and financial condition could be
harmed. Additional information regarding the seasonality in our business is included in Part I, Item 1 Business
and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this Annual Report on Form 10-K.

Our revenue will be adversely impacted if our membership does not grow or if we are unable to retain our

existing members.

Our estimated individual and family health insurance plan membership has declined substantially since the
implementation of health care reform. Our revenue has been, and will continue to be, adversely impacted if our
membership does not grow. We receive revenue from commissions health insurance carriers pay to us for health
insurance policies sold through our ecommerce platform. When one of these policies is canceled, or if we
otherwise do not remain the agent on the policy, we no longer receive the related commission revenue. Our
members may choose to discontinue their health insurance policies for a variety of reasons. For example, our
members may replace a health insurance policy purchased through us with a health insurance policy provided by
a new or existing employer or may determine that they can no longer afford health insurance. They may also
determine that they do not like the benefits and physician network covered under the plan. In addition, our
members may choose to purchase new policies through other sources or use a different agent, if, for example,
they are not satisfied with our customer service or the health insurance plans that we offer. Our expense
reduction measures have impacted the number of our employees dedicated to customer service in our individual

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and family health insurance business, which could cause a greater number of individuals to be dissatisfied with
our customer service. Consumers may also purchase health insurance policies directly from government-run
health insurance exchanges, including as a result of the requirement that subsidy-eligible individuals must
purchase qualified health plans through government-run health insurance exchanges to be able to receive a
subsidy under health care reform, and we would not remain the agent on the policy. Health insurance carriers
have in the past and may in the future terminate health insurance plans purchased and held by our members. If we
are not successful in transferring members covered under a terminated plan to another policy that we offer, we
will lose these members and associated commission revenue. Our cost of acquiring a new member is
substantially greater than the cost involved in maintaining our relationship with an existing member. If we are not
able to successfully retain existing members and limit member turnover, our revenue and operating margins will
be adversely impacted and our business, operating results and financial condition would be harmed. In addition,
the Medicare-related commission rates that we receive may be higher in the first calendar year of a policy if the
policy is the first Medicare-related policy issued to the member. The individual and family commission rates that
we receive are typically higher in the first twelve months of a policy. After the first twelve months, they
generally decline significantly. As a result, if we do not add a sufficient number of members on new policies, our
revenue will be negatively impacted.

Our operating results fluctuate depending upon CMS regulations, health insurance carrier payment

practices and the timing of our receipt of commission reports from health insurance carriers.

The timing of our revenue depends upon the timing of our receipt of commission reports and associated

payments from health insurance carriers. There have been instances where the report of commissions and
payment has been delayed, such as during holiday periods or as a result of the health care reform open enrollment
period. We also have experienced, and may in the future experience, a delay in receiving commission payments
and reports as a result of a CMS regulation issued in 2014 prohibiting carriers from paying commissions during
the fourth quarter on Medicare Advantage and Medicare Part D prescription drug policies sold during the fourth
quarter with an effective date in the following year. Any delay in our receipt of commission payments or reports
could materially impact our financial results for a given quarter as we would not be able to recognize the related
commission revenue in that quarter. In addition, much of our commission override revenue is not reported and
paid to us in accordance with a scheduled pattern, and some is only reported and paid to us once per year. The
timing of our revenue recognition could also result in a large amount of commission revenue from a carrier being
recorded in a given quarter that is not indicative of the amount of revenue we may receive from that carrier in
subsequent quarters, causing fluctuations in our operating results. We also could report revenue below the
expectations of our investors or securities analysts in any particular period if a material report or payment from a
health insurance carrier were delayed or not received within the time frame required for revenue recognition.

The Medicare annual enrollment period and the implementation of open enrollment periods under health
care reform for the purchase of individual and family health insurance present a challenge as they require us to
enroll a significant number of individuals into health insurance over a limited period of time. Significant
increases in enrollment activity over a limited amount of time may also make it difficult for health insurance
carriers to timely and accurately report commission information to us. To the extent health insurance carriers
have difficulty in reporting timely and accurate commission information to us, we may be unable to recognize
revenue in accordance with our revenue recognition policies, which could cause us to defer substantial revenue
until such time our health insurance carriers are able to resume reporting timely and accurate commission
information to us.

The medical loss ratio requirements that are a part of health care reform may harm our business.

The federal Patient Protection and Affordable Care Act enacted in March 2010 and related amendments in
the Health Care and Education Reconciliation Act of 2010 contain provisions requiring health insurance carriers
to maintain specified medical loss ratios. The medical loss ratio requirements for both individual and family and
small business health insurance became effective in 2011 and, among other things, require health insurance

23

companies to spend 80% of their premium revenue in each of their individual and small group health insurance
businesses on reimbursement for clinical services and activities that improve health care quality. The medical
loss ratio requirement for Medicare Advantage plans is 85% and went into effect in 2014. If a health insurance
carrier fails to meet medical loss ratio requirements, the health insurance carrier is required to rebate a portion of
its premium revenue to its members to make up for the difference.

Carrier reaction to the individual and family medical loss ratio requirements was to significantly reduce the
commissions we receive in connection with the sale of individual and family health insurance. Health insurance
carriers may determine to reduce or further reduce our Medicare Advantage plan, individual and family, or small
group commissions as a result of the medical loss ratio requirements or other aspects of health care reform,
including any increased expenses in complying with or dealing with the impact of health care reform, which
would harm our business, operating results and financial condition. In addition, if health insurance companies fail
to meet medical loss ratio requirements, we may be required to pay back commissions that are related to any
premium amounts the carriers are required to rebate policyholders as a result, which would harm our business,
operating results and financial condition. The medical loss ratio requirements also may cause certain health
insurance carriers to limit the geographies in which they sell health insurance or exit certain markets altogether,
place less reliance on agents to distribute their plans, or limit their health insurance offerings in any number of
other ways, each of which would harm our business, operating results and financial condition. The
implementation of medical loss ratio requirements has caused and could further cause health insurance carriers to
reduce the amount they are willing to spend in connection with our sponsorship and advertising and technology
licensing businesses, which also could harm our business, operating results and financial condition.

Our business may be harmed if we lose our relationship with health insurance carriers whose Medicare-

related health insurance products we sell or if our relationship with those carriers changes.

In 2010 we began to actively market the availability of Medicare-related health insurance plans using our
ecommerce platforms, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription
drug plans. We refer to these plans as Medicare plans. We market Medicare plans to Medicare-eligible
individuals, who are predominately senior citizens over the age of 65. The sale of Medicare Advantage and
Medicare Part D prescription drug plans are subject to an annual enrollment period during the fourth quarter of
each year, when a substantial percentage of the annual sales of these plans occur. We sell Medicare plans as a
health insurance agent using our websites and customer care centers.

Our Medicare plan-related revenue is concentrated in a small number of health insurance carriers. The

success of our Medicare-related health insurance business depends upon our ability to enter into new and
maintain existing relationships with health insurance carriers on favorable economic terms. The concentration of
our Medicare plan sales in a limited number of health insurance carriers makes us vulnerable to changes in
carrier commission rates and changes in the competitiveness of our carriers’ Medicare products. If our Medicare
carriers reduce our commission rates, reduce the amount they pay us for advertising services, or the
competitiveness of their products declines compared to original Medicare or the products of Medicare carriers
with which we do not have a relationship, our business, operating results and financial condition would be
harmed.

In addition, we may temporarily or permanently lose the ability to market and sell Medicare plans for our

Medicare plan carriers. For instance, a carrier may terminate our relationship. Moreover, CMS heavily regulates
the sale of Medicare Advantage and Medicare Part D prescription drug plans and has and will continue to
penalize health insurance carriers for certain regulatory violations by suspending or terminating the carrier’s
ability to market and sell Medicare plans for significant periods of time. Given the concentration of our Medicare
plan sales in a small number of carriers, if we lose a relationship with a health insurance carrier to market their
Medicare plans temporarily or permanently for these or any other reasons, our sales as a health insurance agent
and Medicare plan related revenue could suffer significantly, and our business, operating results and financial
condition would be harmed. The agreements that we have with health insurance carriers to sell Medicare plans

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may be unilaterally amended or terminated by the carrier on short notice and the amendment or termination could
adversely impact, or cause the termination of, the commission payments that we receive for selling their
Medicare plans, including commissions on plans that we have already sold, which could materially harm our
business operating results and financial condition.

Our business may be harmed if we do not market Medicare plans effectively or if our websites and

marketing materials are not timely approved.

Health insurance carriers whose Medicare plans we sell must approve our websites, our marketing material
and call center scripts for us to be able to generate Medicare plan demand and sell Medicare plans to Medicare-
eligible individuals as a health insurance agent. These marketing materials also must be filed with CMS. In
addition, we use Medicare plan cost and benefit data collected and made publicly available by CMS. In the event
that CMS or a health insurance carrier disapproves, or delays approval, of our websites, our marketing material
or call center scripts, or if CMS does not timely release Medicare plan cost and benefit data for the following
year’s Medicare plans prior to the annual enrollment period, we could lose a significant source of Medicare plan
demand and our ability to sell Medicare plans would be adversely impacted, each of which would harm our
business, operating results and financial condition. CMS recently broadened its interpretation of rules and
regulations relating to Medicare plan-related marketing material so that they apply to websites that we did not
previously need to submit to health insurance carriers for approval and file with CMS. This broadened
interpretation also applies the same approval and filing process to marketing material of our marketing partners.
If we are not successful in timely submitting these marketing materials to health insurance carriers for approval,
in gaining that approval and in filing the marketing material with CMS, our Medicare plan marketing could
become less effective, which would harm our business, operating results and financial condition. Further, if a
marketing partner of ours does not consent to having its website or other marketing material filed with the CMS,
does not make changes required by carriers or CMS or does not comply with the CMS marketing guidelines or
other Medicare program related laws, rules and regulations, we may lose the ability to receive referrals of
individuals interested in purchasing Medicare plans from that marketing partner and our business, operating
results and financial condition would be harmed.

In addition, each time we or our marketing partners substantively change our websites or call center scripts

after they are filed with CMS, we need to resubmit them to our health insurance carriers and have them filed with
CMS. We are not permitted to make CMS filings ourselves. Given the review cycles our scripts, websites and
other marketing material undergo, it is very difficult to make changes to them, and our inability to timely make
changes to these marketing materials, whether to comply with new rules and regulations or otherwise could
adversely impact our ability to sell Medicare plans during the Medicare annual enrollment period or otherwise,
which could impact our business, operating results and financial condition. In addition, if a change to scripts or
websites is required by CMS or health insurance carriers, we may be prevented from selling Medicare plans
during this period of review, which could harm our business, operating results, and financial condition,
particularly if it occurred during the annual enrollment period.

Our Medicare plan-related revenue is dependent upon the number of paying Medicare plan insurance
members we are successful in retaining and acquiring during the Medicare annual enrollment period. If we are
not successful in retaining and acquiring Medicare plan members during the annual enrollment period for any
reason, our business, operating results and financial condition would be harmed.

Our ability to sell Medicare-related health insurance plans as a health insurance agent depends upon our

ability to timely hire, train and retain licensed health insurance agents for our customer care center.

In addition to our websites, we rely upon our customer care centers to sell Medicare plans. The success of

our customer care center operations is largely dependent on licensed health insurance agents and other
employees. In order to sell Medicare-related health insurance plans, our health insurance agent employees must
first be licensed by the states in which they are selling plans and certified and appointed with the health insurance

25

carrier that offers the plans in each state that the Medicare-related health insurance product is being sold by the
agent. Because a significant number of Medicare plans are sold in the fourth quarter each year during the
Medicare annual enrollment period, we hire and train a significant number of additional employees on a
temporary or seasonal basis in a limited period of time. It may be difficult for the health insurance agents we
employ and our systems and processes to handle the increased volume of health insurance transactions that occur
in a short period of time during the Medicare annual enrollment period. We must also ensure that our health
insurance agent employees are timely licensed in a significant number of states and certified and appointed with
the health insurance carriers whose products we sell. We depend upon state departments of insurance and health
insurance carriers for the licensing, certification and appointment of our health insurance agent employees. We
may not be successful in timely hiring a sufficient number of additional licensed agents or other employees for
the Medicare annual enrollment period, and even if we are successful, these employees may experience delays in
obtaining health insurance licenses and certifications and health insurance carrier appointments with our health
insurance carrier partners. If we and our health insurance agent employees are not successful in these regards, our
ability to sell Medicare-related health insurance plans will be impaired during the annual enrollment period,
which would harm our business, operating results and financial condition.

Our ability to sell Medicare-related health insurance plans as a health insurance agents depends upon

our maintenance of functioning information technology systems.

The success of our Medicare plan customer care center operations is dependent on information technology

systems. The vast majority of our Medicare plan members utilize our customer care center in connection with
their purchase of a Medicare plan. CMS rules require that our health insurance agent employees utilize CMS-
approved scripts in connection with the sale of Medicare plans and that we record and maintain the recording of
telephonic interactions relating to the sale of Medicare plans. We rely on telephone, call recording, customer
relationship management and other systems and technology in our Medicare customer care center operations, and
we are dependent upon third parties for some of them, including our telephone and call recording systems. The
effectiveness and stability of our Medicare customer care center systems and technology are critical to our ability
to sell Medicare plans, particularly during the Medicare annual enrollment period, and the failure or interruption
of any of these systems and technology or any inability to handle increased volume during the annual enrollment
period would harm our business, operating results and financial condition.

Our success in selling Medicare-related health insurance will depend upon a number of factors some of

which our outside of our control.

We determined to enter into the Medicare plan market because we believe the number of individuals
becoming eligible for Medicare is increasing and these individuals are increasingly using the Internet to shop for
health insurance plans. We also believe that, on average, member retention rates and the commissions that health
insurance carriers pay in connection with the sale of Medicare plans compare favorably to the member retention
rates and commissions we receive in connection with our sale of individual and family health insurance. Should
we prove to be wrong, or should these circumstances reverse, our success in marketing Medicare plans would be
materially and adversely impacted, which could harm our business, operating results and financial condition. For
instance, portions of health care reform impose significant changes to original Medicare and the Medicare
Advantage program by, among other things, increasing benefits original Medicare provides, reducing payments
to Medicare Advantage plans and imposing medical loss ratio requirements for Medicare Advantage plans. In
addition, CMS has in the past determined to reduce the payments it makes to health insurance carriers in
connection with the sale of Medicare Advantage plans and it may do so again in the future. These reductions
have caused, and could in the future cause, the cost of Medicare Advantage plans to increase or the benefits
under Medicare Advantage plans to decrease, either of which would impair our ability to sell Medicare
Advantage plans and our business, operating results and financial condition could be harmed. They also may
cause health insurance carriers to reduce our compensation, which would harm our business, operating results
and financial condition.

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The majority of our Medicare-related health insurance plan sales occur over the telephone. Telephone sales

of Medicare related health insurance require a licensed health insurance agent to complete and are time
consuming compared to sales over the Internet. Given the resources required in connection with telephonic
Medicare related health insurance sales, it may prove difficult for us to continue to grow our Medicare-related
health insurance sales compared to prior periods. Even if we are able to grow those sales, it may be expensive to
add the additional resources necessary for the growth. If we are not able to scalably grow our Medicare related
health insurance sales over the Internet or in other ways that require fewer resources, our business, operating
results and financial condition would be harmed.

Our success in the Medicare plan market as a health insurance agent will also depend upon a number of

additional factors, including:

•

•

•

•

•

•

•

•

our ability to continue to adapt our ecommerce platform to market Medicare plans, including our
development or acquisition of marketing tools and features important in the sale of Medicare plans
online and the effective modification of our user experience;

our success in marketing to Medicare-eligible individuals and in entering into marketing partner
relationships to drive Medicare-eligible individuals to our ecommerce platform;

our effectiveness in entering into and maintaining relationships with marketing partners that refer
Medicare-eligible individuals to us;

our ability to hire and retain additional employees with experience in Medicare, including our ability to
timely implement Medicare sales expertise into our customer care centers;

our ability to implement and maintain an effective information technology infrastructure for the sale of
Medicare plans, including the infrastructure and systems that support our websites, call centers and call
recording;

our ability to leverage technology in order to sell, and otherwise become more efficient at selling,
Medicare-related plans over the telephone;

our ability to comply with the numerous, complex and changing laws and regulations and CMS
guidelines relating to the marketing and sale of Medicare plans, including continuing to conform our
online and offline sales processes to those laws and regulations; and

the effectiveness with which our competitors market the availability of Medicare plans from sources
other than our ecommerce platform.

As a result of these factors, we may prove unsuccessful in marketing Medicare plans and acting as a health

insurance agent in connection with their sale, which would harm our business, operating results and financial
condition. In addition, if our efforts to market Medicare plans during any annual enrollment period were impeded
due to lack of health insurance carrier or CMS approval, or for other reasons, the impact on our business,
operating results and financial condition would be significantly greater given the seasonality of our Medicare-
related revenues, membership acquisition and expenses and the fact that much of the sales of Medicare plans
occur during this period.

The marketing and sale of Medicare plans are subject to numerous, complex and frequently changing

laws and regulations, and non-compliance or changes in laws and regulations could harm our business,
operating results and financial condition.

The marketing and sale of Medicare plans are subject to numerous laws, regulations and guidelines at the
federal and state level. The marketing and sale of Medicare Advantage and Medicare Part D prescription drug
plans are principally regulated by CMS. The marketing and sale of Medicare Supplement plans are principally
regulated on a state-by-state basis by state departments of insurance. The laws and regulations applicable to the
marketing and sale of Medicare plans are numerous, ambiguous and complex, and, particularly with respect to

27

regulations and guidance issued by CMS for Medicare Advantage and Medicare Part D prescription drug plans,
change frequently. As a result of these laws, regulations and guidelines, we have altered, and likely will have to
continue to alter, our websites and sales process to comply with several requirements that are not applicable to
our sale of non-Medicare-related health insurance plans. For instance, many aspects of our online platforms and
our marketing material and processes, as well as changes to these platforms, materials and processes, including
call center scripts, must be filed on a regular basis with CMS and reviewed and approved by health insurance
carriers in light of CMS requirements. In addition, certain aspects of our Medicare plan marketing partner
relationships have been in the past, and will be in the future, subjected to CMS and health insurance carrier
review. Changes to the laws, regulations and guidelines relating to Medicare plans, their interpretation or the
manner in which they are enforced could be incompatible with these relationships, our platforms or our sale of
Medicare plans. For instance, in February 2015 CMS issued guidance indicating that third party websites and
marketing material must be filed for approval with CMS. Health insurance carriers have interpreted this guidance
to mean that websites and marketing material of our marketing partners must go through the process of CMS
filing and review and approval by health insurance carriers. Our marketing partners may not consent to having
their websites or other marketing material filed with CMS. In addition, we have a number of marketing partners
who refer leads to us for Medicare-related health insurance products. Given the resources and review required of
us and health insurance carriers prior to CMS filing, it is unlikely that we will be able to have all of our
marketing partner websites and material filed and approved by CMS, which could harm our business, operating
results and financial condition. In addition, even for our marketing partner websites and marketing material that
are filed with CMS, they may not make it through the review process in time for the Medicare annual enrollment
period. Moreover, under CMS guidance, websites and marketing material must be refiled with CMS if changed,
which also will make it difficult to adapt and optimize marketing partner websites and marketing material in a
short amount time. Given these circumstances, the CMS guidance relating to third party websites could harm our
business, operating results and financial condition.

Due to changes in CMS guidance or enforcement or interpretation of existing guidance, or as a result of new
laws, regulations and guidelines, CMS, state departments of insurance or health insurance carriers may determine
to object to or not to approve aspects of our online platforms or marketing material and processes and may
determine that certain existing aspects of our Medicare-related business are not in compliance. As a result, the
progress of our Medicare operations could be slowed or we could be prevented from operating aspects of our
Medicare revenue generating activities altogether, which would harm our business, operating results and
financial condition, particularly if it occurred during the Medicare annual enrollment period. It could also result
in the write-down of the value of goodwill and intangible assets acquired in connection with our PlanPrescriber
acquisition and purchase of the Medicare.com domain name.

The impact that health care reform legislation will have on the market for Medicare plans is unclear, but it

could change demand for Medicare plans, the way these plans are delivered, the commissions that carriers pay to
health insurance agents in connection with their sale or could adversely impact us in other ways. In the event that
laws and regulations adversely impact our ability to market the availability of any type of Medicare plan on our
ecommerce platform, Medicare plan demand or the amounts that health insurance agents are paid for selling
these plans, our business, operating results and financial condition would be harmed.

CMS has in the past proposed changing the rules relating to compensation of agents in connection with the
sale of Medicare Advantage and Medicare Part D prescription drug plans to reduce our compensation as a health
insurance agent in connection with the sale of these plans. In the event CMS adopts regulations that have the
effect of reducing the compensation that we receive in connection with the sale of Medicare Advantage and
Medicare Part D prescription drug plans, our business, operating results and financial conditions would be
harmed. In addition, CMS adopted regulations that changed the definition of a plan year from being twelve
months from the effective date of a policy to January 1 through December 31 of each year, causing all Medicare
Advantage and Medicare Part D prescription drug policies to renew on January 1 of each year. As a result, we
record all Medicare Advantage and Medicare Part D prescription drug plan renewal commission revenue in the
first quarter of each year. This plan year change resulted in our recognition of minimal renewal commission

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revenue outside of the first quarter of 2015, and we expect similar results in the future. In addition, CMS also
issued a regulation prohibiting carriers from paying commissions during the fourth quarter on Medicare
Advantage and Medicare Part D prescription drug policies sold during the fourth quarter with an effective date in
the following year, which negatively impacts our operating cash flows in the fourth quarter of the year. This
regulation also makes it more difficult for us to recognize revenue relating to our sale of Medicare Advantage
and Medicare Part D prescription drug plans in the fourth quarter of the year, given that our revenue recognition
policy requires us to receive either a cash payment or commission statement in the period we recognize revenue,
provided we receive the second corroborating communication shortly following the period of recognition. If
health insurance carriers do not send at least one of these communications during the fourth quarter, our
recognition of revenue relating to our sale of these policies in the fourth quarter will be delayed until we receive
the first communication, which would adversely impact our financial results in the fourth quarter. In the event
health care reform, the actions of the federal government or other circumstances decrease the demand for
Medicare Advantage plans or other alternatives to original Medicare, or result in a reduction in the amount paid
to us or impact the timing of our revenue recognition in connection with the sale of these plans, our business,
operating results and financial condition could be harmed.

We may be unsuccessful in competing effectively against current and future competitors.

The market for selling health insurance plans is highly competitive. We compete with entities and
individuals that offer and sell health insurance plans utilizing traditional distribution channels as well as the
Internet. Our competitors include local insurance agents across the United States who sell health insurance plans
in their communities. There also are a number of companies that operate websites, provide an online shopping
experience for consumers interested in purchasing health insurance and act as a health insurance agent in
connection with that purchase. Some local agents also use “lead aggregator” services that use the Internet to find
consumers interested in purchasing health insurance and are compensated for referring those consumers to health
insurance agents or carriers. Many health insurance carriers also directly market and sell their plans to consumers
through call centers and their own websites. Although we offer health insurance plans for many of these carriers,
they also compete with us by offering their plans directly to consumers. In connection with our marketing of
Medicare plans, we also compete with the original Medicare program. CMS also offers plan information,
comparison tools, call centers and online enrollment for Medicare Advantage and Medicare Part D prescription
drug plans. We compete with the FFM and state health insurance exchanges implemented as a result of health
care reform. Health care reform also has resulted in health insurance plan cost and benefit data being more
readily accessible, which could facilitate additional competition. To remain competitive against our current and
future competitors, we will need to market our services effectively and continue to improve the online shopping
experience and functionalities of our website and other platforms that our current and future customers may
access to purchase health insurance products from us. If we cannot predict, develop and deliver the right
shopping experience and functionality in a timely and cost-effective manner, or if we are not effective in driving
a substantial number of consumers interested in purchasing health insurance to our website in a cost-effective
manner, we may not be able to compete successfully against our current or future competitors and our business,
operating results and financial condition may be adversely affected.

Some of our current and potential competitors have longer operating histories, larger customer bases, greater

brand recognition and significantly greater financial, technical, marketing and other resources than we do. As
compared to us, our current and future competitors may be able to:

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undertake more extensive marketing campaigns for their brands and services;

devote more resources to website and systems development;

negotiate more favorable commission rates and commission override payments; and

• make more attractive offers to potential employees, marketing partners and third-party service

providers.

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In addition, CMS has the ability to regulate our marketing and sale of Medicare Advantage and Medicare

Part D prescription drug plans, and government-run health insurance exchanges, including CMS with respect to
the FFM, have the ability to regulate our marketing and sale of qualified health plans under health care
reform. CMS and the exchanges could impact the commissions we receive in connection with the sale of these
plans and impose other restrictions and limitations that make it difficult for us to sell them. Competitive
pressures may result in our experiencing increased marketing costs, decreased traffic to our website and loss of
market share, or may otherwise harm our business, operating results and financial condition.

If we are not successful in cost-effectively converting visitors to our website and customer call centers

into members for which we receive commissions, our business and operating results would be harmed.

Our growth depends in large part upon growth in our membership. The rate at which consumers visiting our

ecommerce platform and customer care centers seeking to purchase health insurance are converted into paying
members is a significant factor in the growth of our membership. A number of factors have influenced, and could
in the future influence, the conversion rate for any given period, some of which are outside of our control. These
factors include:

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changes in consumer shopping behavior due to circumstances outside of our control, such as economic
conditions, consumers’ ability or willingness to pay for health insurance, availability of unemployment
benefits or proposed or enacted legislative or regulatory changes impacting our business, including
health care reform;

the quality of and changes to the consumer experience on our ecommerce platform or with our
customer care center;

regulatory requirements, including those requirements imposed by CMS, that make the experience on
our online platforms cumbersome or difficult to navigate;

the variety, competitiveness and affordability of the health insurance plans that we offer;

system failures or interruptions in the operation of our ecommerce platform or call center operations;

changes in the mix of consumers who are referred to us through our direct, marketing partner and
online advertising member acquisition channels;

changes in the mix of consumers who access our ecommerce platform through mobile or tablet devices

health insurance carriers offering the health insurance plans for which consumers have expressed
interest, and the degree to which our technology is integrated with those carriers;

health insurance carrier guidelines applicable to applications submitted by consumers, the amount of
time a carrier takes to make a decision on that application and the percentage of submitted applications
approved by health insurance carriers;

the percentage of our members who did not accept their approved policies and from whom we do not
receive commission payments; and

our ability to enroll subsidy-eligible individuals in qualified health plans through government-run
health insurance exchanges.

Our conversion rates can be impacted by changes in the mix of consumers referred to us through our
member acquisition channels. For example, our conversion rates have historically been lower with respect to
consumers referred to us by Internet lead aggregators and relatively higher with respect to consumers coming to
us through our direct member acquisition channel. In addition, we have experienced an increase in the percentage
of mobile phone and tablet visitors to our platform, and the conversion rate for individuals who use our mobile
and tablet platform to shop for and purchase health insurance has historically been lower than desktop and laptop
users. We may make changes to our ecommerce platform in response to regulatory requirements or undertake

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other initiatives in an attempt to improve consumer experience or for other reasons. These changes have in the
past, and may in the future, have the unintended consequence of adversely impacting our conversion rates. A
decline in the percentage of consumers who submit health insurance applications on our ecommerce platform or
telephonically via our customer care centers and are converted into members could cause an increase in our cost
of acquiring members on a per member basis. To the extent the rate at which we convert consumers visiting our
ecommerce platform or telephonically via our customer care centers into members suffers, or in the event the
number of mobile and tablet visitors to our platform continues to increase, our membership growth rate may
decline, which would harm our business, operating results and financial condition.

Our conversion rates are also impacted by changes in both the percentage of submitted applications that are

approved by carriers as well as changes in the percentage of our members who do not accept their approved
policies. Any decline in the percentage of submitted applications that result in paying members will adversely
impact our commission revenue as well as our membership, which could harm our business, operating results and
financial condition. Given that individual and family health insurance purchasing is concentrated during the
annual open enrollment period, we may experience a shift in the mix of individual and family health insurance
products selected by our new members over a short period of time. Any reduction in our average commission
revenue per member during the open enrollment period caused by such a shift or otherwise would also harm our
business, operating results and financial condition.

We have adopted solutions so that we may sell qualified health insurance plans to health care reform
subsidy-eligible individuals and families over the Internet in the states in which the FFM operates the state’s
health insurance exchange. Pursuant to health care reform laws and regulations, the purchase of qualified health
plans must occur through a government-run health insurance exchange, which means that a part of the purchasing
process will occur through its systems. We are dependent upon the FFM’s systems for individuals to be able to
complete the process of purchasing a qualified health plan and to convert into members for which we receive
commission revenue. CMS has recently directed us and other web based entities to make changes to our process
for enrolling individuals and families into qualified health plans through the FFM. The changes require that we
use a different pathway through which individuals are enrolled in qualified health plans through the FFM. This
new pathway has reduced our conversion rates for qualified health plans and could result in lower conversion
rates in the upcoming open enrollment period, which could harm our business, operating results and financial
condition. In addition, if the FFM portion of the pathway we are required to enroll individuals into qualified
health plans does not work properly or we are not properly identified by FFM systems as the agent of record on
health insurance plan sales, we could suffer a reduction in our membership and our commission revenue and loss
of new members, and our business, operating results and financial condition will be harmed.

While we have assisted subsidy eligible individuals in applying for qualified health insurance plans in non-

FFM states, we are not able to do so entirely online and do not intend to focus on enrolling individuals in
qualified health plans in non-FFM states as a result. If these state exchanges do not adopt processes and
technology that allow us to assist subsidy-eligible individuals in enrolling through these exchanges over the
Internet and without use of health insurance agents in our customer care centers, we will not be able to or may
continue to not choose to enroll a significant number of subsidy eligible individuals in these states and our
business, operating results and financial condition could be harmed.

Changes in the quality and affordability of the health insurance plans that carriers offer on our

ecommerce platform could harm our business and operating results.

The demand for health insurance marketed through our ecommerce platform is impacted by, among other
things, the variety, quality and price of the health insurance plans we offer. Some health insurance carriers have
exited certain state insurance markets where we have historically represented their insurance plans and we may
determine not to work with other health insurance carriers. If our ability to sell a variety of high-quality,
affordable health insurance plans in the Medicare, individual and family, small business and ancillary product
markets is impaired, or our health insurance plan offerings are limited or terminated as a result of consolidation

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in the health insurance industry, health care reform or otherwise, our sales or average commission rate per
member may decrease and our business, operating results and financial condition could be harmed. For example,
the cost of health insurance has increased substantially in many states as a result of health care reform
implementation and some health insurance carriers have exited the individual and family health insurance
business in certain states. Moreover, as a result of several carriers not desiring to sell individual and family health
insurance during the current special enrollment period and as a result of their reductions in our commissions for
those sales, we are not able to sell individual and family health insurance plans that we have historically sold.
This reduction in the supply we are able to offer consumers may adversely impact demand for the individual and
family health insurance we sell, and if individuals and families do not purchase health insurance through us as a
result of these circumstances, our business, operating results and financial condition would be harmed.

Health insurance carriers could determine to reduce the commissions paid to us, which could harm our

business and operating results.

Our commission rates, and the commission override payments we receive from health insurance carriers for
achieving sales volume thresholds or other objectives, are either set by each carrier or negotiated between us and
each carrier. Carriers have altered, and may in the future alter, the contractual relationships we have with them on
short notice, either by renegotiation or unilateral action. If these contractual changes result in reduced
commissions, our business may suffer and our operating results and financial condition would be harmed. For
example, several health insurance carriers have reduced or eliminated commission for individual and family
health insurance sold outside of the health care reform open enrollment period. While these carriers have
indicated that they plan to increase commission rates for individual and family health insurance old in the
upcoming open enrollment period, they are not obligated to do so.

If we are not able to maintain and enhance our brand, our business and operating results will be harmed.

We believe that maintaining and enhancing our brand identity is critical to our relationships with existing

members, marketing partners and health insurance carriers and to our ability to attract new members, marketing
partners and health insurance carriers. The promotion of our brand in these and other ways may require us to
make substantial investments and we anticipate that, as our market becomes increasingly competitive, these
branding initiatives may become increasingly difficult and expensive. Our brand promotion activities may not be
successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased
revenue may not offset the expenses we incur and our operating results could be harmed. If we do not
successfully maintain and enhance our brand, our business may not grow and we could lose our relationships
with health insurance carriers, marketing partners and/or members, which would harm our business, operating
results and financial condition.

In addition, we have historically received media attention in connection with our public relations efforts.
While we cannot be certain of the impact of media coverage on our business, if it were to be reduced or if we
were to receive negative publicity, the number of consumers visiting our platform or customer call centers could
decrease, and our cost of acquiring members could increase as a result of a reduction in the number of members
coming from our direct member acquisition channel, both of which could harm our business, operating results
and financial condition.

System failures or capacity constraints could harm our business and operating results.

The performance, reliability and availability of our ecommerce platforms and underlying network
infrastructures are critical to our financial results, our brand and our relationship with members, marketing
partners and health insurance carriers. Although we regularly attempt to enhance our ecommerce platform and
system infrastructure, system failures and interruptions may occur if we are unsuccessful in these efforts, if we
are unable to accurately project the rate or timing of increases in our website traffic or for other reasons, some of
which are completely outside our control. Although we have experienced only minor system failures and

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interruptions to date, we could experience significant failures and interruptions in the future, which would harm
our business, operating results and financial condition. If these failures or interruptions occurred during the
Medicare annual enrollment period or during the open enrollment period under health care reform, the negative
impact on us would be particularly pronounced.

We rely in part upon third-party vendors, including data center and bandwidth providers, to operate our

ecommerce platforms. We cannot predict whether additional network capacity will be available from these
vendors as we need it, and our network or our suppliers’ networks might be unable to achieve or maintain a
sufficiently high capacity of data transmission to allow us to process health insurance applications in a timely
manner or effectively download data, especially if our website traffic increases. Any system failure that causes an
interruption in or decreases the responsiveness of our services would impair our revenue-generating capabilities
and harm our business and operating results and damage our reputation. In addition, any loss of data could result
in loss of customers and subject us to potential liability. Our database and systems are vulnerable to damage or
interruption from human error, earthquakes, fire, floods, power loss, telecommunications failures, physical or
electronic break-ins, computer viruses, acts of terrorism, other attempts to harm our systems and similar events.
In addition, our operations are vulnerable to earthquakes in the San Francisco Bay Area and elsewhere in
Northern California.

Consumers may access our customer care centers for assistance in connection with submitting health

insurance applications. We depend upon third parties, including telephone service providers and third party
software providers, to operate our customer care centers. Any failure of the systems that we rely upon in the
operation of our customer care centers could negatively impact sales as well as our relationship with consumers
and members, which could harm our business, operating results and financial condition.

If consumers or carriers opt for more traditional or alternative channels for the purchase and sale of

health insurance, our business will be harmed.

Our success depends in part upon widespread consumer and health insurance carrier acceptance of the
Internet as a marketplace for the purchase and sale of health insurance. Consumers and health insurance carriers
may choose to depend more on traditional sources, such as individual agents, or alternative sources may develop,
including as a result of health care reform legislation. For instance, an increasing percentage of individuals are
using their phones or tablet computers to shop for health insurance over the Internet and may prefer to complete
their purchases over these devices. Our future growth, if any, will depend in part upon:

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the growth of the Internet as a commerce medium generally, and as a market for consumer financial
plans and services specifically;

consumers’ willingness to conduct their own health insurance research;

our ability to make the process of purchasing health insurance online an attractive alternative to
traditional and new means of purchasing health insurance;

our ability to develop an effective process for purchasing health insurance over the Internet on
smartphones, tablets and devices other than desktop or laptop computers;

our ability to successfully and cost-effectively market our services as superior to traditional or
alternative sources for health insurance to a sufficiently large number of consumers; and

health insurance carriers’ willingness to use us and the Internet as a distribution channel for health
insurance plans.

If we are not successful in these regards, and if consumers and health insurance carriers determine that other

sources for health insurance and health insurance applications are superior, our business will not grow and our
operating results and financial condition would be harmed.

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We depend upon Internet search engines to attract a significant portion of the consumers who visit our
website, and if we are unable to effectively advertise on search engines on a cost-effective basis, our business
and operating results would be harmed.

We derive a significant portion of our website traffic from consumers who search for health insurance
through Internet search engines, such as Google, Bing and Yahoo!. A critical factor in attracting consumers to
our website is whether we are prominently displayed in response to an Internet search relating to health
insurance. Search engines typically provide two types of search results, algorithmic listings and paid
advertisements. We rely on both algorithmic listings and paid advertisements to attract consumers to our
websites.

Algorithmic search result listings are determined and displayed in accordance with a set of formulas or
algorithms developed by the particular Internet search engine. The algorithms determine the order of the listing
of results in response to the consumer’s Internet search. From time to time, search engines revise these
algorithms. In some instances, these modifications have caused our website to be listed less prominently in
algorithmic search results, which has resulted in decreased traffic to our website. We may also be listed less
prominently as a result of new websites or changes to existing websites that result in these websites receiving
higher algorithmic rankings with the search engine. For example, government health insurance exchange
websites have recently begun to appear prominently in algorithmic search results. Our website may become listed
less prominently in algorithmic search results for other reasons, such as search engine technical difficulties,
search engine technical changes and changes we make to our website. In addition, search engines have deemed
the practices of some companies to be inconsistent with search engine guidelines and decided not to list their
website in search result listings at all. If we are listed less prominently in, or removed altogether from, search
result listings for any reason, the traffic to our websites would decline and we may not be able to replace this
traffic, which in turn would harm our business, operating results and financial condition. If we decide to attempt
to replace this traffic, we may be required to increase our marketing expenditures, which would also increase our
cost of member acquisition and harm our business, operating results and financial condition.

We purchase paid advertisements on search engines in order to attract consumers to our website. We

typically pay a search engine for prominent placement of our name and website when particular health insurance-
related terms are searched for on the search engine, regardless of the algorithmic search result listings. The
prominence of the placement of our advertisement is determined by a combination of factors, including the
amount we are willing to pay and algorithms designed to determine the relevance of our paid advertisement to a
particular search term. As with algorithmic search result listings, search engines may revise the algorithms
relevant to paid advertisements and websites other than our ecommerce platform may become more optimized
for the algorithms. These changes may result in our having to pay increased amounts to maintain our paid
advertisement placement in response to a particular search term. We could also have to pay increased amounts
should the market share of major search engines continue to become more concentrated with a single search
engine. Additionally, we bid against our competitors and others for the display of these paid search engine
advertisements. Many of our competitors, including many health insurance carriers and government-run health
insurance exchanges, have greater resources with which to bid and better brand recognition than we do. We have
experienced increased competition from health insurance carriers, government health insurance exchanges and
some of our marketing partners for both algorithmic search result listings and for paid advertisements. This
competition has increased the cost of paid internet search advertising and has increased our marketing and
advertising expenses. This competition has in the past increased substantially during the open enrollment periods
for individual and family health insurance and Medicare related health insurance and may increase further if
these open enrollment periods occur over the same period of time. If paid search advertising costs increase or
becomes cost prohibitive, whether as a results of competition, algorithm changes or otherwise our advertising
expenses could rise significantly or we could reduce or discontinue our paid search advertisements, either of
which would harm our business, operating results and financial condition.

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We rely significantly on marketing partners and our business and operating results would be harmed if
we are unable to maintain effective relationships with our existing marketing partners or if we do not establish
successful relationships with new marketing partners.

In addition to marketing through Internet search engines, we frequently enter into contractual marketing
relationships with other online and offline businesses that promote us. These marketing partners include financial
and online service companies, affiliate programs and online advertisers and content providers. We also have
relationships with marketing partners, including pharmacy chains that promote our Medicare platforms to their
customers. We compensate many of our marketing partners for their referrals on a submitted health insurance
application basis and, if they are licensed to sell health insurance, may share a percentage of the commission we
earn from the health insurance carrier for each member referred by the marketing partner.

Many factors influence the success of our relationship with our marketing partners, including:

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the continued positive market presence, reputation and growth of the marketing partner;

the effectiveness of the marketing partner in marketing our website and services, including whether the
marketing partner is successful in maintaining the prominence of its website in algorithmic search
result listings and paid Internet advertisements;

the compliance of our marketing partners, and of the manner marketing partners refer consumers to our
platforms, with applicable laws, regulations and guidelines;

the interest of the marketing partner’s customers in the health insurance plans that we offer on our
ecommerce platform;

the contractual terms we negotiate with the marketing partner, including the marketing fees we agree to
pay a marketing partner;

the percentage of the marketing partner’s customers that submit applications or purchase health
insurance policies through our ecommerce platform;

the ability of a marketing partner to maintain efficient and uninterrupted operation of its website; and

our ability to work with the marketing partner to implement website changes, launch marketing
campaigns and pursue other initiatives necessary to maintain positive consumer experiences and
acceptable traffic volumes.

For instance, we partner with Internet lead aggregators who refer a significant number of consumers to our

online platforms. Major search engines have in the past and may in the future determine not to list lead
aggregator websites prominently in search result listings for various reasons, which would cause a significant
reduction in the number of consumers referred to us through our marketing partner channel. While we have
relationships with a large number of marketing partners, we depend upon referrals from a limited number of
marketing partners for a significant portion of the submitted applications we receive from our marketing partner
customer acquisition channel. Moreover, a significant portion of our referrals for the purchase of Medicare plans
comes from a single marketing partner.

Given our reliance on our marketing partners, our business operating results and financial condition would

be harmed if any of the following were to occur:

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if we are unable to maintain successful relationships with our existing marketing partners, particularly
marketing partners responsible for a significant number of our submitted applications;

if we fail to establish successful relationships with new marketing partners;

if we experience competition in our receipt of referrals from our high volume marketing partners; and

if we are required to pay increased amounts to our marketing partners.

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To the extent that health care reform makes it less profitable or desirable for marketing partners to promote

us to their customers, we may lose relationships with existing marketing partners or those marketing partners
may refer fewer individuals to us. We may also have difficulty entering into relationships with new marketing
partners. We may also need to reduce or eliminate the compensation that we pay to marketing partners to the
extent that health care reform has the effect of reducing commissions for individual and family health insurance
or causes our members to stay on their health insurance policies for a shorter period of time. For example, we
have reduced compensation we pay to marketing partners for individual and family health insurance in light of
the reduction in commission rates by several health insurance carriers. If we are not able to timely change the
terms of our agreements with marketing partners, our business, operating results and financial condition could be
harmed. Even if we are able to reduce the compensation that we pay to marketing partners, our relationships with
existing marketing partners may be adversely affected, and given that our marketing partners are not obligated to
send referrals to us, the reduction any reduction in marketing partner compensation could result in less demand
for the health insurance that we sell. We may lose marketing partner referrals if our competitors pay marketing
partners more than we do or be forced to pay increased fees to our marketing partners, which could harm our
business, operating results and financial condition. If we lose marketing partner referrals during the Medicare or
individual and family health insurance annual open enrollment periods, the adverse impact on our business would
be particularly pronounced. In addition, the promulgation of laws, regulations or guidelines, or the interpretation
of existing laws, regulations and guidelines, by state departments of insurance or by CMS, could cause our
relationships with our marketing partners to be in non-compliance with those laws, regulations and guidelines.
For instance, CMS recently issued guidance that health insurance carriers have interpreted to mean that websites
and marketing material of our Medicare-related marketing partners must be filed with CMS before use. Before
filing with CMS, these websites and marketing materials will need to undergo a review by health insurance
carriers for whom we market Medicare products. Our marketing partners may not consent to having their
websites or other marketing material filed with CMS, and we and health insurance carriers may not be able to
dedicate the resources necessary to have the websites and marketing material reviewed. If we or health insurance
carriers are not able to timely do so, our business, operating results and financial condition could be harmed. In
addition, as a result of our acquisition of PlanPrescriber, we have marketing partner relationships with pharmacy
chains that utilize aspects of our platform and tools. Our relationships with these pharmacy chains result in the
referral of a significant number of individuals to us who are interested in purchasing Medicare-related health
insurance plans. If CMS or state departments of insurance were to change existing laws, regulations or
guidelines, or interpret existing laws, regulations or guidelines, to prohibit these arrangements, or if pharmacy
partners otherwise decided to no longer utilize aspects of our platform and tools, we could experience a
significant decline in the number of Medicare-eligible individuals who are referred to our platforms and customer
care centers, which would harm our business, operating results and financial condition and could result in a
write-down of the value of intangible assets acquired in our PlanPrescriber acquisition.

We rely on health insurance carriers to accurately and regularly prepare commission reports, and if these

reports are inaccurate or not sent to us in a timely manner, our business and operating results could be
harmed. We also may not recognize trends in our membership as a result of a lack of information from health
insurance carriers.

For individual and family, small business, ancillary and Medicare Supplement health insurance plans, health

insurance carriers pay us a flat amount per member per month or a percentage of the paid health insurance
premium on a health insurance policy that we have sold during the period that a member maintains coverage
under the policy. For both Medicare Advantage and Medicare Part D prescription drug policies, health insurance
carriers typically pay us a fixed commission amount during the period the policy remains active, typically for at
least six years, depending on the carrier. We rely on health insurance carriers to timely and accurately report the
amount of commissions earned by us, and we calculate our commission revenue, prepare our financial reports,
projections and budgets and direct our marketing and other operating efforts based on the reports we receive
from health insurance carriers. There have been instances where we have determined that policy cancellation data
reported to us by a health insurance carrier has not been accurate. Although we recognize commissions reported
to us net of estimated cancellations, the extent to which health insurance carriers are inaccurate in their reporting

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of policy cancellations could cause us to change our cancellation estimates, which could adversely impact our
revenues. We apply judgment and make estimates based on historical data and current trends to independently
determine whether or not carriers are accurately reporting commissions due to us. To the extent that health
insurance carriers understate or fail to accurately report the amount of commissions due to us in a timely manner
or at all, we will not recognize revenue to which we are entitled, which would harm our business, operating
results and financial condition.

We also depend on health insurance carriers and others for data related to our membership. For instance,
with respect to health insurance plans other than small business health insurance, health insurance carriers do not
directly report member cancellations to us, resulting in the need for us to determine cancellations using payment
data that carriers provide. We infer cancellations from this payment data by analyzing whether payments from
members have ceased for a period of time, and we may not learn of a cancellation for several months. With
respect to our small business membership, many groups notify the carrier directly with respect to increases or
decreases in group size and policy cancellations. Our insurance carrier partners often do not communicate this
information to us, and it often takes a significant amount of time for us to learn about small business group
cancellations and changes in our membership within the group itself. We often are not made aware of policy
cancellations until the time of the group’s annual renewal.

A substantial number of our existing members may become eligible for health care reform subsidies in

connection with their purchase of health insurance. In addition, the open enrollment periods applicable in
connection with the sale of both individual and family health insurance and Medicare-related health insurance
condenses purchasing activity over a limited period of time. The increased amount of health insurance
purchasing activity and member movement as a result of health care reform over a limited period of time as well
as any member turnover that we experience may make it difficult for health insurance carriers to accurately
report commission information to us in a timely manner, which would also make it difficult or impossible for us
to accurately report and estimate our membership at any given point in time. Delays in accurate reporting of
commissions may result in delays in recognition of commission revenue compared to historical patterns and our
business, operating results and financial condition could be harmed. In addition, if we experience a disruption in
our ability to accurately estimate our membership it could result in a decrease in our stock price as a result of
uncertainty relating to our membership base.

After we have estimated membership for a period, we may receive information from health insurance
carriers that would have impacted the estimate if we had received the information prior to the date of estimation.
We may receive commission payments or other information that indicates that a member who was not included
in our estimates for a prior period was in fact an active member at that time, or that a member who was included
in our estimates was in fact not an active member of ours. We also reconcile information health insurance
carriers provide to us and may determine that we were not historically paid commissions owed to us, which
would cause us to have underestimated our membership. As a result of open enrollment periods, we may not
receive information from our carriers on as timely a basis due to significant spikes in volume, which could impair
the accuracy of our estimates of the number of members we have for a period of time. Additionally, health
insurance carriers may require us to return commission payments paid in a prior period due to policy
cancellations for members we previously estimated as being active. For these and other reasons, including if
current trends in membership cancellation are inconsistent with past cancellation trends that we use to estimate
our membership or if carriers subsequently report changes to the commission payments that they previously
reported to us, our actual membership could be different from our estimates, perhaps materially. Total revenue
per estimated member for the period would also change if our estimated membership changed. Our estimate
regarding the average amount of time our members maintain their health insurance plans also could be inaccurate
as it depends on the accuracy of our membership estimates.

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Economic conditions and other factors beyond our control may negatively impact our business, operating

results and financial condition.

Our revenue depends upon demand for health insurance in the individual and family and small business

markets, which can be influenced by a variety of factors beyond our control. For instance, as a result of
substantial health insurance premium inflation in recent years, we believe that many employers have sought to
reduce the costs associated with providing health insurance to their employees, including offering fewer benefits
to employees, reducing or eliminating dependent coverage, increasing employee health insurance premium
contributions and eliminating health insurance benefits altogether. We have no control over the economic and
other factors that influence these trends, and they may reverse, including as a result of health care reform
legislation. If economic or other factors beyond our control negatively impact our business, our business,
operating results and financial condition could be harmed.

We believe that demand for the health insurance and services we offer are impacted by prevailing economic

conditions. We cannot be certain of the future impact that economic conditions will have on our business. A
softening of demand for health insurance and services offered by us, whether caused by changes in customer
preferences or a weak U.S. economy, including as a result of disruptions in the global financial markets or a
decrease in general consumer confidence, could adversely impact our operating results. Consumers may attempt
to reduce expenses by canceling existing health insurance purchased through us, determine not to purchase new
health insurance through us, or purchase health insurance plans for which we receive lower commissions. To the
extent the economy or other factors adversely impact our membership retention or the number or type of health
insurance applications submitted through us and that are approved by health insurance carriers, our rate of
growth will decline and our business and operating results will be harmed. A continuing negative economic
environment could also adversely impact the health insurance carriers whose plans are offered on our ecommerce
platform, and they may determine to reduce their commission rates or take other actions that would negatively
impact our sale of health insurance as well as our sponsorship and technology licensing businesses.

There are many risks associated with our operations in China.

A portion of our operations is conducted in China. Among other things, we use employees in China to
maintain and update our ecommerce platform. This and other information is delivered to us through secured
communications over the Internet. Our business would be harmed if this connection temporarily failed and we
were prevented from promptly updating our software or implementing other changes to our database and
systems. Our operations in China also expose us to different and unfamiliar laws, rules and regulations, including
different intellectual property laws, which are not as protective of our intellectual property as the laws in the
United States, and different labor and tax laws. United States and Chinese trade laws may impose restrictions on
the importation of programming or technology to or from the United States. Additionally, we have recently
experienced greater competition for qualified personnel in China, which has raised market salaries and increased
our compensation costs related to employees in that location. If competition for personnel increases further, our
compensation expenses could rise considerably or, if we determine to not increase compensation levels, our
ability to attract and retain qualified personnel in China may be impaired, which could harm our business,
operating results and financial condition. These risks could cause us to incur increased expenses and could harm
our ability to effectively and successfully manage our operations in China, which in turn could cause our
business, operating results and financial condition to suffer.

Our sponsorship and advertising business may not be successful.

We sell advertising space to health insurance carriers on our website through our sponsorship and
advertising program. Health insurance carriers have and may continue to determine to eliminate or reduce
spending on our sponsorship and advertising program as a result of various aspects of health care reform,
including the medical loss ratio requirements that became effective in 2011. As a result, our business, operating
results and financial condition could be harmed. To the extent that economic conditions, health care reform or

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other factors impact the amount health insurance carriers are willing to pay for advertising on our ecommerce
platform, our sponsorship and advertising program will be adversely impacted. For example, the cost of health
insurance has increased substantially in many states as a result of health care reform implementation and some
health insurance carriers have exited the individual and family health insurance business in certain states. In
addition, several health insurance carriers have reduced commissions that they pay for the sale of individual and
family health insurance outside of the open enrollment period. The reduction in the number of health insurance
carriers desiring to sell individual and family plan products or our decision not to offer individual and family
health insurance from carriers who have reduced or eliminated commission could mean reduced demand in our
sponsorship and advertising program as well as reduced demand for the individual and family health insurance
products that we sell. Since much of our sponsorship revenue depends upon the number of applications we
submit to health insurance carriers, these circumstances would reduce our sponsorship revenue and our business,
operating results and financial condition could be harmed. The success of our sponsorship and advertising
program depends on a number of other factors, including the effectiveness of the sponsorship and advertising
program as a cost-effective method for carriers to obtain additional members, consumer and health insurance
carrier adoption of the Internet and our ecommerce platform as a medium for the purchase and sale of health
insurance, our ability to attract consumers visiting our ecommerce platform and convert those consumers into
members, the existence of a relationship between us and a diverse group of carriers that offer a number of health
insurance plans in the markets in which we attempt to sell advertising, the cost, benefit and brand recognition of
the health insurance plan that is the subject of the advertising, the impact the advertising has on the sale of the
health insurance plan that is the subject of the advertising and the effectiveness of the carrier’s other means of
advertising. In addition, while our practice of selling advertising is described on our ecommerce platform, it
could cause consumers to perceive us as not objective, which could harm our brand and result in a decline in our
health insurance sales. It also could adversely impact our relationship with health insurance carriers that do not
purchase our advertising. As a result, our business, operating results and financial condition could be harmed.

We also develop, host and maintain carrier dedicated Medicare plan websites through our advertising
program. Our success in doing so is dependent upon the same factors that could impact our sponsorship program.
In addition, since we maintain relationships with a limited number of health insurance carriers to sell their
Medicare plans, our Medicare plan-related advertising revenue is concentrated in a small number of health
insurance carriers and our ability to generate Medicare plan-related advertising revenue would be harmed by the
termination or non-renewal of any of these relationships as well as by a reduction in the amount a health
insurance carrier is willing to pay for these services. Historically, our Medicare advertising revenue is
concentrated during the Medicare annual enrollment period in the fourth quarter and it is difficult for us to
predict the amount of Medicare advertising revenue we would receive from health insurance carriers from year to
year. To the extent that economic conditions, health care reform or other factors impact the amount health
insurance carriers are willing to pay for our Medicare advertising service, our business, operating results and
financial condition could be harmed. Moreover, in light of the regulations applicable to the marketing and sale of
Medicare plans, and given that these regulations are often unclear, change frequently and are subject to changing
interpretations, we may in the future not be permitted to sell Medicare plan-related advertising. If we are not
successful in generating Medicare plan-related advertising revenue, our business operating results and financial
condition could be harmed.

We may not be successful in licensing the use of our ecommerce technology to health insurance carriers

and other third parties.

We license the use of our ecommerce technology to health insurance carriers and agents. Carriers use our
platform to offer their own health insurance policies on their websites, and agents use it to power their quoting
and online content. We are typically paid implementation fees and performance-based fees that are based on
metrics such as submitted health insurance applications. Health care reform could reduce health insurance carrier
and agent demand for our technology licensing platform as a result of the reduction in the number of health
insurance carriers selling individual and family plan products, the medical loss ratio requirements that became
effective in 2011; a desire to not sell or reduce selling efforts or for other reasons. In addition, health insurance

39

carriers who currently use the platform could determine to cease using it, reduce the number and type of plans
offered on the platform or renegotiate the fees that they pay, any of which would reduce the revenue we receive
from our technology licensing business.

The business of licensing the use of our technology to others could facilitate carrier, health insurance agent

and other third party competition with us in the sale of health insurance over the Internet and is subject to a
number of additional risks and uncertainties, including consumer and health insurance carrier adoption of our
ecommerce platform as a medium for the purchase and sale of health insurance, our ability to establish
relationships with new health insurance carriers, the reliability and performance of our ecommerce platform and
the relative cost of developing competing technology. If we are not able to offer health insurance carriers and
other third parties a reliable platform to cost-efficiently offer their plans over the Internet, our technology
licensing business will be unsuccessful.

We may not be able to adequately protect our intellectual property, which could harm our business and

operating results.

We believe that our intellectual property is an essential asset of our business and that our technology
infrastructure currently gives us a competitive advantage in the distribution of individual and family and small
business health insurance. We rely on a combination of copyright, trademark and trade secret laws as well as
confidentiality procedures and contractual provisions to establish and protect our intellectual property rights in
the United States. We have not filed for protection of our intellectual property in any foreign jurisdiction other
than China. We have Chinese-registered computer software copyrights for an internally-developed software
system and a project management tool and have certain trademarks in China. We have not filed any patent
applications in China. The efforts we have taken to protect our intellectual property may not be sufficient or
effective, and our trademarks, copyrights and patents if issued, may be held invalid or unenforceable. Moreover,
the law relating to intellectual property is not as developed in China, and our intellectual property rights may not
be as respected in China as they are in the United States. Any United States or other patents issued to us may not
be sufficiently broad to protect our proprietary technologies, and given the costs of obtaining patent protection,
we may choose not to seek patent protection for certain of our proprietary technologies. We may not be effective
in policing unauthorized use of our intellectual property, trade secrets and other confidential information, and
even if we do detect violations, litigation may be necessary to enforce our intellectual property rights. Any
enforcement efforts we undertake, including litigation, could be time-consuming and expensive, could divert our
management’s attention and may result in a court determining that our intellectual property or other rights are
unenforceable. If we are not successful in cost-effectively protecting our intellectual property rights, trade secrets
and confidential information, our business, operating results and financial condition could be harmed.

We may in the future be subject to intellectual property rights claims, which are extremely costly to
defend, could require us to pay significant damages and could limit our ability to use certain technologies in
the future.

There are a large number of patents, copyrights, trademarks and trade secrets applicable to the internet and

technology industries and entities frequently enter into litigation based on allegations of infringement or other
violations of intellectual property rights. We have received, and may in the future receive, notices that claim we
have misappropriated, infringed or misused other parties’ intellectual property rights, and, to the extent we gain
greater visibility, we face a higher risk of being the subject of intellectual property infringement claims. There
may be third-party intellectual property rights, including issued or pending patents that cover significant aspects
of our technologies or business methods or that cover third-party technology that we use as a part of our
websites. Any intellectual property claim against us, with or without merit, could be time consuming, expensive
to settle or litigate and could divert our management’s attention and other resources. These claims also could
subject us to significant liability for damages and could result in our having to stop using technology found to be
in violation of a third party’s rights. We might be required to seek a license for third-party intellectual property,
which may not be available on reasonable terms or at all. Even if a license is available, we could be required to

40

pay significant royalties, which would increase our operating expenses. We may also be required to develop
alternative non-infringing technology, which could require significant effort and expense. If we cannot license or
develop technology for any infringing aspect of our business, we would be forced to limit our services and may
be unable to compete effectively. Any of these results would harm our business, operating results and financial
condition.

Any legal liability, regulatory penalties, or negative publicity for the information on our website or that

we otherwise distribute or provide could harm our business and operating results.

We provide information on our website, through our customer care centers and in other ways regarding
health insurance in general and the health insurance plans we market and sell, including information relating to
insurance premiums, coverage, benefits, provider networks, exclusions, limitations, availability, plan
comparisons and insurance company ratings. A significant amount of both automated and manual effort is
required to maintain the considerable amount of insurance plan information on our website. Separately, from
time to time, we use the information provided on our website and otherwise collected by us to publish reports
designed to educate consumers, facilitate public debate, and facilitate reform at the state and federal level relating
to the accessibility and affordability of health insurance. If the information we provide on our website, through
our customer care centers or otherwise is not accurate or is construed as misleading, or if we do not properly
assist individuals and businesses in purchasing health insurance, members, health insurance carriers and others
could attempt to hold us liable for damages, our relationships with health insurance carriers could be terminated
and regulators could attempt to subject us to penalties, revoke our licenses to transact health insurance business
in a particular jurisdiction, and/or compromise the status of our licenses to transact health insurance business in
other jurisdictions, which could result in our loss of our commission revenue. In the ordinary course of operating
our business, we have received complaints that the information we provided was not accurate or was misleading.
Although in the past we have resolved these complaints without significant financial cost, we cannot guarantee
that we will be able to do so in the future. In addition, these types of claims could be time-consuming and
expensive to defend, could divert our management’s attention and other resources, and could cause a loss of
confidence in our services. As a result, whether or not we are able to successfully resolve these claims, they
could harm our business, operating results and financial condition.

In the ordinary course of our business, we have received and may continue to receive inquiries from state
regulators relating to various matters. We have become, and may in the future become, involved in litigation in
the ordinary course of our business. If we are found to have violated laws or regulations, we could lose our
relationship with health insurance carriers and be subject to various fines and penalties, including revocation of
our licenses to sell insurance which would in turn potentially cause us to lose our commission revenue, and our
business, operating results and financial condition would be materially harmed.

Changes in our management and key employees could affect our financial results, and a recent reduction

in force may impede our ability to attract and retain highly skilled personnel.

Our success is dependent upon the performance of our senior management and key personnel. Our
management and employees can terminate their employment at any time. The loss of the services of any of our
executive officers or key employees could harm our business. For example, we appoint a single writing agent
with each insurance carrier. If we lose the service of our appointed writing agent, the duties of writing agent will
need to be transitioned to other company personnel. Due to our national reach and the large number of carrier
partners whose policies are purchased by our members, this transition may be difficult and requires a significant
period of time to complete. If the transition is not successful or takes too long to complete, our agency
relationship with particular insurance carriers may be terminated, our commission payments could be
discontinued or delayed and, as a result, our business, operating results and financial condition would be harmed.

Our success is also dependent upon our ability to attract and retain qualified personnel for all areas of our

organization. In March 2015, we implemented a reduction in our workforce to align our employee base and cost

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structure with our current and anticipated revenues. These reductions have resulted in reallocations of duties,
increased employee uncertainty and discontent and additional attrition. We may not be successful in attracting
and retaining personnel on a timely basis, on competitive terms or at all, and the reductions in force could make it
more difficult to do so. If we are unable to attract and retain the necessary personnel, our business would be
harmed.

We may experience difficulties, delays or unexpected costs and not achieve anticipated cost savings from

our recently implemented cost reduction plan.

In March 2015, we implemented an organizational restructuring and cost reduction plan. As part of the plan,
we eliminated approximately 160 full-time positions in the United States, representing approximately 15% of our
workforce primarily in our technology and content and customer care and enrollment groups, and to a lesser
extent, in our marketing and advertising and general and administrative groups. The majority of the restructuring
activities comprising the plan were substantially completed in the first quarter of 2015, and we also eliminated
certain positions in our China operation in that quarter.

For our cost reduction plan to be successful and build a framework for future growth, we must continue to

execute and deliver on our core business initiatives with fewer human resources and losses of intellectual capital.
For instance, as a part of the reduction-in-force, we have significantly reduced headcount in our customer care
and enrollment and technology and content groups. These reductions could impair our ability to assist consumers
seeking to purchase health insurance. They also constrain our ability to enhance our technology platforms as well
as adapt our technology platforms and service to changes in the health insurance industry brought about by
changes to the implementation of health care reform, regulatory or for other reasons. The reductions will also
impact our ability to enter new business areas and develop and enhance our existing products and services. In the
aggregate, the reduction-in-force could harm our business, operating results and financial condition.

In addition, we will need to manage complexities associated with a geographically diverse organization. We

must also attract, retain and motivate key employees, including highly qualified management, product
development, engineering, sales, marketing, business development and general and administrative personnel who
are critical to our business. We may not be able to attract, retain or motivate qualified employees in the future,
and our inability to do so may adversely affect our business.

There may also be other risks associated with our cost reduction plan, and we cannot guarantee that we will
be able to successfully manage these or other risks. If we fail to execute on our initiatives in these ways or others,
such failure could result in a material adverse effect on our business and results of operations. We cannot ensure
we will not undertake additional workforce reductions, that any of our restructuring efforts will be successful, or
that we will be able to realize the cost savings and other anticipated benefits from any existing or future cost
reduction plans.

Acquisitions could disrupt our business and harm our financial condition and operating results.

We may decide to acquire businesses, products and technologies. Our ability as an organization to

successfully make and integrate acquisitions is unproven. Acquisitions could require significant capital infusions
and could involve many risks, including the following:

•

•

an acquisition may negatively impact our results of operations because it will require us to incur
transaction expenses, and after the transaction, may require us to incur charges and substantial debt or
liabilities, may require the amortization, write down or impairment of amounts related to deferred
compensation, goodwill and other intangible assets, or may cause adverse tax consequences, substantial
depreciation or deferred compensation charges;

an acquisition undertaken for strategic business purposes may negatively impact our results of
operations;

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• we may encounter difficulties in assimilating and integrating the business, technologies, products,
personnel or operations of companies that we acquire, particularly if key personnel of the acquired
company decide not to work for us;

•

an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract
our management;

• we may be required to implement or improve internal controls, procedures and policies appropriate for
a public company at a business that prior to the acquisition lacked these controls, procedures and
policies;

•

the acquired businesses, products or technologies may not generate sufficient revenue to offset
acquisition costs or to maintain our financial results;

• we may have to issue equity securities to complete an acquisition, which would dilute our

stockholders’ ownership and could adversely affect the market price of our common stock; and

•

acquisitions may involve the entry into geographic or business markets in which we have little or no
prior experience.

We cannot assure you that we will be able to identify or consummate any future acquisition on favorable
terms, or at all. If we do pursue an acquisition, it is possible that we may not realize the anticipated benefits from
the acquisition or that the financial markets or investors will negatively view the acquisition. Even if we
successfully complete an acquisition, it could harm our business, operating results and financial condition.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial
statements could be impaired, which could adversely affect our operating results, our ability to operate our
business and our stock price.

We have a complex business organization. Ensuring that we have adequate internal financial and accounting

controls and procedures in place to help ensure that we can produce accurate financial statements on a timely
basis is a costly and time-consuming effort that needs to be re-evaluated frequently and is complicated by the
expansion of our business operations. Our management, including our chief executive officer and chief financial
officer, does not expect that our internal control over financial reporting will prevent all errors or all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can
be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. Over time, controls may become inadequate because changes in conditions or
deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As a result, we cannot assure that significant deficiencies or material weaknesses in our internal control over
financial reporting will not be identified in the future. Any failure to maintain or implement required new or
improved controls, or any difficulties we encounter in their implementation, could result in significant
deficiencies or material weaknesses, cause us to fail to timely meet our periodic reporting obligations, or result in
material misstatements in our financial statements. Any such failure could also adversely affect the results of
periodic management evaluations and annual auditor attestation reports regarding disclosure controls and the
effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley
Act of 2002 and the rules promulgated thereunder. The existence of a material weakness could result in errors in
our financial statements that could result in a restatement of financial statements, cause us to fail to timely meet
our reporting obligations and cause investors to lose confidence in our reported financial information, leading to
a decline in our stock price and potential lawsuits against us.

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Changes in our provision for income taxes or adverse outcomes resulting from examination of our

income or other tax returns could adversely affect our results.

Our provision for income taxes is subject to volatility and could be adversely affected by earnings differing
materially from our projections, changes in the valuation of our deferred tax assets and liabilities, expiration of or
lapses in the research and development tax credit laws, tax effects of share-based compensation, outcomes as a
result of tax examinations or by changes in tax laws, regulations, accounting principles, including accounting for
uncertain tax positions, or interpretations thereof. For instance, given increased uncertainty regarding our future
taxable income, we modified our assessment of the realizability of our domestic deferred tax assets and recorded
a full valuation allowance against our domestic deferred tax assets in the amount of $11.5 million during the
fourth quarter of 2014, resulting in expected minimum taxes recorded in the first three quarters of 2015. The
related domestic deferred tax assets remain available for use in future periods and will reduce the Company’s tax
provision if taxable income is generated. To the extent that our provision for income taxes is subject to volatility
or adverse outcomes as a result of tax examinations, our operating results could be harmed.

Significant judgment is required to determine the recognition and measurement attribute prescribed in U.S.

generally accepted accounting principles (“U.S. GAAP”) relating to accounting for income taxes. In addition,
U.S. GAAP applies to all income tax positions, including the potential recovery of previously paid taxes, which if
settled unfavorably could adversely impact our provision for income taxes or additional paid-in capital. In
addition, we are subject to examinations of our income tax returns by the Internal Revenue Service and other tax
authorities. We assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes. There may be exposure that the outcomes from these examinations
will have an adverse effect on our operating results and financial condition.

Risks Related to State Insurance Regulation

Regulation of the sale of health insurance is subject to change, and future regulations could harm our

business and operating results.

The laws and regulations governing the offer, sale and purchase of health insurance are subject to change,
and future changes may be adverse to our business. For example, a long standing provision in each state’s law
that we believe is advantageous to our business is that once health insurance premiums are set by the carrier and
approved by state regulators, they are fixed and not generally subject to negotiation or discounting by insurance
companies or agents. Additionally, state regulations generally prohibit carriers, agents and brokers from
providing financial incentives, such as rebates, to their members in connection with the sale of health insurance.
As a result, we do not currently compete with carriers or other agents and brokers on the price of the health
insurance plans offered on our website. If these regulations change, we could be forced to reduce prices or
provide rebates or other incentives for the health insurance plans sold through our ecommerce platform, which
would harm our business, operating results and financial condition.

States have, and will continue, to adopt new laws and regulations in response to health care reform
legislation. It is difficult to predict how these new laws and regulations will impact our business, but in some
cases such laws and regulations could amplify the adverse impacts of health care reform, or states may adopt new
requirements that adversely impact our business, operating results and financial condition.

We are also subject to additional insurance regulatory risks, because we use the Internet as our distribution

platform. In many cases, it is not clear how existing insurance laws and regulations apply to Internet-related
health insurance advertisements and transactions. To the extent that new laws or regulations are adopted that
conflict with the way we conduct our business, or to the extent that existing laws and regulations are interpreted
adversely to us, our business, operating results and financial condition would be harmed.

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If we fail to comply with the numerous state laws and regulations that are applicable to the sale of health

insurance, our business and operating results could be harmed.

The sale of health insurance is heavily regulated by each state in the United States. For instance, in addition
to the impact and changes in regulations resulting from health care reform, state regulators require us to maintain
a valid license in each state in which we transact health insurance business and further require that we adhere to
sales, documentation and administration practices specific to that state. In addition, each employee who transacts
health insurance business on our behalf must maintain a valid license in one or more states. Because we do
business in all 50 states and the District of Columbia, compliance with health insurance-related laws, rules and
regulations is difficult and imposes significant costs on our business. Each jurisdiction’s insurance department
typically has the power, among other things, to:

•

•

•

•

•

•

•

•

•

grant and revoke licenses to transact insurance business;

conduct inquiries into the insurance-related activities and conduct of agents and agencies;

require and regulate disclosure in connection with the sale and solicitation of health insurance;

authorize how, by which personnel and under what circumstances insurance premiums can be quoted
and published and an insurance policy sold;

approve which entities can be paid commissions from carriers and the circumstances under which they
may be paid;

regulate the content of insurance-related advertisements, including web pages, and other marketing
practices;

approve policy forms, require specific benefits and benefit levels and regulate premium rates;

impose fines and other penalties; and

impose continuing education requirements.

Due to the complexity, periodic modification and differing interpretations of insurance laws and regulations,

we may not have always been, and we may not always be, in compliance with them. New insurance laws,
regulations and guidelines also may not be compatible with the sale of health insurance over the Internet or with
various aspects of our platform or manner of marketing or selling health insurance plans. Failure to comply with
insurance laws, regulations and guidelines or other laws and regulations applicable to our business could result in
significant liability, additional department of insurance licensing requirements, the revocation of licenses in a
particular jurisdiction and/or our inability to sell health insurance plans, which could significantly increase our
operating expenses, result in the loss of our commission revenue and otherwise harm our business, operating
results and financial condition. Moreover, an adverse regulatory action in one jurisdiction could result in
penalties and adversely affect our license status or reputation in other jurisdictions due to the requirement that
adverse regulatory actions in one jurisdiction be reported to other jurisdictions. Even if the allegations in any
regulatory or other action against us are proven false, any surrounding negative publicity could harm consumer,
marketing partner or health insurance carrier confidence in us, which could significantly damage our brand.
Because some consumers, marketing partners and health insurance carriers may not be comfortable with the
concept of purchasing health insurance using the Internet, any negative publicity may affect us more than it
would others in the health insurance industry and would harm our business, operating results and financial
condition. Changes in insurance laws, regulations and guidelines may also be incompatible with various aspects
of our business and require that we make significant modifications to our existing technology or practices, which
may be costly and time-consuming to implement and could also harm our business, operating results and
financial condition.

In addition, we have received, and may in the future receive, inquiries from regulators regarding our

marketing and business practices. We typically respond by explaining how we believe we are in compliance with

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relevant regulations or may modify our practices in connection with the inquiry. Any modification of our
marketing or business practices in response to future regulatory inquiries could harm our business, operating
results or financial condition.

Risks Related to the Internet and Electronic Commerce

Our business is subject to security risks and, if we are unable to safeguard the security and privacy of

confidential data, including personal health information, our business will be harmed.

Our services involve the collection and storage of confidential information of consumers and the

transmission of this information to their chosen health insurance carriers and to government. For example, we
collect names, addresses, Social Security and credit card numbers, and information regarding the medical history
of consumers. As a result, we are subject to various laws and regulations regarding the collection, maintenance,
protection, use, transmission, disclosure and disposal of sensitive personal information. We cannot guarantee that
our facilities and systems, and those of our third party service providers, will be free of security breaches, acts of
vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events.
Compliance with privacy and security laws, requirements and regulations may result in cost increases due to new
constraints on our business, the development of new processes, the effects of potential non-compliance by us or
third party service providers, and enforcement actions. We may be required to expend significant amounts and
other resources to protect against security breaches or to alleviate problems caused by security breaches. Despite
our implementation of security measures, techniques used to obtain unauthorized access or to sabotage systems
change frequently. As a result, we may be unable to anticipate these techniques or to implement adequate
preventative measures. Additionally, our third party service providers may cause security breaches for which we
are responsible.

Any compromise or perceived compromise of our security by us or by one of our vendors could damage our

reputation, cause the termination of relationships with government-run health insurance exchanges and our
members, marketing partners and health insurance carriers, reduce demand for our services and subject us to
significant liability and expense as well as regulatory action and lawsuits, which would harm our business,
operating results and financial condition. While we have contingency plans and insurance coverage for potential
liabilities of this nature, these may not be sufficient to cover all claims or a significant amount of our liability. In
addition, in the event that data security laws are implemented, or our health insurance carrier or other partners
determine to impose requirements on us relating to data security, we may not be able to timely comply with such
requirements or such requirements may not be compatible with our current processes. Changing our processes
could be time consuming and expensive, and failure to timely implement required changes could result in our
inability to sell health insurance plans in a particular jurisdiction or for a particular health insurance carrier or
subject us to liability for non-compliance, any of which would damage our business, operating results and
financial condition. For instance, health insurance carriers may require us to be compliant with Payment Card
Industry, or PCI, security standards in order to accept credit card information from consumers. PCI compliance is
generally assessed on an annual basis, and we may not always be compliant with new and evolving PCI
standards. If we are not in compliance with PCI standards, we may not be able to accept credit card information
from consumers and our relationship with health insurance carriers could be adversely impacted or terminated,
which would harm our business, operating results and financial condition.

Government regulation of the Internet could adversely affect our business.

The laws governing general commerce on the Internet remain unsettled and it may take years to fully
determine whether and how existing laws such as those governing intellectual property, privacy and taxation
apply to the Internet. In addition, the growth and development of the market for electronic commerce may
prompt calls for more stringent consumer protection laws that may impose additional burdens on companies
conducting business over the Internet. Any new laws or regulations or new interpretations of existing laws or

46

regulations relating to the Internet could harm our business and we could be forced to incur substantial costs in
order to comply with them, which would harm our business, operating results and financial condition.

Our business could be harmed if we are unable to correspond with our consumers or market the

availability of our ecommerce platform by email.

We use email to market our services to potential members and as the primary means of communicating with

our existing members. The laws and regulations governing the use of email for marketing purposes continue to
evolve and the growth and development of the market for commerce over the Internet may lead to the adoption of
additional legislation. If new laws or regulations are adopted, or existing laws and regulations are interpreted, to
impose additional restrictions on our ability to send email to our members or potential members, we may not be
able to communicate with them in a cost-effective manner. In addition to legal restrictions on the use of email,
Internet service providers, e-mail service providers and others attempt to block the transmission of unsolicited
email, commonly known as “spam.” Many Internet and e-mail service providers have relationships with
organizations whose purpose it is to detect and notify the Internet and e-mail service providers of entities that the
organization believes is sending unsolicited e-mail. If an Internet or e-mail service provider identifies email from
us as “spam” as a result of reports from these organizations or otherwise, we can be placed on a restricted list that
will block our email to members or potential members. If we are unable to communicate by email with our
members and potential members as a result of legislation, blockage or otherwise, our business, operating results
and financial condition would be harmed.

Consumers depend upon third-party service providers to access our website, and our business and
operating results could be harmed as a result of technical difficulties experienced by these service providers.

Consumers using our website depend upon Internet, online and other service providers for access to our

website. Many of these service providers have experienced significant outages, delays and other difficulties in
the past and could experience them in the future. Any significant interruption in access to our website or increase
in our website’s response time as a result of these difficulties could damage our relationship with insurance
carriers, marketing partners and existing and potential members and could harm our business, operating results
and financial condition.

Risks Related to the Ownership of Our Common Stock

The trading price of our common stock may be subject to significant fluctuations and volatility, and our

stockholders may be unable to resell their shares at a profit.

The stock markets, in general, and the markets for high technology stocks in particular, have historically

experienced high levels of volatility. The market for technology stocks has been extremely volatile and
frequently reaches levels that bear no relationship to the past or present operating performance of those
companies. These broad market fluctuations may adversely affect the trading price of our common stock. In
addition, the trading price of our common stock has been subject to significant fluctuations and may continue to
fluctuate or decline, particularly as a result of developments relating to health care reform legislation and the
implementation of health care reform. Other factors that could cause fluctuations in the trading price of our
common stock include, but are not limited to, the following:

•

•

•

price and volume fluctuations in the overall stock market from time to time;

significant volatility in the market price and trading volume of technology companies in general, and
companies in our industry;

actual or anticipated changes in our results of operations or fluctuations in our operating results;

47

•

•

•

•

•

•

actual or anticipated changes in the expectations of investors or securities analysts, including changes
in financial estimates or investment recommendations by securities analysts who follow our business
and changes in perceptions relating to the economy;

speculation in the press or investment community;

technological advances or introduction of new products by us or our competitors;

actual or anticipated developments in our competitors’ businesses or the competitive landscape
generally;

litigation involving us, our industry or both;

actual or anticipated regulatory developments in the United States or foreign countries, including health
care reform legislation in the United States;

• major catastrophic events;

•

•

•

•

announcements or developments relating to the economy;

our sale of common stock or other securities in the future;

the trading volume of our common stock, as well as sales of large blocks of our stock; or

departures of key personnel.

These factors, as well as general economic and political conditions and the announcement of proposed and
completed acquisitions or other significant transactions, or any difficulties associated with such transactions, by
us or our strategic partners, customers or our current competitors, may materially adversely affect the market
price of our common stock in the future. In the past, following periods of volatility in the market price of a
company’s securities, securities class action litigation has often been instituted against that company. As
discussed in Item 3, Legal Proceedings, securities class action litigation has been filed against us. Such litigation
could result in substantial cost and a diversion of management’s attention and resources. In addition, volatility,
lack of positive performance in our stock price or changes to our overall compensation program, including our
equity incentive program, may adversely affect our ability to retain key employees.

Our actual operating results may differ significantly from our guidance.

From time to time, we have released, and may continue to release guidance in earnings conference calls,
earnings releases, or otherwise, regarding our future performance that represents our management’s estimates as
of the date of release. This guidance, which includes forward-looking statements, has been and will be based on
projections prepared by our management. These projections are not prepared with a view toward compliance
with published guidelines of the American Institute of Certified Public Accountants, and neither our registered
public accountants nor any other independent expert or outside party compiles or examines the projections.
Accordingly, no such person expresses any opinion or any other form of assurance with respect to the
projections.

Projections are based upon a number of assumptions and estimates that, while presented with numerical

specificity, are inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control and are based upon specific assumptions with respect to
future business decisions, some of which will change. We may state possible outcomes as high and low ranges.
Any range we provide is not intended to imply that actual results could not fall outside of the suggested ranges.
The principal reason that we release guidance is to provide a basis for our management to discuss our business
outlook with analysts and investors. We do not accept any responsibility for any projections or reports published
by any such third parties.

48

Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions
underlying the guidance furnished by us will not materialize or will vary significantly from actual results. For
example, our actual financial results for the fiscal year 2014 did not fall within the ranges previously provided by
our guidance. Accordingly, our guidance is only an estimate of what management believes is realizable as of the
date of release. Actual results may vary from our guidance and the variations may be material. In light of the
foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our
common stock.

Any failure to successfully implement our operating strategy or the occurrence of any of the events or

circumstances set forth in this “Risk Factors” section in this Annual Report on Form 10-K could result in the
actual operating results being different from our guidance, and the differences may be adverse and material.

A limited number of stockholders have the ability to influence the outcome of director elections and other

matters requiring stockholder approval.

A small number of stockholders and their affiliated entities beneficially owned more than 50% percent of
our outstanding common stock as of December 31, 2015. These stockholders, if they act together, could exert
substantial influence over matters requiring approval by our stockholders, including the election of directors, the
amendment of our certificate of incorporation and bylaws and the approval of mergers or other business
combination transactions. This concentration of ownership may discourage, delay or prevent a change in control
of our company, which could deprive our stockholders of an opportunity to receive a premium for their stock as
part of a sale of our company and might reduce our stock price. These actions may be taken even if they are
opposed by other stockholders.

Certain provisions in our charter documents and Delaware law could discourage takeover attempts and

lead to management entrenchment.

Our certificate of incorporation and bylaws contain provisions that could have the effect of delaying or
preventing changes in control or changes in our management without the consent of our board of directors. These
provisions include:

•

•

•

•

•

•

•

a classified board of directors with three-year staggered terms, which may delay the ability of
stockholders to change the membership of a majority of our board of directors;

cumulative voting in the election of directors is prohibited, which limits the ability of minority
stockholders to elect director candidates;

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion
of the board of directors or the resignation, death or removal of a director, which prevents stockholders
from being able to fill vacancies on our board of directors;

the ability of our board of directors to determine to issue shares of preferred stock and to determine the
price and other terms of those shares, including preferences and voting rights, without stockholder
approval, which could be used to significantly dilute the ownership of a hostile acquiror;

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at
an annual or special meeting of our stockholders;

the requirement that a special meeting of stockholders may be called only by the chairman of the board
of directors, the chief executive officer or the board of directors, which may delay the ability of our
stockholders to force consideration of a proposal or to take action, including the removal of directors;
and

advance notice procedures that stockholders must comply with in order to nominate candidates to our
board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may

49

discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s
own slate of directors or otherwise attempting to obtain control of us.

We are also subject to certain anti-takeover provisions under Delaware law. Under Delaware law, a

corporation may, in general, not engage in a business combination with any holder of 15% or more of its capital
stock unless the holder has held the stock for three years or, among other things, the board of directors has
approved the transaction.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

The following table sets forth the location, approximate square footage and primary use of each of the

principal properties we occupied at December 31, 2015:

Location

Approximate
Square
Footage

Primary Use

Mountain View, California

36,012

– 340 and 440 East
Middlefield Road

Gold River, California

50,172

South Jordan, Utah

Xiamen, China

27,830

52,930

Corporate headquarters, marketing and advertising, technology and
content and general and administrative

Customer care and enrollment, technology and content and general
and administrative

Customer care and enrollment

Technology and content, customer care and enrollment, marketing
and advertising and general and administrative

We lease all of the principal properties. In addition, we also lease office facilities in San Francisco,
California and Westford, Massachusetts for our marketing and advertising, technology and content, customer
care and enrollment, and general and administrative personnel. We believe our existing facilities are adequate for
our current needs and that suitable additional space will be available in the future to accommodate any expansion
of our operations, if necessary. As a result of a reduction in our workforce, we have 11,275 square feet of excess
space available in our Gold River, California facility that we have vacated.

ITEM 3.

LEGAL PROCEEDINGS

In the ordinary course of our business, we have received and may continue to receive inquiries from

regulators relating to various matters. We have also become, and may in the future become, involved in litigation
in the ordinary course of our business.

On January 26 and March 10, 2015, two purported class action lawsuits were filed against us, our chairman

and chief executive officer, Gary L. Lauer (“Mr. Lauer”), and our senior vice president and chief financial
officer, Stuart M. Huizinga (“Mr. Huizinga”), in the United States District Court for the Northern District of
California. On May 6, 2015, the Court consolidated the two cases. On June 10, 2015, a consolidated complaint
was filed. The consolidated complaint alleges that the defendants made false and misleading statements
regarding the Company’s financial performance, guidance and operations during an alleged class period of
May 1, 2014 to January 14, 2015. The consolidated complaint alleges that we and Messrs. Lauer and Huizinga
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. The consolidated complaint seeks compensatory damages, attorneys’ fees and costs, rescission or a
rescissory measure of damages, equitable/injunctive relief and such other relief as the court deems proper. On

50

July 15, 2015, defendants moved to dismiss the consolidated complaint. The court held a hearing on defendants’
motion to dismiss the consolidated complaint on September 30, 2015. Because the case is at a preliminary stage,
we cannot estimate the likelihood of liability or the amount of potential damages, but an adverse result could
have a material adverse impact on our financial condition and results of operation. We believe the lawsuit to be
without merit and intend to vigorously defend ourselves against it.

In May 2015, an individual plaintiff filed a lawsuit against a health insurance carrier and us in state court in

the state of Texas. The complaint alleged that we and the health insurance carrier engaged in certain false,
misleading and deceptive acts and/or omissions in violation of the Texas Deceptive Trade Practice—Consumer
Protection Act in connection with the plaintiff’s purchase of the health insurance carrier’s health insurance
product. The complaint sought economic and actual damages for alleged harm caused to the plaintiff as well as
multiple damages, exemplary damages and attorney’s fees and costs. In June 2015, we and the health insurance
carrier removed the case to the United States District Court for the Eastern District of Texas, and the court
ordered the plaintiff to file an amended complaint. The plaintiff filed the amended complaint in July 2015. The
amended complaint purports to be a class action lawsuit on behalf of the purchasers of a certain health insurance
product offered by the health insurance carrier. The amended complaint alleges that we and the health insurance
carrier engaged in certain false, misleading and deceptive acts and/or omissions in violation of the Texas
Deceptive Trade Practice—Consumer Protection Act and the Texas Insurance Code in connection with the sale
of the health insurance carrier’s health insurance product. The amended complaint alleges certain other causes of
action against the health insurance carrier. The amended complaint seeks economic and actual damages, multiple
damages, exemplary damages, interest, attorney’s fees and costs, and specific performance. In August 2015 we
and the health insurance carrier moved to dismiss the amended complaint. In January 2016, our motion to
dismiss the amended complaint was denied. Because the case is at a preliminary stage, we cannot estimate the
likelihood of liability or the amount of potential damages, but an adverse result could have a material adverse
impact on our financial condition and results of operation. We believe the lawsuit to be without merit and intend
to vigorously defend ourselves against it.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

51

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTER AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has been quoted on The NASDAQ Global Market under the symbol “EHTH” since our

initial public offering on October 13, 2006. Prior to that time, there was no public market for our stock. As of
February 29, 2016, there were 32 stockholders of record of our common stock (which does not include the
number of stockholders holding shares of our common stock in “street name”) and the closing price of our
common stock was $10.09 per share on February 29, 2016 as reported by The NASDAQ Global Market.

The following table sets forth for the indicated period the closing high and low sales prices for our common

stock as reported on The NASDAQ Global Market.

First Quarter 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High

Low

$24.23
$13.50
$16.27
$13.43
$24.23

$ 9.10
$ 9.31
$12.11
$ 9.98
$ 9.10

High

Low

First Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$62.35
$53.01
$38.55
$28.59
$62.35

$44.74
$33.35
$20.26
$19.79
$19.79

Dividend Policy

We have never declared or paid any cash dividend on our common stock. We currently do not expect to pay

any dividends in the foreseeable future.

Unregistered Sales of Equity Securities

During the year ended December 31, 2015, we did not issue or sell any shares of our common stock or other

equity securities pursuant to unregistered transactions in reliance upon an exemption from the registration
requirements of the Securities Act of 1933, as amended.

Securities Authorized for Issuance under Equity Compensation Plans

See Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters” for information regarding securities authorized for issuance.

Issuer Purchases of Equity Securities

We did not repurchase any of our common stock during the year and quarter ended December 31, 2015.

52

STOCK PERFORMANCE GRAPH

The following information relating to the price performance of our common stock shall not be deemed
“filed” with the Securities and Exchange Commission or “soliciting material” under the Securities Exchange Act
of 1934, as amended, or subject to Regulation 14A or 14C, or to liabilities under Section 18 of the Exchange Act,
except to the extent that we specifically request that such information be treated as soliciting material or to the
extent that we specifically incorporate this information by reference.

The graph below matches our cumulative total stockholder return on our common stock with the cumulative

5-year total returns on the NASDAQ Composite index and the Research Data Group (“RDG”) Internet
Composite index. The graph tracks the performance of a $100 investment in our common stock and in each index
(with the reinvestment of all dividends) from December 31, 2010 to December 31, 2015.

eHealth, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NADAQ Composite . . . . . . . . . . . . . . . . . . . . . . .
RDG Internet Composite . . . . . . . . . . . . . . . . . . . .

$100.00
100.00
100.00

$103.59
100.53
102.11

$193.66
116.92
122.23

$327.63
166.19
199.42

$175.62
188.78
195.42

$ 70.33
199.95
267.25

12/31/10

12/31/11

12/31/12

12/31/13

12/31/14

12/31/15

The stock price performance included in this graph is not necessarily indicative of future stock price

performance.

53

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial
statements and accompanying notes included in this Annual Report on Form 10-K.

Consolidated Statements of Income (Loss) Data:
Revenue:

Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses:

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and advertising (1) . . . . . . . . . . . . . . .
Customer care and enrollment (1) . . . . . . . . . . . .
Technology and content (1) . . . . . . . . . . . . . . . . .
General and administrative (1) . . . . . . . . . . . . . . .
Restructuring (1)
. . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . .
Total operating costs and expenses . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . .
Income (loss) before provision (benefit) for income

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net income (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares used in per share

amounts:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1)

Includes stock-based compensation as follows:

Marketing and advertising . . . . . . . . . . . . . . . . . . . . . .
Customer care and enrollment . . . . . . . . . . . . . . . . . . .
Technology and content . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2011

2012

2013

2014

2015

(in thousands, except per share amounts)

$120,321
31,327
151,648

$130,663
24,810
155,473

$153,383
25,797
179,180

$158,626
21,051
179,677

$171,257
18,284
189,541

8,340
56,877
22,898
21,657
26,593
—
2,046
138,411
13,237
(53)

13,184
6,460
6,724

0.32
0.31

4,783
57,789
30,282
21,406
26,169
—
1,615
142,044
13,429
23

13,452
6,370
7,082

0.36
0.34

$

$
$

5,461
71,660
35,099
32,579
29,235
—
1,414
175,448
3,732
(92)

4,494
69,732
42,745
40,390
27,549
—
1,529
186,439
(6,762)
(98)

4,178
75,571
42,540
36,351
30,858
4,541
1,153
195,192
(5,651)
45

3,640
1,917
1,723

(6,860)
9,345

(5,606)
(843)
$ (16,205) $ (4,763)

0.09
0.09

$
$

(0.88) $
(0.88) $

(0.26)
(0.26)

$

$
$

20,947
21,703

19,867
20,753

19,145
19,846

18,367
18,367

18,008
18,008

Year Ended December 31,

2011

962
344
1,669
4,121
—
7,096

2012
1,215
321
1,021
3,065
—
5,622

$

$

2013
2,112
342
1,641
3,707
—
7,802

$

$

2014
1,692
386
1,611
2,188
—
5,877

$

$

2015
1,950
477
1,728
2,734
113
7,002

$

$

As of December 31,

2011

2012

2013

2014

2015

(in thousands)

$

$
$

$

$

Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Working capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . .

$123,607
121,310
177,945
3,920
21,661
155,674

$140,849
135,249
196,301
4,625
28,743
170,867

$107,055
97,220
166,426
6,165
30,466
133,017

$ 51,415
39,738
106,664
6,449
14,261
73,478

$ 62,710
45,606
113,319
4,962
9,498
76,421

54

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Overview

We are the leading private online source of health insurance for individuals, families and small businesses.

Through our website addresses (www.eHealth.com, www.eHealthInsurance.com, www.eHealthMedicare.com,
www.Medicare.com and www.PlanPrescriber.com), consumers can get quotes from leading health insurance
carriers, compare plans side-by-side, apply for and purchase Medicare-related, individual and family, small
business and ancillary health insurance plans. Our ecommerce technology also enables us to deliver consumers’
health insurance applications electronically to health insurance carriers. As a result, we simplify and streamline
the complex and traditionally paper-intensive health insurance sales and purchasing process.

We have invested heavily in technology and content related to our ecommerce platform. We have also
invested significant time and resources in obtaining licenses to sell health insurance in all 50 states and the
District of Columbia, developing member acquisition programs, obtaining necessary regulatory approvals of our
websites and establishing relationships and appointments with leading health insurance carriers, enabling us to
offer thousands of health insurance plans online. Our ecommerce platforms can be accessed directly through our
websites as well as through our network of marketing partners.

Sources of Revenue

Commission Revenue

We generate revenue primarily from commissions we receive from health insurance carriers whose health
insurance policies are purchased through our ecommerce platform. Commission revenue represented 86%, 88%
and 90% of total revenue in the years ended December 31, 2013, 2014 and 2015, respectively.

We typically enter into contractual agency relationships with health insurance carriers that are non-exclusive
and terminable on short notice by either party for any reason. In addition, health insurance carriers often have the
ability to terminate or amend our agreements unilaterally on short notice, including provisions in our agreements
relating to our commission rates. The amendment or termination of an agreement we have with a health
insurance carrier may adversely impact the commissions we are paid on health insurance plans that we have
already sold through the carrier. See Critical Accounting Policies and Estimates for details regarding our
recognition of commission revenue.

We actively market the availability of Medicare-related health insurance plans through our Medicare
ecommerce platforms (www.eHealthMedicare.com, www.Medicare.com and www.PlanPrescriber.com). Our
Medicare ecommerce platforms and telephonic enrollment capabilities enable consumers to research, compare
and purchase Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and
Medicare Part D prescription drug plans. To the extent that we assist in the sale of Medicare-related insurance
plans as a health insurance agent, either online or telephonically, we generate revenue from commissions we
receive from health insurance carriers. Medicare Advantage and Medicare Part D prescription drug plan pricing
is set by health insurance carriers and approved by the Centers for Medicare and Medicaid Services, or CMS, an
agency of the United States Department of Health and Human Services, and is not subject to negotiation or
discounting by health insurance carriers or our competitors. Similarly, Medicare Supplement plan pricing is set
by the health insurance carrier and approved by state regulators and is not subject to negotiation or discounting
by health insurance carriers or our competitors.

We sell a greater number of Medicare plans in the fourth quarter of the year during the Medicare annual
enrollment period, when Medicare-eligible individuals are permitted to change their Medicare Advantage and
Medicare Part D prescription drug coverage for the following year, compared to the number of Medicare plans
we sell during the first, second or third quarters of each year. During 2013, 2014 and 2015, 68%, 62% and 56%,
respectively, of our Medicare plan-related applications were submitted during the fourth quarter. During the

55

fourth quarter, we also generate the majority of commission revenues related to new Medicare plan-related
enrollments. Historically, we recognized a majority of our renewal Medicare Advantage and Medicare Part D
prescription drug plan commission revenue in the first quarter of each year as the majority of policies sold during
the annual enrollment period typically renew on January 1 of each year. As a result of a new regulation issued by
CMS, which changed the definition of a plan year from being 12-months from the effective date of a policy to
January 1 through December 31 of each year, substantially all Medicare Advantage and Medicare Part D
prescription drug policies renewed on January 1, regardless of the month the policy went into effect. The
regulation resulted in our recording substantially all of our Medicare Advantage and Medicare Part D
prescription drug plan renewal commission revenue in the first quarter of 2015 and recognized minimal renewal
commission revenue in the second, third or fourth quarters of 2015 for these products. In addition, CMS also
issued another regulation prohibiting carriers from paying commissions during the fourth quarter on Medicare
Advantage and Medicare Part D prescription drug policies sold during the fourth quarter with an effective date in
the following year, which further increased the contribution of Medicare Advantage and Medicare Part D
prescription drug commission revenues to our first quarter of 2015 relative to the total annual Medicare
commission revenues for 2015.

We also actively market the availability of individual and family, small business and ancillary health
insurance plans through our ecommerce platforms (www.eHealth.com and www.eHealthInsurance.com), and
generate revenue from commissions we receive from health insurance carriers whose health insurance plans are
purchased through us, as well as commission override payments we receive for achieving sales volume
thresholds or other objectives. Ancillary health insurance plans, which primarily consist of short-term, dental,
life, vision, and accident insurance plans, are sold alongside individual and family health insurance plans and
also as standalone products.

In March 2010, the federal Patient Protection and Affordable Care Act and related amendments in the
Health Care and Education Reconciliation Act were signed into law. These health care reform laws contain
provisions that changed and will continue to change the health insurance industry in substantial ways. We have
described various aspects of health care reform in Part I, Item 1., Business—Health Care Reform and Part I,
Item 1A., Risk Factors—Risks Related to Our Business. Various aspects of health care reform may impact our
business positively. For instance, the mandate that individuals and families have qualified health insurance or
face a tax penalty and the government providing individuals and families’ subsidies in the form of premium tax
credits and cost sharing reductions are beneficial to our business. Notwithstanding these aspects of health care
reform, the implementation of health care reform has significantly reduced our individual and family health
insurance membership and individual and family health insurance commission revenue and could in the future
have a material adverse effect on our business and results of operations. Health care reform established annual
open enrollment periods for the purchase of individual and family health insurance. For coverage effective in
2015, the open enrollment period ran from November 15, 2014 through February 15, 2015, and for coverage
effective in 2016, the annual open enrollment period ran from November 1, 2015 through January 31, 2016.
Individuals and families generally are not able to purchase individual and family health insurance outside of the
annual enrollment periods, unless they qualify for a special enrollment period as a result of certain qualifying
events, such as losing employer-sponsored health insurance, moving to another state or becoming eligible or
ineligible for a government subsidy for health insurance. The open enrollment period has changed the seasonality
of our individual and family health insurance business and individual and family health insurance submitted
applications. It also presents challenges to our ability to enroll a significant number of individuals and families
into health insurance over a limited period of time and significantly reduces our ability to obtain new health
insurance members outside of the open enrollment period. In addition, CMS tightened the requirements for
individuals to qualify for a special enrollment period starting in 2016, which could impact our ability to enroll
individuals and families into health insurance outside of the open enrollment period.

A substantial number of individuals and families are eligible for subsidies under health care reform. Health

care reform’s establishment of government-run health insurance exchanges through which individuals and
families must purchase qualified health plans to receive government subsidies has increased our competition as

56

individual and families may purchase qualified health plans directly from government exchanges. While they are
not required to do so, government-run exchanges are permitted to allow agents and brokers to enroll individuals
and families into qualified health plans through government-run exchanges. We have entered into an agreement
with, and enrolled individuals and families into qualified health plans through, the Federally Facilitated
Marketplace, or FFM, run by CMS. The FFM operated the health insurance exchange in 37 states during the last
health care reform open enrollment period. Our ability to act as a health insurance agent for subsidy-eligible
individuals purchasing qualified health plans through the FFM depends upon the FFM developing and
maintaining an efficient, scalable and online enrollment process, and our ability to successfully enter into and
maintain our agreement and integrate with the FFM. In order to enroll individuals in subsidy-eligible plans over
the Internet through the FFM, we also need to meet a number of requirements relating to display of information
on our websites as well as new and comprehensive privacy and security requirements. These requirements are
evolving. For example, we are required to translate significant portions of our website into Spanish for the next
open enrollment period in certain jurisdictions. Our ability to maintain compliance with the various requirements
to enroll individuals through the FFM has presented, and could in the future present, significant challenges for us.
In addition, CMS recently directed us and other web-based entities to make changes to the process we developed
for enrolling individual into qualified health plans through the FFM. As a result of the changes that we made to
our online process in response to CMS’ requirements, which require that we use a different pathway through
which individuals are enrolled in qualified health plans, we may have difficulty enrolling, and may not be able to
enroll, individuals in qualified health plans in an efficient and scalable manner both during and outside of the
annual open enrollment period and our number of qualified health plan enrollments could decline. See Part I,
Item 1A., Risk Factors—Risks Related to Our Business.

The future impact of health care reform on health insurance carriers that pay us our commission revenue is
also unclear, Health insurance carriers have the ability to unilaterally change their relationship with us, including
the commission rates we receive for acting as a health insurance agent, and may reduce the amount they pay us,
alter the manner and geographic areas in which they permit us to sell their products and change our relationship
with them in any number of ways. As a result of higher medical utilization rates than carriers projected and for
other reasons, several health insurance carriers, including large national health insurance carriers, recently
reduced or eliminated commissions for individual and family health insurance enrollments outside of the open
enrollment period. While health insurance carriers have indicated that they intend to increase commission rates
for individuals and family health insurance we sell during the upcoming open enrollment period, they are not
obligated to do so. In addition, health insurance carrier lack of desire to sell individual and family health
insurance will cause a reduction in the number of plans offered on our website, which could decrease demand for
the individual and family health insurance that we sell.

Our commission revenue is influenced by a number of factors including:

•

•

•

•

•

the number of applications for Medicare-related, individual and family, small business and ancillary
health insurance we submit to health insurance carriers;

the number of members on submitted applications;

the rate at which the individuals on those applications turn into paying members;

the commission rates we receive for the health insurance plans that we sell; and

our membership retention.

Submitted Applications. We experience a significant increase in the number of Medicare-related submitted
applications during the Medicare annual enrollment period, which occurs during the fourth quarter of each year.
During 2015, we also experienced an increase in the number of Medicare-related applications submitted during
the first, second and third quarters compared to the fourth quarter. Medicare Advantage applications submitted
during the first, second and third quarters accounted for 45% of total submitted applications for 2015, compared
to 34% for 2014. Applications submitted outside of the annual enrollment period accounted for 55% of total

57

submitted applications, while 45% were submitted within the annual enrollment period in 2015. The number of
individual and family health insurance submitted applications are highest during the health care reform open
enrollment period, which begins in the fourth quarter of each year and runs into the first quarter of the following
year. Individual and family applications submitted during the first quarter of 2015 were higher than the number
of applications submitted during the fourth quarter of 2014, but 17% below the number of applications submitted
during the first quarter of 2014. During the second and third quarters, which are outside the health care reform
open enrollment periods, the number of individual and family health insurance submitted applications decreases
significantly. We expect this trend to continue in 2016. We also expect individual and family submitted
applications will increase significantly during the fourth quarter of 2016, relative to the second and third quarters
of 2016, as a result of the open enrollment period.

Members per Submitted Application. For Medicare-related health insurance, there is only one member per
submitted application. However, for individual and family and certain ancillary health insurance, there may be
more than one member per submitted application. We experienced a decline in the average number of members
on individual and family health insurance applications submitted in the first quarter of 2014 compared to the
second through fourth quarters of 2013. The average improved in the second, third and fourth quarters of 2014
compared to the first quarter of 2014, but did not return to pre-healthcare reform historical rates. Similarly, we
experienced a decline in the average number of members on individual and family health insurance applications
submitted in the first quarter of 2015 compared to the second through fourth quarters of 2014, but consistent with
the first quarter of 2014. The average improved in the second through fourth quarters of 2015 compared to the
first quarter of 2015, but did not return to the same levels as the second through fourth quarters of 2014.

Approval Rates and Initial Payment Rates. The approval rates for Medicare-related health insurance

remained relatively consistent in 2013, 2014 and 2015. However, as a result of the health care reform prohibition
on using pre-existing health conditions as a reason to deny health insurance applications, we have experienced
higher approval rates on individual and family plan applications submitted during the open enrollment periods
compared to periods before health care reform implementation. During the fourth quarters of 2013 and 2014, as
well as the first quarters of 2014 and 2015, we experienced higher approval rates on individual and family plan
applications compared to the second and third quarters of 2014 and 2015. In addition, during the first and second
quarters of 2015, our individual and family plan commission revenue benefited from carriers paying us earlier on
policies approved during the open enrollment period that ended in 2015 compared to the prior open enrollment
period. We believe that the more timely payment of commissions resulted from carriers being better prepared to
handle large application volumes, and we also took steps to work with our carrier partners to ensure that their
processes resulted in more timely commission payments to us in 2015 and 2016.

Commission Rates. The average commission dollars per-member-per-month that we receive for new health

insurance plan members varies based upon a number of factors, including the ratio of policies that we sold for
which we receive per member-per-month commissions compared to percentage-of-premium commissions, the
premiums on the policies we sold, the mix of our members by health insurance carrier and the commission rates
we receive from each carrier. Additionally, commission rates may vary by carrier, by geography and by the type
of plan purchased by a member.

In the first plan year of a Medicare Advantage and Medicare Part D prescription drug plan, after the health

insurance carrier approves the application but during the effective year of the plan, we are paid a fixed
commission that is prorated for the number of months remaining in the calendar year. Additionally, if the plan is
the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member, we may receive a
higher commission rate that covers a full twelve-month period, regardless of the month the plan was effective.
Beginning with and subsequent to the second plan year, we typically receive fixed, monthly commissions for
Medicare Advantage plans and fixed, annual commissions for Medicare Part D prescription drug plans. We earn
commission revenue for Medicare Advantage and Medicare Part D prescription drug plans for which we are the
broker of record, typically until either the policy is cancelled or we otherwise do not remain the agent on the
policy. Commission payments we receive for Medicare Supplement policies sold by us typically are a percentage

58

of the premium on the policy and paid to us until either the policy is cancelled or we otherwise do not remain the
agent on the policy. See Critical Accounting Policies and Estimates for details regarding our recognition of
Medicare plan commission revenue.

Historically, the commission payments we receive for individual and family, small business and ancillary
health insurance plans we sold were a percentage of the premium our customers pay for those plans. Effective
January 1, 2014, many carriers began paying our individual and family health insurance commissions at a flat
amount per member per month. Commission payments are typically made to us on a monthly basis until either
the policy is cancelled or we otherwise do not remain the agent on the policy.

As a result of our commission structure, much of our revenue for a given financial reporting period relates

to health insurance plans that we sold prior to the beginning of the period and is recurring in nature. However, the
increased volume of health insurance applications submitted during the annual open enrollment periods has
caused us to experience shifts in the concentration of our membership by health insurance carrier and type of
plan purchased and corresponding fluctuations in our average commission rate. For example, we have observed
higher commissions on many of the individual and family health insurance plans that we sold during the 2015
open enrollment period for coverage effective in 2016 compared to policies that we sold during the 2014 open
enrollment period for coverage effective in 2015. Recently, several health insurance carriers have reduced or
eliminated commission for individual and family health insurance sold outside of the health care reform open
enrollment period. While these carriers have indicated that they plan to increase commission rates for individual
and family health insurance sold in the upcoming open enrollment period, they are not obligated to do so.

Retention Rates. Our commission revenue is also influenced by our member retention rates. Retention rates

are typically lower in the first policy year and improves each subsequent year. Additionally, the member
retention rates on our individual and family membership were negatively impacted by health care reform
beginning in the fourth quarter of 2013 and throughout 2014 and 2015. As a result, the number of new individual
and family health insurance members added during the second, third and fourth quarters of 2014 and in 2015,
was not enough to offset the loss of existing members, resulting in an annual decline in individual and family
health insurance estimated membership during those periods.

Other Revenue

Online Sponsorship and Advertising. We generate revenue from our online sponsorship and advertising

program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our
website and allows Medicare-related carriers to purchase advertising on a separate website developed, hosted and
maintained by us. In return, we are typically paid a flat fee or, with respect to individual and family health
insurance plans, a monthly fee and a performance-based fee based on metrics such as submitted health insurance
applications. Health insurance carriers commit to sponsorship and advertising on a quarterly basis, if at all, and
generally determine prior to the quarter whether to purchase sponsorship and advertising from us and how much
they are willing to spend. As a result, our sponsorship and advertising revenue is difficult to predict. However,
since certain health insurance carriers have recently reduced or eliminated commissions on individual and family
health insurance, we expect online sponsorship and advertising revenue to decrease in 2016. See Critical
Accounting Policies and Estimates for details regarding our recognition of online sponsorship and advertising
revenue.

Technology Licensing. We generate revenue from licensing the use of our health insurance ecommerce
technology. Our technology platform enables health insurance carriers and agents to market and distribute health
insurance plans online. Health insurance carriers or agents that license our technology typically pay us
implementation fees and performance-based fees that are based on metrics such as submitted health insurance
applications. Since health insurance carriers are expected to reduce the number of members they enroll during the
special enrollment periods, which ends on October 31, 2016, we expect our technology licensing revenue to
decrease in 2016. See Critical Accounting Policies and Estimates for details regarding our recognition of
technology licensing revenue.

59

Lead Referrals. We generate revenue from referral fees paid to us based on Medicare-related and individual

and family health insurance leads generated by our ecommerce platforms that are delivered and sold to third
parties. As a result of an expected increase in the number of Medicare-related and individual and family health
insurance leads that we deliver and sell to third parties, we expect lead referral revenue will increase in 2016. See
Critical Accounting Policies and Estimates for details regarding our recognition of lead referral revenue.

Member Acquisition

An important factor in our revenue growth is the growth of our member base. Our marketing initiatives are

an important component of our strategy to grow our member base and are focused on three primary member
acquisition channels: direct, marketing partners and online advertising. Our marketing initiatives are primarily
designed to encourage consumers to complete an application for health insurance. For the years ended December
2014, and 2015, applications submitted through us for Medicare-related, individual and family, small business
and ancillary health insurance from our three member acquisition channels as a percentage of all health insurance
applications submitted on our websites were as follows:

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

March 31,
2015

June 30,
2015

September 30,
2015

December 31,
2015

Three Months Ended

Source of total submitted

applications (as a
percentage of total
submitted applications
for the period):

Direct . . . . . . . . . . . .
Marketing

43%

65%

74%

partners . . . . . . . .

37%

20%

15%

Online

advertising . . . . . .

20%

15%

Total

. . . . . . . . . . . . . . . .

100% 100%

11%

100%

50%

32%

18%

100%

48%

61%

64%

41%

33%

31%

11%

6%

5%

100% 100%

100%

46%

36%

18%

100%

Direct. Our direct member acquisition channel consists of consumers who access our website addresses,

(www.eHealth.com, www.eHealthInsurance.com, www.eHealthMedicare.com, www.Medicare.com and
www.PlanPrescriber.com) either directly, through algorithmic natural search listings on Internet search engines
and directories, or other forms of marketing, such as retargeting campaigns, television, direct mail and email
marketing.

Marketing Partners. Our marketing partner member acquisition channel consists of consumers who access
our websites through a network of affiliate partners and financial services and other companies. We compensate
a significant number of our marketing partners by paying a fee each time a consumer referral from a partner
results in a submitted health insurance application, regardless of whether the consumer’s application is approved
by the health insurance carrier. Some of our marketing partners have tiered arrangements in which the amount of
the fee increases as the volume of submitted applications we receive from the marketing partner increases over a
particular period. We recognize these expenditures in the period when a marketing partner’s referral results in the
submission of a health insurance application. Growth in our marketing partner channel depends upon our
expanding marketing programs with existing partners and adding new partners to our network.

Online Advertising. Our online advertising member acquisition channel consists of consumers who access

our websites through paid keyword search advertising from search engines such as Google, Bing and Yahoo!, as
well as various Internet marketing programs such as display advertising. We incur expenses associated with
search advertising in the period in which the consumer clicks on the advertisement.

60

In addition to our marketing channels, we have acquired health insurance members through transactions
with broker partners. We have entered into several agreements, whereby the partners have transferred certain of
their existing health insurance members to us as the broker of record on the underlying policies. These transfers
included primarily Medicare plan members. The first of these transferred books-of-business occurred in February
2009 and the most recent in June 2012.

Operating Costs and Expenses

Cost of Revenue

Included in cost of revenue are payments related to health insurance policies sold to members who were
referred to our website by marketing partners with whom we have revenue-sharing arrangements. In order to
enter into a revenue-sharing arrangement, marketing partners must be licensed to sell health insurance in the state
where the policy is sold. Costs related to revenue-sharing arrangements are expensed as the related revenue is
recognized.

Additionally, cost of revenue includes the amortization of consideration we paid to certain broker partners in

connection with the transfer of their health insurance members to us as the new broker of record on the
underlying policies. These transfers include primarily Medicare plan members. Total consideration paid in
connection with these transfers that occurred between 2009 and 2012 was $13.9 million. Consideration for all
book-of-business transfers is being amortized to cost of revenue as we recognize commission revenue related to
the transferred members.

Marketing and Advertising

Marketing and advertising expenses consist primarily of member acquisition expenses associated with our
direct, marketing partner and online advertising member acquisition channels, in addition to compensation and
other expenses related to marketing, business development, partner management, public relations and carrier
relations personnel who support our offerings.

Since a significant portion of our marketing and advertising expenses consists of expenses incurred as a
result of payments owed to our marketing partners in connection with health insurance applications submitted on
our ecommerce platform and other forms of marketing, such as direct mail, email marketing, television, radio and
retargeting campaigns, those expenses are influenced by seasonal submitted application patterns. As a result of
the annual open enrollment periods for both Medicare-related and individual and family health insurance,
marketing and advertising expenses increase during the fourth quarter of each year. Additionally, since the health
care reform open enrollment periods for individual and family health insurance continues into the following year,
marketing and advertising expenses increase during the first quarter of each year, but to a lesser extent than the
fourth quarter. During the second and third quarters, marketing and advertising expenses decrease, consistent
with the decrease in submitted applications compared to periods during the open enrollment periods. We expect
these seasonal trends to continue in 2016.

Because the total volume of submitted applications that we receive from our marketing partners is largely

outside of our control, particularly during any short-term period, and because of our tiered marketing partner
arrangements, we could incur expenses in excess of, or below, the amounts we had planned in periods of rapid
change in the volume of submitted applications from marketing partner referrals. Similar to our marketing
partner channel, expenses in our online advertising channel will increase or decrease in relation to any increase or
decrease in consumers referred to our website as a result of search engine advertising. Increases in submitted
applications resulting from marketing partner referrals or visitors to our website from our online advertising
channel has in the past and could in the future result in marketing and advertising expenses significantly higher
than our expectations. This has in the past and could in the future negatively impact our profitability during such
periods because the revenue (if any) derived from submitted applications that are approved by health insurance
carriers is not recognized until future periods.

61

Historically, we have experienced decreases in submitted individual and family plan applications outside of

the open enrollment period compared to inside the open enrollment period and the source of our submitted
individual and family plan applications shifted so that a greater number of applications came from our direct
member acquisition channel. During the open enrollment period, the source of our submitted individual and
family plan applications shifted so that a greater number of applications came from our higher cost marketing
partner member acquisition channel compared to outside of the open enrollment period. These seasonal trends
have continued in 2015 and are expected to continue in 2016.

Customer Care and Enrollment

Customer care and enrollment expenses primarily consist of compensation and benefits costs for personnel

engaged in assistance to applicants who call our customer care center and for enrollment personnel who assist
applicants during the enrollment process. In preparation for the Medicare annual enrollment period during 2014
and 2015, and to a lesser extent the open enrollment period for individual and family health insurance plans
during 2014, we began ramping up our customer care center staff during our third quarter to handle the
anticipated increased volume of health insurance transactions. Additionally, in the first quarters of 2014 and
2015, we retained some Medicare sales and enrollment personnel to handle the increased volume of individual
and family plan applications during the annual open enrollment periods for individual and family health
insurance that ended on March 31, 2014 and February 15, 2015, respectively. Historically, our customer care
center staffing costs have been significantly higher in our first and fourth quarters compared to our second and
third quarters. During 2016, we expect customer care and enrollment expenses will be relatively flat during our
first and second quarters and will increase in both our third and fourth quarters as a result of increased Medicare
sales and enrollment personnel required to handle the anticipated increased volume of Medicare-related health
insurance transactions during the Medicare annual enrollment period in the fourth quarter.

Technology and Content

Technology and content expenses consist primarily of compensation and benefits costs for personnel

associated with developing and enhancing our website technology as well as maintaining our website. A majority
of our technology and content group is located at our wholly-owned subsidiary in China, where technology
development costs are generally lower than in the United States.

General and Administrative

General and administrative expenses include compensation and benefits costs for staff working in our
executive, finance, investor relations, government affairs, legal, human resources, internal audit, facilities and
internal information technology departments. These expenses also include fees paid for outside professional
services, including audit, tax, legal, government affairs and information technology fees.

Restructuring Charges

On March 10, 2015, we implemented an organizational restructuring and cost reduction plan, designed to

rebalance our resources and help reduce our cost structure as a result of lower than expected individual and
family health insurance plan membership and revenue. As part of the plan, we eliminated approximately 160 full-
time positions, representing approximately 15% of our workforce primarily in our technology and content and
customer care and enrollment groups, and to a lesser extent, in our marketing and advertising and general and
administrative groups. We incurred pre-tax restructuring charges of approximately $3.9 million for employee
termination benefits and related costs as well as $0.6 million in other pre-tax restructuring charges, primarily
consisting of facility exit costs. The majority of the restructuring charges were recorded in the first quarter of
2015, when the activities comprising the plan were substantially completed. In March 2015, as part of our
restructuring activities, we also eliminated certain positions in our China operation.

62

Summary of Selected Metrics

The following table shows certain selected quarterly metrics for 2014 and 2015:

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

March 31,
2015

June 30,
2015

September 30,
2015

December 31,
2015

Three Months Ended

Key Metrics:

Submitted applications:
Medicare submitted

applications (1) . . . . . . . . .

15,300

13,100

11,500

64,800

20,200

18,600

19,200

74,300

IFP submitted

applications (2) . . . . . . . . .

169,500

24,800

23,800

100,400

140,000

23,900

22,500

114,600

Other submitted

applications (3) . . . . . . . . .

111,600

72,800

84,900

97,100

101,100

66,800

70,200

107,900

Total submitted

applications (4) . . . . . . . . .

296,400

110,700

120,200

262,300

261,300

109,300

111,900

296,800

Medicare Advantage

submitted applications
(5)

. . . . . . . . . . . . . . . . . . .

Commission revenue (in

thousands):

Medicare commission

8,400

7,300

6,200

42,600

15,100

13,700

14,800

52,600

revenue (6) . . . . . . . . . . . . . $

12,392 $

5,821

IFP commission

revenue (7) . . . . . . . . . . . . . $

27,329 $

26,193

Other commission

revenue (8) . . . . . . . . . . . . . $

5,856 $

6,512

Total commission

revenue (9) . . . . . . . . . . . . . $

45,577 $

38,526

$

$

$

$

5,953

22,897

7,314

36,164

$

$

$

$

10,933

20,247

7,179

38,359

$

$

$

$

29,219 $

6,851

21,860 $

24,046

6,740 $

6,499

57,819 $

37,396

$

$

$

$

6,578

21,535

6,829

34,942

$

$

$

$

14,465

19,745

6,890

41,100

March 31,
2014

June 30,
2014

September 30,
2014

December 31,
2014

March 31,
2015

June 30,
2015

September 30,
2015

December 31,
2015

Medicare estimated

membership (10) . . . . . . . .

111,700

113,200

121,300

143,500

155,600

169,100

182,700

228,900

IFP estimated

membership (11) . . . . . . . .

800,200

751,000

653,700

565,900

584,900

568,400

518,000

503,300

Other estimated

membership (12) . . . . . . . .

374,300

384,600

383,100

408,000

421,700

404,900

397,400

412,300

Total estimated . . . . . . . . . . .
membership (13) . . . . . . . . . . 1,286,200 1,248,800

1,158,100

1,117,400

1,162,200 1,142,400

1,098,100

1,144,500

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Notes:
(1) Medicare-related health insurance applications submitted on eHealth’s website or through eHealth’s

customer care center during the period, including Medicare Advantage, Medicare Part D Prescription drug
and Medicare Supplement plans. Applications are counted as submitted when the applicant completes the
application and either clicks the submit button on our website or provides verbal authorization to submit the
application. The applicant may have additional actions to take before the application will be reviewed by the
insurance carrier, such as providing additional information. In addition, an applicant may submit more than
one application.

(2) Major medical Individual and Family plan (“IFP”) health insurance applications submitted on eHealth’s
website during the period. Applications are counted as submitted when the applicant completes the
application, clicks the submit button on our website and submits the application to us. The applicant may
have additional actions to take before the application will be reviewed by the insurance carrier, such as
providing additional information and providing an electronic signature. In addition, an applicant may submit
more than one application. We define our “IFP” offerings as major medical individual and family health
insurance plans, which does not include Medicare-related, small business or ancillary plans (primarily
consisting of short-term, dental, life, vision, and accident insurance plans).

(3) Applications for health insurance plans other than Medicare and IFP submitted on eHealth’s website during
the period. Applications for ancillary plans are counted as submitted when the applicant completes the
application, clicks the submit button on our website and submits the application to us. Applications for small
business plans are counted as submitted when the applicant completes the application, the employees
complete their applications, the applicant submits the application to us and we submit the application to the
carrier. The applicant may have additional actions to take before the application will be reviewed by the
insurance carrier, such as providing additional information. In addition, an applicant may submit more than
one application.

(4) Applications for all health insurance plans submitted on eHealth’s website or through eHealth’s customer

care center during the period. See notes (1), (2) and (3) above for further information as to what constitutes
a submitted application.

(5) Medicare Advantage plan health insurance applications submitted on eHealth’s website or through

eHealth’s customer care center during the period. Applications are counted as submitted when the applicant
completes the application and either clicks the submit button on our website or provides verbal authorization
to submit the application. The applicant may have additional actions to take before the application will be
reviewed by the insurance carrier, such as providing additional information. In addition, an applicant may
submit more than one application. Medicare Advantage submitted applications are included in Medicare
submitted applications—See note (2) above.

(6) Commission revenue recognized on all Medicare-related health insurance during the period.
(7) Commission revenue recognized on all IFP health insurance plans during the period, including commission

overrides.

(8) Commission revenue recognized on all insurance other than Medicare-related health insurance and IFP

health insurance plans during the period.

(9) Total commission revenue recognized on all insurance plans during the period.
(10) Estimated number of members active on Medicare-related health insurance as of the date indicated. See the
note below for additional information regarding our calculation of Medicare estimated membership.
(11) Estimated number of members active on IFP health insurance plans as of the date indicated. See the note

below for additional information regarding our calculation of IFP estimated membership.

(12) Estimated number of members active on insurance plans other than Medicare-related health insurance and
IFP health insurance plans as of the date indicated. See the note below for additional information regarding
our calculation of other estimated membership.

(13) Estimated number of members active on all insurance plans as of the date indicated. See the note below for

additional information regarding our calculation of total estimated membership.

Health insurance carriers bill and collect insurance premiums paid by our members. Health insurance

carriers do not report to us the number of members that we have as of a given date. The majority of our non-

64

Medicare members who terminate their insurance plans do so by discontinuing their premium payments to the
carrier and do not inform us of the cancellation. Also, some of our non-Medicare members pay their premiums
less frequently than monthly. Given the number of months required to observe non-payment of commissions in
order to confirm both Medicare and non-Medicare cancellations, we estimate the number of members who are
active on insurance plans we have sold as of a specified date. We estimate the number of continuing members on
those plans as of a specific date as follows:

•

•

•

For Medicare-related health insurance plans, we take the number of members for whom we have
received a commission payment for or applied a commission payment to the month of the estimate.

For IFP health insurance plans, we take the sum of (i) the number of IFP members for whom we have
received or applied a commission payment for the month that is six months prior to the date of
estimation after reducing that number using historical experience for assumed member cancellations
over the six-month period; and (ii) the number of approved members over the six-month period prior to
the date of estimation after reducing that number by the percentage of members who do not accept their
approved policy from the same month of the previous year for each of the six months prior to the date
of estimation and for estimated member cancellations through the date of the estimate.

For ancillary health insurance plans (such as short-term, dental, vision, accident and student), we take
the sum of (i) the number of members for whom we have received or applied a commission payment
for the month that is one to three months prior to the date of estimation (after reducing that number
using historical experience for assumed member cancellations over the one to three-month period); and
(ii) the number of approved members over the one to three-month period prior to the date of estimation
(after reducing that number using historical experience for an assumed number of members who do not
accept their approved policy and for estimated member cancellations through the date of the estimate).
The one to three-month period varies by insurance product and is largely dependent upon the timeliness
of commission payment and related reporting from the related carriers. For small business health
insurance plans, we estimate the number of members using the number of initial members at the time
the group is approved, and we update this number for changes in membership if such changes are
reported to us by the group or carrier in the period it is reported. However, groups generally notify the
carrier directly of policy cancellations and increases or decreases in group size without informing us.

Health insurance carriers often do not communicate policy cancellation information to us. We often are

made aware of policy cancellations at the time of annual renewal and update our membership statistics
accordingly in the period they are reported.

A member who purchases and is active on multiple standalone insurance plans will be counted as a member
more than once. For example, a member who is active on both an individual and family health insurance plan and
a standalone dental plan will be counted as two continuing members.

After we have estimated membership for a period, we may receive information from health insurance
carriers that would have impacted the estimate if we had received the information prior to the date of estimation.
We may receive commission payments or other information that indicates that a member who was not included
in our estimates for a prior period was in fact an active member at that time, or that a member who was included
in our estimates was in fact not an active member of ours. For instance, we reconcile information carriers provide
to us and may determine that we were not historically paid commissions owed to us, which would cause us to
have underestimated membership. Conversely, carriers may require us to return commission payments paid in a
prior period due to policy cancellations for members we previously estimated as being active. We do not update
our estimated membership numbers reported in previous periods. Instead, we reflect updated information
regarding our historical membership in the membership estimate for the current period. As a result of the delay in
our receipt of information from insurance carriers, actual trends in our membership are most discernible over
periods longer than from one quarter to the next. In addition, and as a result of the delay we experience in
receiving information about our membership, it is difficult for us to determine with any certainty the impact of
current conditions such as health care reform implementation on our membership and membership retention.

65

Health care reform and other factors could cause the assumptions and estimates that we make in connection with
estimating our membership to be inaccurate, which would cause our membership estimates to be inaccurate.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted
accounting principles, or U.S. GAAP, requires us to make judgments, assumptions, and estimates that affect the
amounts reported in the consolidated financial statements and the accompanying notes. These estimates and
assumptions are based on current facts, historical experience, and various other factors that we believe are
reasonable under the circumstances to determine reported amounts of assets, liabilities, revenue and expenses
that are not readily apparent from other sources. To the extent there are material differences between our
estimates and the actual results, our future consolidated results of operations may be affected.

An accounting policy is considered to be critical if the nature of the estimates or assumptions is material due

to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility
of such matters to change, and the effect of the estimates and assumptions on financial condition or operating
performance. The accounting policies we believe to reflect our more significant estimates, judgments and
assumptions and are most critical to understanding and evaluating our reported financial results are as follows:

• Revenue Recognition;

•

Stock-Based Compensation;

• Realizability of Long-Lived Assets; and

• Accounting for Income Taxes.

During the year ended December 31, 2015, there were no significant changes to our critical accounting

policies and estimates.

Revenue Recognition

We recognize revenue for our services when each of the following four criteria is met: persuasive evidence
of an arrangement exists; delivery has occurred or services have been rendered; the seller’s price to the buyer is
fixed or determinable; and collectability is reasonably assured. Our revenue is primarily comprised of
compensation paid to us by health insurance carriers related to insurance plans that have been purchased by a
member who used our service. We define a member as an individual currently covered by an insurance plan,
including Medicare-related, individual and family, small business and ancillary plans, for which we are entitled
to receive compensation from an insurance carrier.

Commission Revenue

For both Medicare Advantage and Medicare Part D prescription drug plans, we receive a fixed, annual
commission payment from insurance carriers once the plan is approved by the carrier and either a fixed, monthly
commission payment beginning with and subsequent to the second plan year for a Medicare Advantage plan or a
fixed, annual commission payment beginning with and subsequent to the second plan year for a Medicare Part D
prescription drug plan. Additionally, commission rates may be higher in the first twelve months of the plan if the
plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member. In the first
plan year of a Medicare Advantage and Medicare Part D prescription drug plan, after the health insurance carrier
approves the application but during the effective year of the plan, we are paid a fixed commission that is prorated
for the number of months remaining in the calendar year. Additionally, if the plan is the first Medicare
Advantage or Medicare Part D plan issued to the member, we may receive a higher commission rate that covers a
full twelve-month period, regardless of the month the plan was effective. We earn commission revenue for
Medicare Advantage and Medicare Part D prescription drug plans for which we are the broker of record,

66

typically until either the policy is cancelled or we otherwise do not remain the agent on the policy. We recognize
commission revenue for both Medicare Advantage and Medicare Part D prescription drug plans for the entire
plan year once the annual or first monthly commission amount for the plan year is reported to us by the carrier,
net of an estimate for future forfeiture amounts due to cancellations. For commissions paid to us on a monthly
basis, we record a receivable for the commission amounts to be received over the remainder of the plan year, net
of an estimate for commission amounts not expected to be collected due to policy cancellations, which is
included in Accounts Receivable in the consolidated balance sheets. We determine that there is persuasive
evidence of an arrangement when we have a commission agreement with a health insurance carrier. Our services
are complete when a carrier has approved an application in the initial year and when a member has renewed in a
renewal year. The seller’s price is fixed or determinable and collectability is reasonably assured when a carrier
has approved an application and the carrier reports to us the annual or first monthly renewal commission amount
for each plan year.

For individual and family, Medicare Supplement, small business and ancillary plans, our compensation

generally represents a flat amount per member per month or a percentage of the premium amount collected by
the carrier during the period that a member maintains coverage under a plan (commissions) and, to a much lesser
extent, override commissions that health insurance carriers pay us for achieving certain objectives. Premium-
based commissions are reported to us after the premiums are collected by the carrier, generally on a monthly
basis. We generally continue to receive the commission payment from the relevant insurance carrier until the
health insurance plan is cancelled or we otherwise do not remain the agent on the policy. We recognize
commission revenue for individual and family, Medicare Supplement, small business and ancillary plans as the
commissions are reported to us by the carrier, net of an estimate for future forfeiture amounts due to policy
cancellations. We determine that there is persuasive evidence of an arrangement when we have a commission
agreement with a health insurance carrier, a carrier reports to us that it has approved an application submitted
through our ecommerce platform and the applicant starts making payments on the plan. Our services are
complete when a carrier has approved an application. The seller’s price is fixed or determinable and collectability
is reasonably assured when commission amounts have been reported to us by a carrier.

We recognize individual and family, small business and ancillary commission override revenue when
reported to us by a carrier based on the actual attainment of predetermined target sales levels or other objectives
as determined by the carrier. Commission override revenue, which we recognize on the same basis as individual
and family, small business and ancillary commissions, is generally reported to us in a more irregular pattern than
such commissions.

Commissions for all health insurance plans we sell are reported to us by a cash payment and commission
statement. We generally receive these communications simultaneously. In instances when we receive the cash
payment and commission statement separately and in different accounting periods, we recognize revenue in the
period that we receive the earliest communication, provided we receive the second corroborating communication
shortly following the end of the accounting period. If the second corroborating communication is not received
shortly following the end of the accounting period, we recognize revenue in the period the second
communication is received. During 2014, CMS issued a regulation prohibiting carriers from paying commissions
during the fourth quarter on Medicare Advantage and Medicare Part D prescription drug plans sold during the
fourth quarter with an effective date in the following year. During the fourth quarters of 2014 and 2015, we
recognized revenue for policies included on a commission statement received prior to December 31, 2014 and
2015 respectively for which payment was received shortly after year-end and in connection with the carriers’
normal payment cycle during the first quarter of 2015 and 2016. We use the data in the commission statements to
help identify the members for which we are receiving a commission payment and the amount received for each
member, and to estimate future forfeiture amounts due to policy cancellations. As a result, we recognize the net
amount of compensation earned as the agent in the transaction.

Certain commission amounts are subject to forfeiture if the policy is subsequently cancelled and either the
carrier takes back all or a portion of the commission they have paid to us or we will no longer receive monthly

67

commission payments for the remainder of the plan year. We record an estimate for these forfeitures based on
our historical cancellation experience using data provided on commission statements. Policy cancellations and
the commission amounts, if any, to be taken back by the carrier are typically reported to us by health insurance
carriers several months after the policy’s cancellation date. Our estimate for forfeitures payable to a carrier,
which is included in Other Current Liabilities in the consolidated balance sheets, includes an estimate of both the
reporting time lag and the forfeiture amount, based on our historical experience by policy type. Similarly, our
estimate for commission amounts not expected to be collected due to policy cancellations, which is recorded as a
reduction of Accounts Receivable in the consolidated balance sheets, includes an estimate of the annual policy
cancellation rate, based on our historical experience by policy type. Changes in our historical trends would result
in changes to our estimated forfeitures in future periods. There were no changes in our average forfeiture rates or
reporting time lag during the years ended December 31, 2013, 2014, and 2015 which had a material impact on
our estimate for forfeitures.

We rely on all of our health insurance carriers to report accurately and in a timely manner the amount of
commissions earned by us, and we calculate our commission revenues, prepare our financial reports, projections
and budgets, and direct our marketing and other operating efforts based on the reports we receive from them.
Each month we analyze the reports we receive from health insurance carriers by comparing such data to the
database we maintain on our members. It is often difficult for us to independently determine whether or not
carriers are reporting all commissions due to us, primarily because members on Medicare-related, individual and
family, small business and ancillary health insurance policies terminate their policies either by contacting the
carrier directly instead of by informing us of the cancellation or by discontinuing their premium payments to the
carrier. Also, some of our individual, family and small business members pay their premiums less frequently than
monthly. This results in our having to identify underpayment or non-payment of commissions on a policy and
follow up with a carrier to obtain an explanation and/or request correction of the amount of commissions paid to
us.

Other Revenue

Our sponsorship and advertising program allows carriers to purchase advertising space in specific markets

in a sponsorship area on our website. In return, we are typically paid a monthly fee, which is recognized over the
period that advertising is displayed, and often a performance fee based on metrics such as submitted health
insurance applications, which is recognized when the earned amount are fixed and determinable and all other
revenue recognition criteria has been met. We also offer Medicare advertising services, which include website
development, hosting and maintenance. In these instances, we are typically paid a fixed, up-front fee, which we
recognize as revenue over the service period.

Our commercial technology licensing business allows carriers the use of our ecommerce platform to offer
their own health insurance policies on their websites and agents to utilize our technology to power their online
quoting, content and application submission processes. Typically, we are paid a one-time implementation fee,
which we recognize on a straight-line basis over the estimated term of the customer relationship (generally the
initial term of the agreement), commencing once the technology is available for use by the third party, and a
performance fee based on metrics such as submitted health insurance applications. The metrics used to calculate
performance fees for both sponsorship and advertising and technology licensing are based on performance
criteria that are either measured based on data tracked by us, or based on data tracked by the third party. In
instances where the performance criteria data is tracked by us, we recognize revenue in the period of
performance and when all other revenue recognition criteria have been met. In instances where the performance
criteria data is tracked by the third party, we recognize revenue when the amounts earned are either fixed or
determinable and collection is reasonably assured. Typically, this occurs through our receipt of a cash payment
from the third party along with a detailed statement containing the data that is tracked by the third party.

Deferred revenue includes deferred technology licensing implementation fees and amounts billed for
deliverables in multiple element arrangements that do not have stand-alone value from other, undelivered

68

elements as well as amounts billed or collected from sponsorship or technology licensing customers in advance
of our performing our service for such customers. It also includes the amount by which both unbilled and billed
services provided under our technology licensing arrangements exceed the straight-line revenue recognized to
date. We defer commission amounts that have been paid to us related to transactions where our services are
complete, but where we cannot currently estimate future forfeitures related to those amounts.

We allocate revenue to all units of accounting within an arrangement with multiple deliverables at the
inception of the arrangement using the relative selling price method. The relative selling price method allocates
any discount in an arrangement proportionally to each deliverable on the basis of each deliverable’s relative
selling price. The relative selling price established for each deliverable is based on vendor-specific objective
evidence of fair value (“VSOE”) if available, third-party evidence of selling price if VSOE is not available, or
best estimate of selling price if neither VSOE nor third-party evidence is available. When used, the best estimate
of selling price reflects our best estimates of what the selling prices of certain deliverables would be if they were
sold regularly on a stand-alone basis. Our process for determining best estimate of selling price for deliverables
without VSOE or third-party evidence of selling price considers multiple factors that may vary depending upon
the unique facts and circumstances related to each deliverable. Key factors considered by us in developing the
relative selling prices for our technology licensing fees include prices charged by us for similar offerings and our
historical pricing practices. We may also consider additional factors as appropriate, including competition.

A deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no

customer-negotiated right of refunds for the delivered elements. If the arrangement includes a customer-
negotiated right of refund relative to the delivered item, and the delivery and performance of the undelivered item
is considered probable and substantially in our control, the delivered element constitutes a separate unit of
accounting. In circumstances when the aforementioned criteria are not met, the deliverable is combined with the
undelivered elements, and the allocation of the arrangement consideration and revenue recognition is determined
for the combined unit as a single unit. Allocation of the consideration is determined at the inception of the
arrangement on the basis of each unit’s relative selling price. After the arrangement consideration has been
allocated to each unit of accounting based on their relative selling prices, we apply revenue recognition criteria
separately to each respective unit of accounting in the arrangement in accordance with applicable accounting
guidance.

Stock-Based Compensation

We recognize stock-based compensation expense in the accompanying consolidated statements of
comprehensive income (loss) based on the fair value of our stock-based awards over their respective vesting
periods, which is generally four years. The estimated grant date fair value of our stock options is determined
using the Black-Scholes-Merton pricing model and a single option award approach. The weighted-average
expected term for stock options granted is calculated using historical option exercise behavior. The dividend
yield is determined by dividing the expected per share dividend during the coming year by the grant date stock
price. Through December 31, 2015, we had not declared or paid any cash dividends, and we do not expect to pay
any in the foreseeable future. We base the risk-free interest rate on the implied yield currently available on U.S.
Treasury zero-coupon issues with a remaining term equal to the expected term of our stock options. Expected
volatility is determined using a combination of the implied volatility of publicly traded options in our stock and
historical volatility of our stock price. The estimated attainment of performance-based awards and related
expense is based on the expectations of revenue target achievement. The estimated fair value of performance
awards with market conditions is determined using the Monte-Carlo simulation model. The assumptions used in
calculating the fair value of stock-based payment awards and expected attainment of performance-based awards
represent our best estimates, but these estimates involve inherent uncertainties and the application of
management judgment. We will continue to use judgment in evaluating the expected term and volatility related
to our own stock-based awards on a prospective basis, and incorporating these factors into the model. Changes in
key assumptions could significantly impact the valuation of such instruments.

69

Realizability of Long-Lived Assets

We assess the realizability of our long-lived assets, including intangible assets and goodwill, whenever
events or changes in circumstances indicate the carrying value of such assets may not be recoverable. Factors that
we consider in deciding when to perform an impairment review include significant negative industry or
economic trends or significant changes or planned changes in our use of the assets. Additionally, we test
goodwill and our other indefinite-lived intangible assets for impairment on an annual basis on or about
November 30 of each year. When performing the annual goodwill impairment test we first assess qualitative
factors to determine whether it is “more likely than not” that the fair value of our reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment
test. When performing the annual impairment test for indefinite-lived intangible assets other than goodwill we
first assess qualitative factors to determine whether it is “more likely than not” that the indefinite-lived intangible
is impaired.

If events or changes in circumstances indicate the carrying value of such assets may not be recoverable, for

long lived assets other than goodwill, including intangible assets with finite useful lives, which include purchased
technology, pharmacy relationships, trade names, and trademarks, we measure the recoverability of assets that
will continue to be used in our operations by comparing the carrying value of the asset grouping to our estimate
of the related total future undiscounted net cash flows. For assets related to our book-of-business transfers, we
compare the carrying amount of each asset to the commission revenue expected to be generated by the policies
included in each respective book-of-business. Our estimates of commission revenue expected to be generated by
each book-of-business include subjective judgments regarding expected policy cancellations. If an asset
grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is
considered to be impaired. The impairment charge is calculated as the amount by which the asset grouping’s
carrying value exceeds its fair value, which is defined as the price that would be received from selling an asset in
an orderly transaction between market participants at the measurement date.

We must make subjective judgments in determining the independent cash flows that can be related to
specific asset groupings. In addition, we must make subjective judgments regarding the remaining useful lives of
assets with finite useful lives. When we determine that the useful life of an asset is shorter than we had originally
estimated, we accelerate the rate of amortization over the new remaining useful life of the asset.

Accounting for Income Taxes

We account for income taxes using the liability method. Deferred income taxes are determined based on the
differences between the financial reporting and tax bases of assets and liabilities, using enacted statutory tax rates
in effect for the year in which the differences are expected to reverse.

Since tax laws and financial accounting standards differ in their recognition and measurement of assets,
liabilities, equity, revenues, expenses, gains and losses, differences arise between the amount of taxable income
and pretax financial income for a year and between the tax bases of assets or liabilities and their reported
amounts in our financial statements. Because we assume that the reported amounts of assets and liabilities will be
recovered and settled, respectively, a difference between the tax basis of an asset or a liability and its reported
amount in the balance sheet will result in a taxable or a deductible amount in some future years when the related
liabilities are settled or the reported amounts of the assets are recovered, which gives rise to a deferred tax asset
or liability. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable
income and to the extent we believe that recovery does not meet the more likely than not criteria, we must
establish a valuation allowance. Management judgment is required in determining any valuation allowance
recorded against our net deferred tax assets.

As part of the process of preparing our consolidated financial statements, we are required to estimate our
income taxes. This process involves estimating our actual current tax expense together with assessing temporary
differences that may result in deferred tax assets.

70

Assessing the realizability of our deferred tax assets is dependent upon several factors, including the

likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those
temporary differences become deductible. We forecast taxable income by considering all available positive and
negative evidence, including our history of operating income and losses and our financial plans and estimates
that we use to manage the business. These assumptions require significant judgment about future taxable income.
As at the year ended December 31, 2015, our valuation allowance is $10.5 million, which represents a full
valuation allowance against the Company’s federal and state deferred tax assets. Any future change in the
valuation allowance could have an effect on the income tax provision in the consolidated statement of income
(loss).

Future changes in various factors, such as the amount of stock-based compensation we record during the
period and the related tax benefit we realize upon the exercise of employee stock options, potential limitations on
the use of our federal and state net operating loss credit carry forwards, pending or future tax law changes
including rate changes and the tax benefit from or limitations on our ability to utilize research and development
credits, the amount of non-deductible lobbying and acquisition-related costs, changes in our valuation allowance
and state and foreign taxes, would impact our estimates, and as a result, could affect our effective tax rate and the
amount of income tax expense we record, and pay, in future periods.

Results of Operations

The following table sets forth our operating results and related percentage of total revenues for the years

ended December 31, 2013, 2014 and 2015 (dollars in thousands):

Revenue:

Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$153,383
25,797

86% $158,626
21,051
14

88% $171,257
18,284
12

90%
10

Year Ended December 31,

2013

2014

2015

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses:

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and advertising . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Customer care and enrollment
Technology and content
. . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . .

179,180

100

179,677

100

189,541

100

5,461
71,660
35,099
32,579
29,235

3
40
20
18
16
— —
1

1,414

4,494
69,732
42,745
40,390
27,549

3
39
24
22
15
— —
1

1,529

4,178
75,571
42,540
36,351
30,858
4,541
1,153

2
40
22
19
16
2
1

Total operating costs and expenses . . . . . . . . . . . . . . . . . .

175,448

98

186,439

104

195,192

103

Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before provision (benefit) for income

taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . .

3,732
(92)

3,640
1,917

2
0

2
1

(6,762)
(98)

(6,860)
9,345

(4)
0

(4)
5

(5,651)
45

(3)
0

(5,606)

(3)
(843) —

Net income (loss)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

1,723

1% $ (16,205)

(9)% $ (4,763)

(3)%

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Operating costs and expenses include the following amounts of stock-based compensation expense (in

thousands):

Marketing and advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer care and enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2013

2014

2015

$2,112
$1,692
$1,950
342
386
477
1,641
1,611
1,728
2,734
2,188
3,707
$ — $ — $ 113

$7,802

$5,877

$7,002

Years Ended December 31, 2013, 2014 and 2015

Revenue

The following table presents our commission, other revenue and total revenue for the years ended

December 31, 2013, 2014 and 2015 and the dollar and percentage changes from the prior year (dollars in
thousands):

Year Ended
December 31,
2013

Change

$

%

Year Ended
December 31,
2014

Change

$

%

Year Ended
December 31,
2015

Commission . . . . . . . . . . . . . . . . . . . .
Percentage of total revenue . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of total revenue . . . . .
Total revenue . . . . . . . . . . . . . . . . . . .

$153,383

$ 5,243

3% $158,626

$12,631

8% $171,257

86%

88%

90%

25,797

(4,746)

(18)% 21,051

(2,767)

(13)% 18,284

14%

12%

10%

$179,180

$

497 — % $179,677

$ 9,864

5% $189,541

2015 compared to 2014—Commission revenue increased $12.6 million, or 8%, in the year ended

December 31, 2015 compared to the year ended December 31, 2014, primarily due to a $22.0 million increase in
Medicare-related commission revenue, partially offset by a $9.4 million decrease in non-Medicare plan
commission revenue, consisting primarily of individual and family health insurance commission revenue. The
increase in Medicare related commission revenue is due to increased Medicare membership for the year ended
December 31, 2015 compared to the year ended December 31, 2014. The decrease in non-Medicare plan related
commission revenue is primarily due to decreased individual and family plan estimated membership for the year
ended December 31, 2015 compared to the year ended December 31, 2014.

Other revenue decreased $2.8 million, or 13%, in the year ended December 31, 2015 compared to the year

ended December 31, 2014, due primarily to a $3.4 million decrease in online sponsorship and advertising
revenue and a $1.2 million decrease in technology licensing revenue, partially offset by a $1.9 million increase in
lead generation revenue.

We expect commission revenue to increase in absolute dollars in 2016 compared to 2015, primarily as a
result of continued increase in Medicare-related commission revenue, partially offset by decreases in individual
and family health insurance related commission revenue and commission override revenue. We expect other
revenue to decline in absolute dollars in 2016 compared to 2015, primarily due to a decrease in online
sponsorship and advertising revenue, and to a lesser extent, a decrease in technology licensing revenue, partially
offset by an increase in lead generation revenue.

2014 compared to 2013—Commission revenue increased $5.2 million, or 3%, in the year ended

December 31, 2014 compared to the year ended December 31, 2013, primarily due to a $8.1 million increase in
Medicare-related commission revenue, partially offset by a $2.8 million decrease in non-Medicare plan

72

commission revenue, consisting primarily of individual and family health insurance commission revenue. The
increase in Medicare related commission revenue was due to increased Medicare estimated membership for the
year ended December 31, 2014 compared to the year ended December 31, 2013. The decrease in non-Medicare
plan related commission revenue was primarily due to decreased individual and family plan estimated
membership for the year ended December 31, 2014 compared to the year ended December 31, 2013.

Other revenue decreased $4.7 million, or 18%, in the year ended December 31, 2014 compared to the year

ended December 31, 2013, due primarily to a $5.4 million decrease in online sponsorship and advertising
revenue, partially offset by a $0.5 million increase in technology licensing revenue.

Operating Costs and Expenses

Cost of Revenue

The following table presents our cost of revenue for the years ended December 31, 2013, 2014 and 2015 and

the dollar and percentage changes from the prior year (dollars in thousands):

Year Ended
December 31,
2013

Change

$

%

Year Ended
December 31,
2014

Change

$

%

Year Ended
December 31,
2015

Cost of revenue . . . . . . . . . . . . . . . . . . . . . .
Percentage of total revenue . . . . . . . . .

$5,461

$(967)

(18)% $4,494

$(316)

(7)% 4,178

3%

3%

2%

2015 compared to 2014—Cost of revenue decreased $0.3 million, or 7%, in the year ended December 31,

2015 compared to the year ended December 31, 2014, due primarily to a decrease in amortization expense
associated with the consideration we paid to a broker partner in connection with the transfer of several Medicare
plan books-of-business to us whereby we became the broker of record on the underlying policies.

We expect cost of revenue to increase in absolute dollars in 2016 compared to 2015, primarily as a result of
an increase in revenue-sharing payments related to health insurance policies sold to members who are referred to
our website by marketing partners with whom we have revenue-sharing arrangements, partially offset by a
continued decrease in amortization expense associated with the consideration we paid to a broker partner in
connection with the transfer of several Medicare plan books-of-business to us whereby we became the broker of
record on the underlying policies.

2014 compared to 2013—Cost of revenue decreased $1.0 million, or 18%, in the year ended December 31,

2014 compared to the year ended December 31, 2013, due primarily to a decrease in amortization expense
associated with the consideration we paid to a broker partner in connection with the transfer of several Medicare
plan books-of-business to us whereby we became the broker of record on the underlying policies.

Marketing and Advertising

The following table presents our marketing and advertising expenses for the years ended December 31,

2013, 2014 and 2015 and the dollar and percentage changes from the prior year (dollars in thousands):

Year Ended
December 31,
2013

Change

$

%

Year Ended
December 31,
2014

Change

$

%

Year Ended
December 31,
2015

Marketing and advertising . . . . . . . . . . . . .
Percentage of total revenue . . . . . . . .

$71,660

$(1,928)

(3)% $69,732

$5,839

8% $75,571

40%

39%

40%

2015 compared to 2014—Marketing and advertising expenses increased $5.8 million, or 8%, in the year

ended December 31, 2015 compared to the year ended December 31, 2014, primarily due to an increase of $5.6
million in variable advertising costs, and to a lesser extent an increase in compensation and benefits. This was

73

partially offset by a $0.8 million decrease in public relation costs, as well as a decrease in costs resulting from the
reduction-in-force we announced in March 2015. The increase in variable advertising costs resulted from an
increase of $17.2 million in the fees we pay to marketing partners for referrals that result in the submission of a
health insurance application on our website and an increase of $2.9 million in direct marketing expenses,
partially offset by a decrease of $14.5 million in online advertising costs.

We expect our marketing and advertising expenses to increase in absolute dollars in 2016 compared to 2015

due primarily to an increase in variable advertising costs related to our Medicare-related health insurance
business, partially offset by decreases in variable advertising costs associated with our individual and family
health insurance business and compensation and benefits due to the reduction in force announced in March 2015.

2014 compared to 2013—Marketing and advertising expenses decreased $1.9 million, or 3%, in the year

ended December 31, 2014 compared to the year ended December 31, 2013, primarily due to a decrease of
$4.1 million in fees we pay to marketing partners for referrals that result in the submission of a health insurance
application on our website and a decrease of $1.8 million in compensation, benefits, stock-based compensation
and other personnel costs, partially offset by an increase of $2.5 million in online advertising costs and an
increase of $0.4 million in other direct marketing costs.

Customer Care and Enrollment

The following table presents our customer care and enrollment expenses for the years ended December 31,

2013, 2014, and 2015 and the dollar and percentage changes from the prior year (dollars in thousands):

Year Ended
December 31,
2013

Change

$

%

Year Ended
December 31,
2014

Change

$

%

Year Ended
December 31,
2015

Customer care and enrollment

. . . . . . . . .
Percentage of total revenue . . . . . . . .

$35,099

$7,646

22% $42,745

$(205) — % $42,540

20%

24%

22%

2015 compared to 2014—Customer care and enrollment expenses decreased $0.2 million, or 0.5%, in the
year ended December 31, 2015 compared to the year ended December 31, 2014, due primarily to a decrease in
compensation and benefits due to the reduction in force announced in March 2015 focused primarily on
individual and family health insurance, partially offset by additions associated with customer care center
personnel hired in connection with the growth of Medicare-related health insurance.

We expect customer care and enrollment expenses to increase in absolute dollars in 2016 compared to 2015

as we hire additional customer care center personnel in connection with the Medicare annual enrollment period
and the growth of Medicare-related health insurance.

2014 compared to 2013—Customer care and enrollment expenses increased $7.6 million, or 22%, in the

year ended December 31, 2014 compared to the year ended December 31, 2013, due primarily to additional
customer care center personnel hired in connection with the open enrollment periods for individual and family
health insurance and Medicare-related health insurance. As a result, compensation, benefits, stock-based
compensation, licensing and other personnel costs increased $7.2 million.

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Technology and Content

The following table presents our technology and content expenses for the years ended December 31, 2013,

2014 and 2015 and the dollar and percentage changes from the prior year (dollars in thousands):

Year Ended
December 31,
2013

Change

$

%

Year Ended
December 31,
2014

Change

$

%

Year Ended
December 31,
2015

Technology and content . . . . . . . . . . . . .
Percentage of total revenue . . . . . . .

$32,579

$7,811

24% $40,390

$(4,039)

(10)% $36,351

18%

22%

19%

2015 compared to 2014—Technology and content expenses decreased $4.0 million, or 10%, in the year

ended December 31, 2015 compared to the year ended December 31, 2014, primarily due to a decrease in
compensation, benefits and other personnel costs resulting from the reduction-in-force announced in March
2015.

We expect technology and content expenses to decrease in absolute dollars in 2016 compared to 2015 as a

result of a decrease in compensation and benefits due to the reduction-in-force announced in March 2015.

2014 compared to 2013—Technology and content expenses increased $7.8 million, or 24%, in the year

ended December 31, 2014 compared to the year ended December 31, 2013, due primarily to an increase of
$6.9 million in compensation, benefits, stock-based compensation, and other personnel costs, as a result of an
increase in technology and content personnel. The remainder of the increase was due to increased spending to
support website operations and increases in data center infrastructure maintenance costs and depreciation
expense.

General and Administrative

The following table presents our general and administrative expenses for the years ended December 31,

2013, 2014 and 2015 and the dollar and percentage changes from the prior year (dollars in thousands):

Year Ended
December 31,
2013

Change

$

%

Year Ended
December 31,
2014

Change

$

%

Year Ended
December 31,
2015

General and administrative . . . . . . . . . . . .
Percentage of total revenue . . . . . . . .

$29,235

$(1,686)

(6)% $27,549

$3,309

12% $30,858

16%

15%

16%

2015 compared to 2014—General and administrative expenses increased $3.3 million, or 12%, in the year

ended December 31, 2015 compared to the year ended December 31, 2014, due primarily to increases of
$2.5 million in annual performance bonus expense, $1.1 million in legal expenses, $0.6 million in stock-based
compensation expense and an increase in other corporate fees of $0.4 million, partially offset by decreases of
$1.0 million in compensation, benefits and other personnel costs resulting from the reduction-in-force announced
in March 2015 and $0.6 million in lobbying expenses.

2014 compared to 2013—General and administrative expenses decreased $1.7 million, or 6%, in the year
ended December 31, 2014 compared to the year ended December 31, 2013, due primarily to the non-achievement
of performance bonuses for fiscal 2014 and the reversal of stock-based compensation expense associated with
performance-based restricted stock units granted to executives within the general and administrative group as a
result of related financial metrics not being achieved for the year ended December 31, 2014.

75

Amortization of Intangible Assets

The following table presents our intangible asset amortization expense for the years ended December 31,

2013, 2014 and 2015 and the dollar change from the prior year (dollars in thousands):

Year Ended
December 31,
2013

Change

$

Year Ended
December 31,
2014

Change

$

Year Ended
December 31,
2015

Amortization of intangible assets . . . . . . . . . . . . . . . .
Percentage of total revenue . . . . . . . . . . . . . . . .

$1,414

$115

$1,529

$(376)

$1,153

1%

1%

1%

2015 compared to 2014—Amortization expense related to intangible assets purchased through our
acquisition of PlanPrescriber decreased for the year ended December 31, 2015 compared to the year ended
December 31, 2014, due to certain assets that have been fully amortized compared to the prior period, as well as
a $0.1 million impairment charge recorded in 2014 related to certain acquired intangible assets.

We expect a slight decrease in the amortization of intangible assets in 2016 compared to 2015.

2014 compared to 2013—Amortization expense related to intangible assets purchased through our
acquisition of PlanPrescriber increased for the year ended December 31, 2014 compared to the year ended
December 31, 2013 due to a $0.1 million impairment charge recorded during the fourth quarter of 2014 related to
certain acquired intangible assets that will not be utilized in future periods.

Other Income (Expense), Net

The following table presents our other income (expense), net for the years ended December 31,

2013, 2014 and 2015 and the dollar change from the prior year (dollars in thousands):

Other income (expense), net . . . . . . . . . . . . . . . . . . . .
Percentage of total revenue . . . . . . . . . . . . . . . .

$ (92)
— %

Year Ended
December 31,
2013

Change

$

$(6)

Year Ended
December 31,
2014

$ (98)
— %

Change

$

$143

Year Ended
December 31,
2015

$ 45
— %

Other income (expense), net, in 2013, 2014 and 2015 primarily consisted of interest income earned on our
invested cash, cash equivalents and marketable securities balances, offset by administrative bank fees, investment
management fees and interest expense on capital lease obligations.

2015 compared to 2014—Other income, net increased in 2015 compared to 2014 due primarily to an
increase in investment interest income and foreign exchange gains, partially offset by administrative bank fees,
foreign exchange losses, management fees and interest expense on our capital lease obligations.

We expect other income (expense), net to be flat in 2016 compared to 2015.

2014 compared to 2013—Other income, net increased in 2014 compared to 2013 due primarily to a

decrease in investment interest income due to lower cash balances and declining average yields as well as higher
bank fees.

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Provision (Benefit) for Income Taxes

The following table presents our provision (benefit) for income taxes for the years ended December 31,

2013, 2014 and 2015 and the dollar change from the prior year (dollars in thousands):

Year Ended
December 31,
2013

Change

$

Year Ended
December 31,
2014

Change

$

Year Ended
December 31,
2015

Provision (benefit) for income taxes . . . . . . . . . . .
Percentage of total revenue . . . . . . . . . . . . . .

$1,917

$7,428

$9,345

$(10,188)

$(843)

1%

5%

— %

2015 compared to 2014—In 2015, we recorded a benefit for income taxes of $0.8 million compared to a

provision of $9.3 million in 2014 due primarily to valuation allowance adjustments in 2014.

2014 compared to 2013—In 2014, we recorded a provision for income taxes of $9.3 million compared to a

provision of $1.9 million in 2013 due primarily to valuation allowance adjustments in 2014.

Liquidity and Capital Resources

At December 31, 2015, our cash and cash equivalents totaled $62.7 million. Cash equivalents, which are

comprised of financial instruments with an original maturity of 90 days or less from the date of purchase,
primarily consist of money market funds. At December 31, 2014, our cash and cash equivalents totaled
$51.4 million. The increase in cash and cash equivalents reflects $13.7 million provided by operating activities
and $1.6 million of proceeds from the exercise of stock options, offset by $3.0 million used to purchase property
and equipment and other assets and $0.9 million to net-share settle equity awards.

On March 31, 2014, we announced that our board of directors approved a stock repurchase program
authorizing us to purchase up to $50 million of our common stock. Purchases under this program were made in
the open market and complied with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. We
completed this stock repurchase program in July 2014 having repurchased in the aggregate 1.4 million shares for
approximately $50.0 million at an average price of $36.91 per share including commissions. The cost of the
repurchase was funded from available working capital.

For accounting purposes, common stock repurchased under our stock repurchase programs is recorded
based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are
presented using the cost method.

Stock repurchase activity under our stock repurchase programs during 2015 is summarized as follows (in

thousands, except share and per share amounts):

Total Number of
Shares Purchased

Average Price
Paid per Share (2)

Amount of
Repurchase

Cumulative balance at December 31, 2014 (1) . . . . . . . . . . . . . . .

10,663,888

Repurchases of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Cumulative balance at December 31, 2015 . . . . . . . . . . . . . . . . . .

10,663,888

$18.75

$ —

$18.75

$199,998

—

$199,998

(1) Cumulative balances at December 31, 2015 consist of shares repurchased in connection with our stock

repurchase programs announced on March 31, 2014, as well as a previous stock repurchase plans announced
in 2013, 2012, 2011, 2010 and 2008.

(2) Average price paid per share includes commissions.

77

In addition to the shares repurchased under our repurchase programs as of December 31, 2015 we have in

treasury 0.4 million shares that were surrendered by employees to satisfy tax withholdings due in connection
with the vesting of certain restricted stock units. As of December 31, 2014 and 2015, we had a total of
10.9 million shares and 11.0 million shares, respectively, held in treasury.

The following table presents a summary of our cash flows for the years ended December 31, 2013, 2014 and

2015 (in thousands):

Year Ended December 31,

2013

2014

2015

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . .

$ 20,947
$13,696
$ 1,779
$ (7,326) $ (8,104) $ (2,996)
577
$(47,403) $(49,331) $

Operating Activities

Cash provided by operating activities primarily consists of net income, adjusted for certain non-cash items

including deferred income taxes, depreciation and amortization, including amortization of intangible assets,
stock-based compensation expense and the effect of changes in working capital and other activities.

The timing of the recognition of our commission revenue depends upon the timing of our receipt of

commission reports and associated commission payments from health insurance carriers. If we were to
experience a delay in receiving a commission payment from a health insurance carrier at the end of a quarter, our
operating cash flows for that quarter could be adversely impacted. Additionally, commission override payments
are reported to us in a more irregular pattern than premium commissions. For example, a carrier may make a
commission override payment to us on an annual basis, which would positively impact our cash flows in the
quarter the payment is received.

A significant portion of our marketing and advertising expenses is driven by the number of health insurance
applications submitted on our ecommerce platform. Since our marketing and advertising costs are expensed and
generally paid as incurred and the revenue and cash earned from approved applications is recognized and paid as
commissions are subsequently reported to us, our operating cash flows could be adversely impacted by a
substantial increase in the volume of applications submitted during a quarter or positively impacted by a
substantial decline in the volume of applications submitted during a quarter. During the Medicare annual
enrollment period, we experience an increase in the number of submitted Medicare-related health insurance
applications and marketing and advertising expenses compared to outside of Medicare annual enrollment periods.
During open enrollment periods for individual and family health insurance plans, we experience an increase in
the number of submitted individual and family plan health insurance applications and marketing and advertising
expenses compared to outside of open enrollment periods. The timing of open enrollment periods for individual
and family health insurance and the Medicare annual enrollment period for Medicare-related health insurance
affect the positive or negative impacts of our cash flows during each quarter. Consistent with prior years,
marketing and advertising costs increased during the fourth quarter of 2015 compared to the third quarter of 2015
due to an increase in submitted applications for individual and family health insurance during the open
enrollment period and due to an increase in submitted applications for Medicare plans during the annual
enrollment period. We expect marketing and advertising costs to increase during the fourth quarter of 2016 due
to an increase in submitted applications for Medicare plans during the annual enrollment period and the first and
fourth quarters of 2016 due to an increase in submitted applications during the annual open enrollment period for
individual and family health insurance. We expect marketing and advertising costs to decrease during the second
and third quarters compared to cost levels during the first and fourth quarters due to a reduction in the number of
health insurance applications we expect outside of annual open enrollment periods.

As a result of a regulation issued by CMS, which changed the definition of a plan year from being 12-
months from the effective date of a policy to January 1 through December 31 of each year, substantially all

78

Medicare Advantage and Medicare Part D prescription drug policies renewed on January 1, resulting in our
recording substantially all Medicare Advantage and Medicare Part D prescription drug plan renewal commission
revenue in the first quarter of 2015. As a result of this plan year change, we did not recognize significant renewal
commission revenue in the second, third and fourth quarters of 2015. Renewal commissions for Medicare
Advantage products are paid monthly; therefore the majority of renewal commissions for that product will be
collected in quarters subsequent to the first quarter. CMS also issued a regulation prohibiting carriers from
paying commissions during the fourth quarter on Medicare Advantage and Medicare Part D prescription drug
policies sold during the fourth quarter with an effective date in the following year. In connection with this change
and as a result of us not receiving commission information from certain carriers in the fourth quarter, an
estimated $3 million of Medicare plan-related commission revenue for policies sold during the annual enrollment
period was recognized as revenue during the first quarter of 2015 and not recognized by us during the fourth
quarter of 2014.

2015—Our operating activities generated cash of $13.7 million during the year ended December 31, 2015
and consisted of net loss of $4.8 million, increased by non-cash items of $15.2 million and cash from working
capital and other activities of $3.3 million. Adjustments for non-cash items primarily consisted of $7.0 million of
stock-based compensation expense, $4.1 million of depreciation and amortization, $2.0 million of amortization
of book-of-business consideration and $1.2 million of amortization of intangible assets. Cash from working
capital and other activities primarily consisted of an increase of $6.2 million in accrued compensation and
benefits, an increase of $2.0 million in accrued marketing expenses and a $1.0 million decrease in prepaid
expense and other assets, partially offset by an increase of $1.4 million in accounts receivable, a decrease of
$0.6 million in deferred revenue, a $1.2 million decrease in current liabilities and an decrease of $2.9 million in
accounts payable. Accounts receivable increased mainly due to increased accrued Medicare commissions on
applications sold in the fourth quarter.

2014—Our operating activities generated cash of $1.8 million during the year ended December 31, 2014
and consisted of net loss of $16.2 million, increased by non-cash items of $22.9 million and cash used in working
capital and other activities of $4.9 million. Adjustments for non-cash items primarily consisted of $9.2 million of
deferred income taxes, $5.9 million of stock-based compensation expense, $4.2 million of depreciation and
amortization, $2.0 million of amortization of book-of-business consideration and $1.5 million of amortization of
intangible assets. Cash used in working capital and other activities primarily consisted of a decrease of
$1.1 million in deferred revenue, a decrease of $2.1 million in accrued compensation and benefits, an increase of
$3.6 million in accounts receivable and a $0.6 million increase in prepaid expense and other assets, partially
offset by an increase of $0.5 million in accrued marketing expenses, a $0.4 million increase in other current
liabilities and an increase of $1.6 million in accounts payable. Accounts receivable increased mainly due to
increased commission receivables arising from CMS rule changes surrounding the timing of payments. Accounts
payable increased due to increased marketing and advertising expenses during the open enrollment period.

2013—Our operating activities generated cash of $20.9 million during the year ended December 31, 2013
and consisted of net income of $1.7 million, increased by non-cash items of $15.2 million and cash provided by
working capital and other activities of $4.0 million. Adjustments for non-cash items primarily consisted of
$1.4 million of deferred income taxes, $7.8 million of stock-based compensation expense, $3.3 million of
depreciation and amortization, $3.1 million of amortization of book-of-business consideration, $0.9 million of
deferred rent and $1.4 million of amortization of intangible assets. Cash provided by working capital and other
activities primarily consisted of an increase of $4.3 million in accrued marketing expenses, an increase of
$0.9 million in deferred revenue, a $1.0 million increase in other current liabilities and an increase of
$2.0 million in accrued compensation and benefits, partially offset by a decrease of $1.7 million in accounts
payable and an increase of $2.3 million in prepaid expenses and other assets. Accrued marketing expenses
increased due to higher marketing and advertising expenses in the fourth quarter of 2013 related to the increased
submission of health insurance applications on our website. Accrued compensation and benefits increased
primarily due to increased salaries and performance and incentive bonuses related to an increased employee
headcount.

79

Investing Activities

Our investing activities primarily consist of purchases of computer hardware and software to enhance our

website and customer care operations, leasehold improvements related to facilities expansion, internal-use
software and the purchase of certain intangible assets.

2015—Net cash used in investing activities of $3.0 million during the year ended December 31, 2015 was

due to $3.0 million used to purchase computer hardware and software, and other assets.

2014—Net cash used in investing activities of $8.1 million during the year ended December 31, 2014 was

due to $3.6 million used to purchase property and equipment and $4.5 million used in the purchase of an
intangible asset, the Internet domain name www.Medicare.com. Additional non-cash consideration for
www.Medicare.com included settlement of a $0.3 million outstanding receivable from the owner upon
completion of the purchase.

2013—Net cash used in investing activities of $7.3 million during the year ended December 31, 2013 was

attributable entirely to capital expenditures. The increase in capital expenditures in 2013 as compared to 2012
primarily related to leasehold improvements as we expanded facilities during 2013.

Financing Activities

2015—Net cash provided by financing activities of $0.6 million during the year ended December 31, 2015

was due to proceeds of $1.6 million from the exercise of common stock options offset by $0.9 million used to
net-share settle the tax obligation related to vesting equity awards.

2014—Net cash used in financing activities of $49.3 million during the year ended December 31, 2014 was

due to $50.0 million used to repurchase 1.4 million shares of our common stock and $3.5 million used to net-
share settle the tax obligation related to vesting equity awards, partially offset by $4.1 million of net proceeds
from the exercise of common stock options and $0.1 million of excess tax benefits from stock-based
compensation.

2013—Net cash used in financing activities of $47.4 million during the year ended December 31, 2013 was

due to $59.0 million used to repurchase 2.9 million shares of our common stock and $0.9 million used to net-
share settle the tax obligation related to vesting equity awards, partially offset by $9.2 million of net proceeds
from the exercise of common stock options and $3.4 million of excess tax benefits from stock-based
compensation.

Future Needs

We believe that cash generated from operations and our current cash and cash equivalents will be sufficient
to fund our operations for at least the next twelve months. Our future capital requirements will depend on many
factors, including our level of investment in technology and advertising initiatives. We currently do not have any
bank debt, line of credit facilities or other borrowing arrangements. To the extent that available funds are
insufficient to fund our future activities, we may need to raise additional capital through public or private equity
or debt financing to the extent such funding sources are available.

Contractual Obligations and Commitments

Operating Lease Obligations

We lease our operating facilities and certain of our equipment and furniture and fixtures under various
operating leases, the latest of which expires in July 2023. Certain of these leases have free or escalating rent
payment provisions. We recognize rent expense on our operating leases on a straight-line basis over the terms of
the leases, although actual cash payment obligations under certain of these agreements fluctuate over the terms of
the agreements.

80

In connection with the Mountain View, California office lease agreement, we entered into a financial
guarantee consisting of a standby letter of credit for $0.6 million, which may be reduced in increments of 25% of
the original amount thereof on the first, second and third anniversaries of the commencement date, subject to our
compliance with the applicable conditions to such reductions set forth in the lease. The remaining balance on the
financial guarantee is $0.3 million as of December 31, 2015.

Service and Licensing Obligations

We have entered into service and licensing agreements with third party vendors to provide various services,

including network access, equipment maintenance and software licensing. The terms of these services and
licensing agreements are generally up to three years. As the benefits of these agreements are experienced
uniformly over the applicable contractual periods, we record the related service and licensing expenses on a
straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the
terms of the agreements.

The following table presents a summary of our future minimum payments under non-cancellable operating

lease agreements and contractual service and licensing obligations as of December 31, 2015 (in thousands):

Years Ending December 31,

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating
Lease
Obligations

$ 4,869
4,389
3,216
1,046
1,075
2,445

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,040

Service
and
Licensing
Obligations

$ 976
557
—
—
—
—

$1,533

Total
Obligations

$ 5,845
4,946
3,216
1,046
1,075
2,445

$18,573

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed

borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.

Recent Accounting Pronouncements

See Note 1 of Notes to Consolidated Financial Statements for recently issued accounting standards that

could have an effect on us.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments that are exposed to concentrations of credit risk principally consist of cash and
cash equivalents and accounts receivable. As of December 31, 2014 and 2015, our cash and cash equivalents
were invested as follows (in thousands):

Cash (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2014

December 31,
2015

$15,793
35,622

$51,415

$ 8,086
54,624

$62,710

81

(1) We deposit our cash and cash equivalents in accounts with major banks and financial institutions and such
deposits are in excess of federally insured limits. We also have deposits with major banks in China that are
denominated in both U.S. dollars and Chinese Renminbi and are not insured by the U.S. federal
government.

(2) At December 31, 2014 and 2015 money market funds consisted of U.S. government-sponsored enterprise

bonds and discount notes, U.S. government treasury bills and notes and repurchase agreements
collateralized by U.S. government obligations.

We do not require collateral or other security for our accounts receivable. As of December 31, 2015, three

customers represented 24%, 18%, and 15%, respectively, for a combined total of 57% of our $9.6 million
outstanding accounts receivable balance. As of December 31, 2014, three customers represented 30%, 17% and
14%, respectively, for a combined total of 61% of our $8.2 million outstanding accounts receivable balance. No
other customers represented 10% or more of our total accounts receivable at December 31, 2014 and
December 31, 2015. We believe the potential for collection issues with any of our customers is minimal as of
December 31, 2015. Accordingly, our estimate for uncollectible amounts at December 31, 2015 was not
material.

Significant Customers

Substantially all revenue for the years ended December 31, 2013, 2014, and 2015 was generated from
customers located in the United States. Carriers representing 10% or more of our total revenue in the years ended
December 31, 2013, 2014 and 2015 are presented in the table below:

Humana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Anthem (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UnitedHealthcare (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aetna (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21%
12%
11%
10%

23%
11%
10%
10%

23%
9%
11%
10%

Year Ended December 31,

2013

2014

2015

(1) Anthem (formerly Wellpoint) also includes other carriers owned by Anthem.
(2) UnitedHealthcare also includes other carriers owned by UnitedHealthcare.
(3) Aetna also includes other carriers owned by Aetna.

Foreign Currency Exchange Risk

To date, substantially all of our revenue has been derived from transactions denominated in United States

Dollars. We have exposure to adverse changes in exchange rates associated with operating expenses of our
foreign operations, which are denominated in Chinese Renminbi. Foreign currency fluctuations have not had a
material impact historically on our results of operations; however, there can be no assurance that future
fluctuations will not have material adverse effects on our results of operations. We have not engaged in any
foreign currency hedging or other derivative transactions to date.

82

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Comprehensive Income (Loss)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notes to Consolidated Financial Statements

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

84

85

86

87

88

89

The supplementary financial information required by this Item 8 is included in Note 10 to the Consolidated

Financial Statements under the caption “Selected Quarterly Financial Data (Unaudited).”

83

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of eHealth, Inc.

We have audited the accompanying consolidated balance sheets of eHealth, Inc. as of December 31, 2015

and 2014, and the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash
flows for each of the three years in the period ended December 31, 2015. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of eHealth, Inc. at December 31, 2015 and 2014, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity
with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), eHealth, Inc.’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated March 14, 2016 expressed
an unqualified opinion thereon.

/s/ Ernst & Young LLP

Redwood City, California
March 14, 2016

84

EHEALTH, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)

December 31,
2014

December 31,
2015

Current assets:

Assets

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 51,415
8,200
386
6,474

$ 62,710
9,647
—
5,185

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill

66,475
9,640
5,679
10,774
14,096

77,542
7,364
4,697
9,620
14,096

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 106,664

$ 113,319

Current liabilities:

Liabilities and stockholders’ equity

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (see Note 7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:

Preferred stock: $0.001 par value; Authorized shares: 10,000,000; Issued

5,961
8,204
8,707
869
—
2,996

26,737
6,449
—

$

3,012
14,386
10,698
392
223
3,225

31,936
4,962
—

and outstanding shares: none . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

—

Common stock: $0.001 par value; Authorized shares: 100,000,000; Issued
shares 28,775,918 and 29,170,903 at December 31, 2014 and 2015,
respectively; Outstanding shares: 17,830,311 and 18,144,970 at
December 31, 2014 and 2015, respectively . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional paid-in capital
Treasury stock, at cost: 10,945,607 and 11,025,933 shares at December 31,

29
259,007

29
266,699

2014 and 2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(199,998)
14,261
179

(199,998)
9,498
193

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73,478

76,421

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 106,664

$ 113,319

The accompanying notes are an integral part of these consolidated financial statements.

85

EHEALTH, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)

Year Ended December 31,

2013

2014

2015

Revenue

Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$153,383
25,797

$158,626
21,051

$171,257
18,284

Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating costs and expenses:

179,180

179,677

189,541

Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer care and enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology and content . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,461
71,660
35,099
32,579
29,235
—
1,414

4,494
69,732
42,745
40,390
27,549
—
1,529

4,178
75,571
42,540
36,351
30,858
4,541
1,153

Total operating costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

175,448

186,439

195,192

Income (loss) from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before provision (benefit) for income taxes . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,732
(92)

3,640
1,917

(6,762)
(98)

(6,860)
9,345

(5,651)
45

(5,606)
(843)

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

1,723

$ (16,205) $ (4,763)

Net income (loss) per share:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.09
0.09

$
$

(0.88) $
(0.88) $

(0.26)
(0.26)

Weighted-average number of shares used in per share amounts:

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,145
19,846

18,367
18,367

18,008
18,008

Comprehensive income (loss):

Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net of taxes . . . . . . . . . . . . . . . .

Comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

1,723
(25)

$ (16,205) $ (4,763)
14

19

1,698

$ (16,186) $ (4,749)

The accompanying notes are an integral part of these consolidated financial statements.

86

EHEALTH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

Common Stock

Shares Amount

Additional
Paid-in
Capital

Treasury Stock

Shares Amount

Retained
Earnings

Accumulated
Other
Comprehensive
Income

Total
Stockholders’
Equity

$ 27

$232,903

(6,556) $ (90,991) $ 28,743

$185

$170,867

Balance at December 31, 2012 . . . . . . . . 27,006
Issuance of common stock in connection
with exercise of common stock options
and release of vested restricted stock
units, net of cash used to net settle equity
awards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . .
Excess tax benefits from stock-based
compensation . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment,
net of taxes . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . .

1,294
—

—
—
—

—

Balance at December 31, 2013 . . . . . . . . 28,300
Issuance of common stock in connection
with exercise of common stock options
and release of vested restricted stock
units, net of cash used to net settle equity
awards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . .
Excess tax benefits from stock-based
compensation . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment,
net of taxes . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—
—

476
—

—

Balance at December 31, 2014 . . . . . . . . 28,776
Issuance of common stock in connection
with exercise of common stock options
and release of vested restricted stock
units, net of cash used to net settle equity
awards . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . .
Foreign currency translation adjustment,
net of taxes . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . .

395
—

—
—

1

—

—

—
—
—

8,273
7,802

(52)
—

3,383

—

—
—

—

—
—

—

—
—
—

—
(2,911)
—

—
(59,007)
—

—
—
1,723

—
—

—

(25)
—
—

28

252,361

(9,519)

(149,998)

30,466

$160

1
—

—

—
—
—

595
5,904

(72)
—

147

—

—
—
—

—
(1,355)
—

—
—

—

—
(50,000)

—
—

—

—
—

— (16,205)

29

259,007

(10,946)

(199,998)

14,261

—
—

—
—

662
7,030

—
—

(80)
—

—
—

—
—

—
—

—
—

—
(4,763)

—
—

—

19
—
—

179

—
—

14
—

$193

8,274
7,802

3,383

(25)
(59,007)
1,723

133,017

596
5,904

147

19
(50,000)
(16,205)

73,478

662
7,030

14
(4,763)

$ 76,421

Balance at December 31, 2015 . . . . . . . . 29,171

$ 29

$266,699

(11,026) $(199,998) $ 9,498

The accompanying notes are an integral part of these consolidated financial statements.

87

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Operating activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided by operating

activities:

Year Ended December 31,

2013

2014

2015

$

1,723

$ (16,205) $ (4,763)

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of internally developed software . . . . . . . . . . . . . . . . . . . . . .
Amortization of book-of-business consideration . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent and other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,368)
3,266
—
3,147
1,414
7,802
927

(118)
(2,257)
(1,742)
2,026
4,285
885
—
957

9,163
4,192
483
1,998
1,529
5,877
154

(3,614)
(1,033)
1,581
(2,084)
480
(1,143)
—
401

101
4,148
627
2,006
1,153
7,002
106

(1,447)
997
(2,949)
6,180
1,991
(642)
433
(1,247)

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20,947

1,779

13,696

Investing activities
Purchases of property and equipment and other assets . . . . . . . . . . . . . . . . . . . .
Purchase of intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7,326)
—

(7,326)

(3,604)
(4,500)

(2,996)
—

(8,104)

(2,996)

Financing activities
Net proceeds from exercise of common stock options . . . . . . . . . . . . . . . . . . . .
Cash used to net-share settle equity awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock-based compensation . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments in connection with capital leases . . . . . . . . . . . . . . . . . . . . .

9,217
(943)
3,383
(59,007)
(53)

4,112
(3,516)
147
(50,000)
(74)

Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . .

(47,403)

(49,331)

1,572
(922)
—
—
(73)

577

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . .

(12)
(33,794)
140,849

16
(55,640)
107,055

18
11,295
51,415

Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$107,055

$ 51,415

$62,710

Supplemental disclosure of non-cash activities
Capital lease obligations incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

30

$

93

$

156

Settlement of receivables in connection with purchase of intangible asset . . . . .

$ — $

307

$ —

Supplemental disclosure of cash flows
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash paid for income taxes, net of refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

21

53

$

$

26

5

$

$

34

6

The accompanying notes are an integral part of these consolidated financial statements.

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Note 1—Summary of Business and Significant Accounting Policies

Description of Business—eHealth, Inc. (the “Company,” “eHealth,” “we” or “us”) is the leading private
online source of health insurance for individuals, families and small businesses in the United States. Through our
website addresses (www.eHealth.com, www.eHealthInsurance.com, www.eHealthMedicare.com,
www.Medicare.com and www.PlanPrescriber.com), consumers can get quotes from leading health insurance
carriers, compare plans side-by-side, and apply for and purchase Medicare-related, individual and family, small
business and ancillary health insurance plans. We actively market the availability of Medicare-related insurance
plans and offer Medicare plan comparison tools and educational materials for Medicare-related insurance plans,
including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans. Our
ecommerce technology also enables us to deliver consumers’ health insurance applications electronically to
health insurance carriers. As a result, we simplify and streamline the complex and traditionally paper-intensive
health insurance sales and purchasing process. We are licensed to market and sell health insurance in all 50 states
and the District of Columbia.

Principles of Consolidation—The consolidated financial statements include the accounts of eHealth, Inc.

and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (“U.S. GAAP”).

Operating Segment—We operate in one business segment. See Note 9—Operating Segments, Geographic

Information and Significant Customers for additional information regarding our business segment.

Use of Estimates—The preparation of consolidated financial statements and related disclosures in

conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the
amounts reported and disclosed in the consolidated financial statements and accompanying notes. On an ongoing
basis, we evaluate our estimates, including those related to, but not limited to, the useful lives of intangible
assets, fair value of investments, fair value of our acquired Medicare books-of-business, recoverability of
intangible assets, estimates for commission forfeitures, valuation allowance for deferred income taxes, provision
for income taxes and the assumptions used in determining stock-based compensation. We base our estimates of
the carrying value of certain assets and liabilities on historical experience and on various other assumptions that
we believe to be reasonable. Actual results may differ from these estimates.

Cash Equivalents—We consider all investments with an original maturity of 90 days or less from the date

of purchase to be cash equivalents. Cash and cash equivalents are stated at fair value.

Property and Equipment—Property and equipment are stated at cost, less accumulated depreciation and

amortization. Capital lease amortization expenses are included in depreciation expense in our consolidated
statements of comprehensive income (loss). Depreciation and amortization is computed using the straight-line
method based on estimated useful lives as follows:

Computer equipment and software
Office equipment and furniture
Leasehold improvements

3 to 5 years
5 years
Lesser of useful life (typically 5 to 10 years) or
related lease term

Maintenance and minor replacements are expensed as incurred.

See Note 2—Balance Sheet Accounts for additional information regarding our property and equipment.

Goodwill and Intangible Assets—Goodwill represents the excess of the consideration paid over the
estimated fair value of assets acquired and liabilities assumed in a business combination. We do not amortize
goodwill or our other indefinite-lived intangible assets but rather we test the asset for impairment on an annual

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basis on or about November 30 of each year and whenever events or changes in circumstances indicate a
reduction in its fair value below its carrying amount.

Intangible assets with finite useful lives, which include purchased technology, pharmacy and customer

relationships, trade names, and certain trademarks, are amortized over their estimated useful lives and are
reviewed for impairment whenever events or changes in circumstances indicate a reduction in their fair values
below their respective carrying amounts.

Factors that we consider in deciding when to perform an impairment review include significant negative
industry or economic trends or significant changes or planned changes in our use of the intangible assets. We
measure the recoverability of assets that will continue to be used in our operations by comparing the carrying
value of the asset grouping to our estimate of the related total future undiscounted net cash flows. If an asset
grouping’s carrying value is not recoverable through the related undiscounted cash flows, the asset grouping is
considered to be impaired. The impairment is measured by comparing the difference between the asset
grouping’s carrying value and its fair value. Fair value is the price that would be received from selling an asset in
an orderly transaction between market participants at the measurement date.

Goodwill and intangible assets are considered non-financial assets and therefore, subsequent to their initial

recognition are not revalued at fair value each reporting period unless an impairment charge is recognized.

We must make subjective judgments in determining the independent cash flows that can be related to
specific asset groupings. In addition, we must make subjective judgments regarding the remaining useful lives of
assets with finite useful lives. When we determine that the useful life of an asset is shorter than we had originally
estimated, we accelerate the rate of amortization over the assets’ new, remaining useful life. We evaluated the
remaining useful lives of our intangible assets with finite lives in the fourth quarter of 2015 and determined no
material adjustments to the remaining lives were required.

Book-of-Business Transfers—We have entered into several agreements with a broker partner, whereby the
partner transferred certain of its existing Medicare plan members to us as the broker of record on the underlying
policies. The first of these book-of-business transfers occurred in November 2010 and the most recent in June
2012. Total consideration for these books-of-business amounted to $13.9 million, of which $6.3 million related
to transfers during 2012. Consideration for these books-of-business is included in Prepaid Expenses and Other
Current Assets and in Other Assets in the accompanying consolidated balance sheets. The consideration, which
was based on the discounted commissions expected to be received over the remaining life of each transferred
Medicare plan member, is being amortized to Cost of Revenue in the consolidated statements of comprehensive
income (loss) and is presented as Amortization of Book-of-Business Consideration in the consolidated statements
of cash flows as we recognize commission revenue related to the transferred Medicare plan members. The
amount of consideration we amortize to cost of revenue each quarter is proportional to the amount of commission
revenue we recognize on the underlying policies each quarter in relation to the total amount of remaining
commission revenue expected to be recognized. Amortization expense recorded to cost of revenue for these
books-of-business for the years ended December 31, 2013, 2014 and 2015 totaled $3.1 million, $2.0 million and
$2.0 million, respectively.

Other Long-Lived Assets—We evaluate other long-lived assets for impairment whenever events or changes

in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds its fair value.

Revenue Recognition

We recognize revenue for our services when each of the following four criteria is met: persuasive evidence
of an arrangement exists; delivery has occurred or services have been rendered; the seller’s price to the buyer is

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fixed or determinable; and collectability is reasonably assured. Our revenue is primarily comprised of
compensation paid to us by health insurance carriers related to insurance plans that have been purchased by a
member who used our service. We define a member as an individual currently covered by an insurance plan,
including individual and family, Medicare-related, small business and ancillary plans, for which we are entitled
to receive compensation from an insurance carrier.

For both Medicare Advantage and Medicare Part D prescription drug plans, we receive a fixed, annual
commission payment from insurance carriers once the plan is approved by the carrier and either a fixed, monthly
commission payment beginning with and subsequent to the second plan year for a Medicare Advantage plan or a
fixed, annual commission payment beginning with and subsequent to the second plan year for a Medicare Part D
prescription drug plan. Additionally, commission rates may be higher in the first twelve months of the plan if the
plan is the first Medicare Advantage or Medicare Part D prescription drug plan issued to the member. In the first
plan year of a Medicare Advantage and Medicare Part D prescription drug plan, after the health insurance carrier
approves the application but during the effective year of the plan, we are paid a fixed commission that is prorated
for the number of months remaining in the calendar year. Additionally, if the plan is the first Medicare
Advantage or Medicare Part D plan issued to the member, we may receive a higher commission rate that covers a
full twelve-month period, regardless of the month the plan was effective. We earn commission revenue for
Medicare Advantage and Medicare Part D prescription drug plans for which we are the broker of record,
typically until either the policy is cancelled or we otherwise do not remain the agent on the policy. We recognize
commission revenue for both Medicare Advantage and Medicare Part D prescription drug plans for the entire
plan year once the annual or first monthly commission amount for the plan year is reported to us by the carrier,
net of an estimate for future forfeiture amounts due to plan cancellations. For commissions paid to us on a
monthly basis, we record a receivable for the commission amounts to be received over the remainder of the plan
year, net of an estimate for commission amounts not expected to be collected due to plan cancellations, which is
included in Accounts Receivable in the accompanying balance sheets. We continue to receive the commission
payments from the relevant insurance carrier typically until either the policy is cancelled or we otherwise do not
remain the agent on the policy. We determine that there is persuasive evidence of an arrangement when we have
a commission agreement with a health insurance carrier. Our services are complete when a carrier has approved
an application in the initial year and when a member has renewed in a renewal year. The seller’s price is fixed or
determinable and collectability is reasonably assured when a carrier has approved an application and the carrier
reports to us the annual or first monthly renewal commission amount for each plan year.

For individual and family, Medicare Supplement, small business and ancillary plans, our compensation

generally represents a flat amount per member per month or a percentage of the premium amount collected by
the carrier during the period that a member maintains coverage under a plan (commissions) and, to a much lesser
extent, override commissions that health insurance carriers pay us for achieving certain objectives. Premium-
based commissions are reported to us after the premiums are collected by the carrier, generally on a monthly
basis. We generally continue to receive the commission payment from the relevant insurance carrier until the
health insurance plan is cancelled or we otherwise do not remain the agent on the policy. We recognize
commission revenue for individual and family, Medicare Supplement, small business and ancillary plans as the
commissions are reported to us by the carrier, net of an estimate for future forfeiture amounts due to policy
cancellations. We determine that there is persuasive evidence of an arrangement when we have a commission
agreement with a health insurance carrier, a carrier reports to us that it has approved an application submitted
through our ecommerce platform and the applicant starts making payments on the plan. Our services are
complete when a carrier has approved an application. The seller’s price is fixed or determinable and collectability
is reasonably assured when commission amounts have been reported to us by a carrier.

We recognize individual and family, small business and ancillary commission override revenue when
reported to us by a carrier based on the actual attainment of predetermined target sales levels or other objectives
as determined by the carrier. Commission override revenue, which we recognize on the same basis as individual
and family, small business and ancillary commissions, is generally reported to us in a more irregular pattern than
such commissions.

91

Commissions for all health insurance plans we sell are reported to us by a cash payment and commission
statement. We generally receive these communications simultaneously. In instances when we receive the cash
payment and commission statement separately and in different accounting periods, we recognize revenue in the
period that we receive the earliest communication, provided we receive the second corroborating communication
shortly following the end of the accounting period. If the second corroborating communication is not received
shortly following the end of the accounting period, we recognize revenue in the period the second communication is
received. During 2014, CMS issued a regulation prohibiting carriers from paying commissions during the fourth
quarter on Medicare Advantage and Medicare Part D prescription drug plans sold during the fourth quarter with an
effective date in the following year. During the fourth quarters of 2014 and 2015, we recognized revenue for
policies included on a commission statement received prior to December 31, 2014 and 2015 respectively for which
payment was received shortly after year-end and in connection with the carriers’ normal payment cycle during the
first quarter of 2015 and 2016. We use the data in the commission statements to help identify the members for
which we are receiving a commission payment and the amount received for each member, and to estimate future
forfeiture amounts due to policy cancellations. As a result, we recognize the net amount of compensation earned as
the agent in the transaction. Changes in our historical trends would result in changes to our estimated forfeitures in
future periods. There were no changes in our average forfeiture rates or reporting time lag during the years ended
December 31, 2013, 2014 and 2015 which had a material impact on our estimate for forfeitures.

Certain commission amounts are subject to forfeiture if the plan is subsequently cancelled and either the
carrier takes back all or a portion of the commission they have paid to us or we will no longer receive monthly
commission payments for the remainder of the plan year. We record an estimate for these forfeitures based on
our historical cancellation experience using data provided on commission statements. Policy cancellations and
the commission amounts, if any, to be taken back by the carrier are typically reported to us by health insurance
carriers several months after the policy’s cancellation date. Our estimate for forfeitures payable to a carrier,
which is included in Other Current Liabilities in the consolidated balance sheets, includes an estimate of both the
reporting time lag and the forfeiture amount, based on our historical experience by policy type. Similarly, our
estimate for commission amounts not expected to be collected due to policy cancellations, which is recorded as a
reduction of Accounts Receivable in the consolidated balance sheets, includes an estimate of the annual policy
cancellation rate, based on our historical experience by policy type.

Other Revenue

Our sponsorship and advertising program allows carriers to purchase advertising space in specific markets

in a sponsorship area on our website. In return, we are typically paid a monthly fee, which is recognized over the
period that advertising is displayed, and often a performance fee based on metrics such as submitted health
insurance applications, which is recognized when the earned amount are fixed and determinable. We also offer
Medicare advertising services, which include website development, hosting and maintenance. In these instances,
we are typically paid a fixed, up-front fee, which we recognize as revenue over the service period.

Our commercial technology licensing business allows carriers the use of our ecommerce platform to offer
their own health insurance policies on their websites and agents to utilize our technology to power their online
quoting, content and application submission processes. Typically, we are paid a one-time implementation fee,
which we recognize on a straight-line basis over the estimated term of the customer relationship (generally the
initial term of the agreement), commencing once the technology is available for use by the third party, and a
performance fee based on metrics such as submitted health insurance applications. The metrics used to calculate
performance fees for both sponsorship and advertising and technology licensing are based on performance
criteria that are either measured based on data tracked by us, or based on data tracked by the third party. In
instances where the performance criteria data is tracked by us, we recognize revenue in the period of
performance and when all other revenue recognition criteria has been met. In instances where the performance
criteria data is tracked by the third party, we recognize revenue when the amounts earned are either fixed or
determinable and collection is reasonably assured. Typically, this occurs through our receipt of a cash payment
from the third party along with a detailed statement containing the data that is tracked by the third party.

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Deferred Revenue—Deferred revenue includes deferred technology licensing implementation fees and

amounts billed for deliverables, including professional services, in multiple element arrangements that do not
have stand-alone value from other, undelivered elements as well as amounts billed or collected from sponsorship
or technology licensing customers in advance of our performing our service for such customers. It also includes
the amount by which both unbilled and billed services provided under our technology licensing arrangements
exceed the straight-line revenue recognized to date. We defer commission amounts that have been paid to us
related to transactions where our services are complete, but where we cannot currently estimate future forfeitures
related to those amounts.

We allocate revenue to all units of accounting within an arrangement with multiple deliverables at the
inception of the arrangement using the relative selling price method. The relative selling price method allocates
any discount in an arrangement proportionally to each deliverable on the basis of each deliverable’s relative
selling price. The relative selling price established for each deliverable is based on vendor-specific objective
evidence of fair value (“VSOE”) if available, third-party evidence of selling price if VSOE is not available, or
best estimate of selling price if neither VSOE nor third-party evidence is available. When used, the best estimate
of selling price reflects our best estimates of what the selling prices of certain deliverables would be if they were
sold regularly on a stand-alone basis. Our process for determining best estimate of selling price for deliverables
without VSOE or third-party evidence of selling price considers multiple factors that may vary depending upon
the unique facts and circumstances related to each deliverable. Key factors considered by us in developing the
relative selling prices for our technology licensing fees include prices charged by us for similar offerings and our
historical pricing practices. We may also consider additional factors as appropriate, including competition.

A deliverable constitutes a separate unit of accounting when it has stand-alone value and there are no

customer-negotiated right of refunds for the delivered elements. If the arrangement includes a customer-
negotiated right of refund relative to the delivered item, and the delivery and performance of the undelivered item
is considered probable and substantially in our control, the delivered element constitutes a separate unit of
accounting. In circumstances when the aforementioned criteria are not met, the deliverable is combined with the
undelivered elements, and the allocation of the arrangement consideration and revenue recognition is determined
for the combined unit as a single unit. Allocation of the consideration is determined at the inception of the
arrangement on the basis of each unit’s relative selling price. After the arrangement consideration has been
allocated to each unit of accounting based on their relative selling prices, we apply revenue recognition criteria
separately to each respective unit of accounting in the arrangement in accordance with applicable accounting
guidance.

Cost of Revenue—Included in Cost of Revenue are payments related to health insurance policies sold to

members who were referred to our website by marketing partners with whom we have revenue-sharing
arrangements. In order to enter into a revenue-sharing arrangement, marketing partners must be licensed to sell
health insurance in the state where the policy is sold. Costs related to revenue-sharing arrangements are expensed
as the related revenue is recognized.

Additionally, cost of revenue includes the amortization of consideration we paid to a broker partner in
connection with the transfer of their Medicare-related health insurance members to us as the new broker of
record on the underlying policies.

Deferred Costs—Deferred costs primarily represent direct costs related to professional services provided in

connection with technology licensing arrangements that are accounted for as a single unit of accounting. The
direct professional services costs are deferred up until the commencement of revenue recognition of the single
unit and then recognized as cost of revenue ratably over the same period as the related revenue.

Marketing and Advertising Expenses—Marketing and advertising expenses consist primarily of member

acquisition expenses associated with our direct, marketing partner and online advertising member acquisition
channels, in addition to compensation and other expenses related to marketing, business development, partner

93

management, public relations and carrier relations personnel who support our offerings. Advertising costs
incurred in the years ended December 31, 2013, 2014 and 2015 totaled $63.4 million, $61.3 million and $66.5
million, respectively.

Our direct channel expenses primarily consist of costs for direct mail, email marketing, television, radio and
retargeting campaigns. Advertising costs for our direct channel are expensed the first time the related advertising
takes place. Our marketing partner channel expenses primarily consist of fees paid to marketing partners with
which we have a relationship. Our online advertising channel expenses primarily consist of paid keyword search
advertising on search engines. Advertising costs for our marketing partner channel and our online advertising
channel are expensed as incurred.

Research and Development Expenses—Research and development expenses consist primarily of

compensation and related expenses incurred for employees on our engineering and technical teams. Research and
development costs, which totaled $10.1 million, $12.1 million and $10.6 million for the years ended
December 31, 2013, 2014 and 2015, respectively, are included in technology and content expense in the
accompanying consolidated statements of comprehensive income (loss).

Internal-Use Software and Website Development Costs—We capitalize costs of materials, consultants and

compensation and benefits costs of employees who devote time to the development of internal-use software
during the application development stage. Our judgment is required in determining the point at which various
projects enter the phases at which costs may be capitalized, in assessing the ongoing value of the capitalized
costs and in determining the estimated useful lives over which the costs are amortized, which is generally three
years. For the years ended December 31, 2014 and 2015, we capitalized $1.2 million and $1.1 million in internal-
use software and website development costs and recorded amortization expense of $0.2 million and $0.6 million,
respectively. Amortization expense for internal-use software and website development costs was not material for
the year ended December 31, 2013.

Stock-Based Compensation—We recognize stock-based compensation expense in the accompanying
consolidated statements of comprehensive income (loss) based on the fair value of our stock-based awards over
their respective vesting periods, which is generally four years. The estimated grant date fair value of our stock
options is determined using the Black-Scholes-Merton pricing model and a single option award approach. The
weighted-average expected term for stock options granted is calculated using historical option exercise behavior.
The dividend yield is determined by dividing the expected per share dividend during the coming year by the
grant date stock price. Through December 31, 2015, we had not declared or paid any cash dividends, and we do
not expect to pay any in the foreseeable future. We base the risk-free interest rate on the implied yield currently
available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of our stock
options. Expected volatility is determined using a combination of the implied volatility of publicly traded options
in our stock and historical volatility of our stock price. The estimated attainment of performance-based awards
and related expense is based on the expectations of revenue target achievement. The estimated fair value of
performance awards with market conditions is determined using the Monte-Carlo simulation model. The
assumptions used in calculating the fair value of stock-based payment awards and expected attainment of
performance-based awards represent our best estimates, but these estimates involve inherent uncertainties and the
application of management judgment. We will continue to use judgment in evaluating the expected term and
volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the
model. Changes in key assumptions could significantly impact the valuation of such instruments.

401(k) Plan—In September 1998, our board of directors adopted a defined contribution retirement plan

(401(k) Plan), which qualifies under Section 401(k) of the Internal Revenue Code of 1986. Participation in the
401(k) Plan is available to substantially all employees in the United States. Employees can contribute up to 25%
of their salary, up to the federal maximum allowable limit, on a before-tax basis to the 401(k) Plan. Employee
contributions are fully vested when contributed. Company contributions to the 401(k) Plan are discretionary and
are expensed when incurred. We also match employee contributions to our 401(k) Plan at 25% of an employee’s

94

contribution each pay period, up to a maximum of 1% of the employee’s salary during such pay period. Our
matching contributions are expensed as incurred and vest one-third for each of the first three years of the
recipient’s service. The recipient is fully vested in all 401(k) Plan matching contributions after three years of
service. We recognized expense of $0.3 million, $0.4 million, and $0.3 million for the years ended December 31,
2013, 2014 and 2015, respectively, related to 401(k) matching contributions.

Income Taxes—We account for income taxes using the liability method. Deferred income taxes are
determined based on the differences between the financial reporting and tax bases of assets and liabilities, using
enacted statutory tax rates in effect for the year in which the differences are expected to reverse.

We consider stock option deduction benefits in excess of book compensation charges realized when we

obtain an incremental benefit determined by the “With and Without” calculation method. Under the “With and
Without” approach, excess tax benefits related to share-based payments are not deemed to be realized until after
the utilization of all other tax benefits available to us. For example, net operating loss and tax credit carry
forwards from prior years are used to reduce taxes currently payable prior to deductions from stock option
exercises for purposes of financial reporting, while for tax return purposes, current year stock compensation
deductions are generally used before net operating loss carry forwards. Indirect effects of excess tax benefits,
such as the effect on research and development tax credits, are not considered.

We utilize a two-step approach for evaluating uncertain tax positions. Step one, Recognition, requires a
company to determine if the weight of available evidence indicates that a tax position is more likely than not to
be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two,
Measurement, is based on the largest amount of benefit, which is more likely than not to be realized on ultimate
settlement. We record interest and penalties related to uncertain tax positions as income tax expense in the
consolidated financial statements.

Seasonality—The majority of our Medicare-related health insurance plans are sold in our fourth quarter,

which includes the Medicare annual enrollment period, when Medicare-eligible individuals are permitted to
change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year.
Additionally, substantially all Medicare Advantage and Medicare Part D prescription drug policies renew on
January 1 of each year, resulting in our recognizing substantially all renewal Medicare Advantage and Medicare
Part D prescription drug plan commission revenue in our first quarter. Accordingly, Medicare plan-related
commission revenue is highest in our first quarter, with Medicare plan-related commission revenue being higher
in our fourth quarter compared to our second and third quarters.

The majority of our individual and family health insurance plans are sold in the annual open enrollment

period as defined under the federal Patient Protection and Affordable Care Act and related amendments in the
Health Care and Education Reconciliation Act. Individuals and families generally will not be able to purchase
individual and family health insurance outside of these open enrollment periods, unless they qualify for a special
enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance,
moving to another state or becoming eligible or ineligible for a government subsidy for their health insurance.

Recent Accounting Pronouncement—In August 2015, the Financial Accounting Standard Board (“FASB”)

issued Accounting Standards Update (“ASU”) No. 2015-14 (ASU 2015-14) “Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date” ASU 2015-14 defers the effective date by one year of
ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 supersedes the revenue recognition
requirements in “Revenue Recognition (Topic 605)” and requires an entity to recognize revenue when it transfers
promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled to in exchange for those goods or services. In accordance with the deferral, the new standard is
effective for annual reporting periods beginning after December 15, 2017, including interim periods within that
reporting period and can be adopted using either a full retrospective or modified retrospective approach. Early
adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim periods

95

within that reporting period. We are currently in the process of evaluating the impact of the adoption of ASU
2014-09 on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles—Goodwill and Other—Internal-Use
Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.”, which
provides new guidance to clarify the customer’s accounting for fees paid in a cloud computing arrangement. This
standard provides guidance to customers about whether a cloud computing arrangement includes a software
license. If such an arrangement contains a software license, the software license element of that arrangement
should be accounted for consistent with the acquisition of other software licenses. If such an arrangement does
not include a software license, the arrangement should be accounted for as a service contract. It is effective for
annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early
adoption is permitted, including adoption in an interim period. We are currently in the process of evaluating the
impact of the adoption of ASU 2015-05 on our consolidated financial statements.

In February 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update

(“ASU”) No. 2016-2 (ASU 2016-2) “Leases (Topic 842).” ASU 2016-2 requires lessees to put leases on their
balance sheets but recognize expenses on their income statements; for lessors, the guidance modifies the
classification criteria and the accounting for sales-type and direct finance leases. The guidance also eliminates
existing real estate-specific provisions for all entities. The new standard is effective for annual reporting periods
beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is
permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2016-2 on our
consolidated financial statements.

Recently Adopted Accounting Standards—In November 2015, the FASB issued ASU No. 2015-17
(“ASU 2015-17”) regarding ASC Topic 470 “Income Taxes: Balance Sheet Classification of Deferred Taxes”.
This standard requires companies to classify deferred income tax assets and liabilities as non-current in a
classified statement of financial position. It is effective for the first interim period beginning after December 15,
2016 and early adoption is permitted. We have adopted this standard prospectively as of December 31, 2015.
Prior periods were not adjusted.

Note 2—Balance Sheet Accounts

Cash and Cash Equivalents—As of December 31, 2014 and 2015, our cash equivalents consisted of money

market accounts that invested in U.S. government-sponsored enterprise bonds and discount notes, U.S.
government treasury bills and notes and repurchase agreements collateralized by U.S. government obligations. At
December 31, 2014 and 2015, our cash equivalents carried no unrealized gains or losses and we did not realize
any significant gains or losses on sales of cash equivalents during the years ended December 31, 2013, 2014 and
2015.

As of December 31, 2014 and 2014, our cash and cash equivalent balances were invested as follows (in

thousands):

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .

$15,793
35,622

$51,415

$ 8,086
54,624

$62,710

December 31, 2014

December 31, 2015

We used observable prices in active markets in determining the classification of our money market funds as

Level 1 as of December 31, 2014 and 2015.

96

Concentration of Credit Risk—Our financial instruments that are exposed to concentrations of credit risk
principally consist of cash, cash equivalents and accounts receivable. We invest our cash and cash equivalents
with major banks and financial institutions and, at times, such investments are in excess of federally insured
limits. We also have deposits with major banks in China that are denominated in both U.S. dollars and Chinese
Renminbi and are not insured by the U.S. federal government.

Accounts Receivable—We do not require collateral or other security for our accounts receivable. As of
December 31, 2014, three customers represented 30%, 17%, and 14%, respectively, for a combined total of 61%
of our $8.2 million outstanding accounts receivable balance. As of December 31, 2015, three customers
represented 24%, 18%, and 15% respectively, for a combined total of 57% of our $9.6 million outstanding
accounts receivable balance. No other customers represented 10% or more of our total accounts receivable at
December 31, 2014 and December 31, 2015. We believe the potential for collection issues with any of our
customers was minimal as of December 31, 2015. Accordingly, our estimate for uncollectible amounts at
December 31, 2015 was not material.

As of December 31, 2014 and 2015, our accounts receivable consisted of the following (in thousands):

Commissions receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable—for other revenue . . . . . . . . . . . . . . . . . . .
Commissions receivable—for Medicare renewals . . . . . . . . . . .

Total accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . .

5,383
$2,462
355

$8,200

6,136
$3,511
—

$9,647

December 31, 2014

December 31, 2015

The Commissions receivable balance as of December 31, 2014 and December 31, 2015 is recorded net of a

$1.0 million and $1.1 million estimated forfeiture, respectively. The estimated forfeiture is related to Medicare
Advantage and Medicare Part D plans sold during the fourth quarter of 2014 and 2015 with effective dates in
2015 and 2016, respectively.

Prepaid Expenses and Other Current Assets—Prepaid expenses and other current assets consisted of the

following (in thousands):

As of December 31,

2014

2015

Book-of-business transfers, net (current) . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid maintenance contracts (current) . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets (current)

$1,844
276
1,994
1,056
366
938

$1,518
—
1,760
270
364
1,273

Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . .

$6,474

$5,185

Property and Equipment—Property and equipment consisted of the following (in thousands)

As of December 31,

2014

2015

Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,009
3,486
3,200

$ 16,973
3,479
3,182

Property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . .

23,695
(14,055)

23,634
(16,270)

Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,640

$ 7,364

97

Depreciation and amortization expense related to property and equipment totaled $3.3 million, $4.2 million

and $4.1 million in the years ended December 31, 2013, 2014 and 2015, respectively.

Other Assets—Other assets consisted of the following (in thousands):

As of December 31,

2014

2015

Book-of-business transfers, net (non-current) . . . . . . . . . . . . . . . . . . . . . .
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized project costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid maintenance contracts (non-current) . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$3,545
604
1,306
224
—

$1,866
607
1,832
188
204

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,679

$4,697

Intangible Assets—During the fourth quarter 2014, we recorded an impairment charge of $0.1 million

related to certain acquired intangible assets that we concluded would not be utilized in future periods.

On March 31, 2014, we purchased an Internet domain name, www.Medicare.com, for $4.8 million. Cash
consideration paid in connection with the purchase of the domain name totaled $4.5 million. The consideration
paid also included $0.3 million of outstanding receivables from the owner of the domain name that were settled
upon completion of the purchase. The related intangible asset was assigned an indefinite useful life. The carrying
amounts, accumulated amortization, net carrying value and weighted average remaining life of our definite-
lived amortizable intangible assets, as well as our indefinite-lived intangible trademarks, are presented in the
tables below for (dollars in thousands, weighted-average useful life is as of December 31, 2015):

December 31, 2014

December 31, 2015

Weighted
Average
Remaining Life

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

December 31,
2015

Technology . . . . . . . . . . . . . . . . . . $ 1,700

$(1,587)

$

113 $ 1,700

$(1,700)

$ —

0

Pharmacy and customer

relationships . . . . . . . . . . . . . . .

10,100

(5,033)

$ 5,067

10,100

(5,984)

$4,116

4.3 years

Trade names, trademarks and

website addresses . . . . . . . . . . .

907

(427)

$

480

907

(517)

$ 390

4.3 years

Total intangible assets subject to

amortization . . . . . . . . . . . . . . . $12,707

$(7,047)

5,660 $12,707

$(8,201)

4,506

Indefinite-lived trademarks and

domain names . . . . . . . . . . . . . .

Intangible assets . . . . . . . . . . . . . .

5,114

$10,774

5,114

Indefinite

$9,620

During the years ended December 31, 2013, 2014 and 2015, amortization expense related to intangible

assets totaled $1.4 million, $1.5 million and $1.2 million, respectively.

98

As of December 31, 2015, expected amortization expense in future periods is as follows (in thousands):

Years Ending December 31,

Pharmacy
and
Customer
Relationships

Trade Names,
Trademarks and
Website
Addresses

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

950
950
950
950
316
—

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,116

90
90
90
90
30
—

390

Total

1,040
1,040
1,040
1,040
346
—

4,506

Other Current Liabilities—Other current liabilities consisted of the following (in thousands):

Payable to carriers—net of estimate for forfeitures . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,206
230
560

$2,474
183
568

Total other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,996

$3,225

As of December 31,
2015
2014

Non-current Liabilities—Non-current liabilities consisted of the following (in thousands):

Deferred rent—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax payable—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities—non-current
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,196
4,605
410
238

$1,068
3,221
329
344

Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$6,449

$4,962

As of December 31,

2014

2015

Note 3—Fair Value Measurements

We define fair value as the price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques we use to measure fair value maximize the
use of observable inputs and minimize the use of unobservable inputs. We classify the inputs used to measure
fair value into the following hierarchy:

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2

Unadjusted quoted prices in active markets for similar assets or liabilities, or

Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not
active, or

Inputs other than quoted prices that are observable for the asset or liability

Level 3

Unobservable inputs for the asset or liability

99

As of December 31, 2014 and 2015, our cash equivalents were invested in money market funds and were

classified as Level 1. We endeavor to utilize the best available information in measuring fair value. We used
observable prices in active markets in determining the classification of our money market funds as Level 1.

Note 4—Stockholder’s Equity

Preferred Stock—Our board of directors has the authority, without any further action by our stockholders,

to issue up to 110,000,000 shares, par value $0.001 per share, of which 10,000,000 shares are designated as
preferred stock. As of December 31, 2014 and 2015, there were no shares of preferred stock outstanding.

Common Stock—On all matters submitted to our stockholders for vote, our common stockholders are

entitled to one vote per share, voting together as a single class, and do not have cumulative voting rights.
Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of directors
can elect all of the directors standing for election, if they so choose. Subject to preferences that may apply to any
shares of preferred stock outstanding, the holders of common stock are entitled to share equally in any dividends,
when and if declared by our board of directors. Upon the occurrence of a liquidation, dissolution or winding-up,
the holders of common stock are entitled to share equally in all assets remaining after the payment of any
liabilities and the liquidation preferences on any outstanding preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights and there are no redemption or sinking funds
provisions applicable to the common stock.

Shares Reserved—We generally issue previously unissued common stock upon the exercise of stock
options, the vesting of restricted stock units and upon granting of restricted common stock awards; however we
may reissue previously acquired treasury shares to satisfy these future issuances. Shares of authorized but
unissued common stock reserved for future issuance were as follows (in thousands):

Common stock:

Stock options issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units issued and outstanding . . . . . . . . . . . . . . . . . . . . . . .
Shares available for grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total shares reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

As of December 31,

2014

2015

1,724
873
4,164

6,761

1,275
966
3,542

5,783

Stock Plans—On June 12, 2014, upon approval at the Annual Meeting of Stockholders, we adopted the

2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan replaced the 2006 Equity Incentive Plan and
4,500,000 shares were authorized for issuance under the 2014 Plan. The 2014 Plan does not include an evergreen
provision to automatically increase the number of shares available under it and increases in the number of shares
authorized for issuance under the 2014 Plan require stockholder approval. Also, under the 2014 Plan the
following shares are not recycled for future grant under the 2014 Plan: (i) shares used in connection with the
exercise of an option and/or stock appreciation right to pay the exercise price or purchase price of such award or
satisfy applicable tax withholding obligations; and (ii) the gross number of shares subject to stock appreciation
rights that are exercised. Furthermore, the 2014 Plan included a provision that prohibits repricing of outstanding
stock options or stock appreciation rights and formalized and updated procedures to qualify awards as
“performance-based” compensation under Section 162(m) of the Internal Revenue Code in order to preserve full
tax deductibility of such awards.

We previously granted options to purchase shares of our common stock and restricted stock units under our
2006 Equity Incentive Plan and 2005 Stock Plan. The 2006 Equity Incentive Plan was terminated with respect to
the grant of additional awards on June 12, 2014, upon adoption of our 2014 Plan. The 2005 Stock Plan was
terminated with respect to the grant of additional awards upon the effectiveness of the 2006 Equity Incentive

100

Plan. We will continue to issue new shares of common stock upon vesting of restricted stock units and the
exercise of stock options previously granted under the 2006 Equity Incentive Plan and 2005 Stock Plan.

Our stock options granted under the 2014 Plan, 2006 Plan and 2005 Stock Plan (collectively, the “Stock
Plans”) generally vest over 4 years at a rate of 25% after one year and 1/48th per month thereafter. Our stock
options granted prior to December 31, 2007 generally expire after ten years from the date of grant. Stock options
granted subsequent to December 31, 2007 generally expire after seven years from the date of grant.

On December 31, 2015, no shares were subject to repurchase. Our restricted stock unit awards granted under

the 2014 Plan, 2006 Plan and 2005 Stock Plan generally vest over four years at a rate of 25% after one year and
25% annually thereafter.

In 2013 and 2014, we issued restricted stock units with both service and performance-based vesting criteria

to our executive officers. The performance-based contingency period for our restricted stock units with both
service and performance-based vesting criteria granted in the fiscal year 2013 was the fiscal years ending
December 31, 2013 and 2014, and the measurement of achievement was based on our revenue results for the
fiscal years ending December 31, 2013 and 2014. The performance-based contingency period for our restricted
stock units with both service and performance-based vesting criteria granted in the fiscal year 2014 were for the
fiscal years ending December 31, 2014 and 2015, and the measurement of achievement was based on our revenue
results for the fiscal years ending December 31, 2014 and 2015. One-fourth of the shares earned and eligible to
vest based on 2013 revenue for performance-based restricted stock units granted in 2013 became vested in 2014.
The remaining shares granted in 2013 that are earned and eligible to vest based on 2013 revenue are scheduled to
vest in equal annual installments between 2015 and 2017. In 2013, the total number of restricted stock units
reported in the table below includes 324,375 units of performance shares of which only 113,742 units were
earned and the remaining 210,633 units were cancelled in 2014 because the performance criteria was not fully
met. In 2014, the total number of restricted stock units reported in the table below includes 228,750 units of
performance shares of which none were earned with the remaining 228,750 units being cancelled in 2015
because the performance criteria was not met. $1.1 million of stock compensation expense recorded in 2013
related to performance-based restricted stock units was reversed in 2014 as a result of related financial metrics
not being achieved for the year ended December 31, 2014. Expense recorded for performance-based restricted
stock units is recognized on an accelerated basis over the required service periods based on the number of shares
earned, or expected attainment for shares to be earned based on performance-based contingency periods that have
not been completed.

In March 2015, we granted market-based stock unit awards to certain members of senior management. Each
market-based stock unit award represents a contingent right to receive certain shares of the Company’s common
stock upon the attainment of certain stock prices over a four-year performance period. Once a stock price
threshold is achieved, the portion of the award related to that threshold will vest on the one-year anniversary of
the date of achievement, subject to the employee’s continued service through each vesting date. Compensation
expense related to these awards is recognized on an accelerated basis over the requisite service period.

101

The following table summarizes activity under our Stock Plans (in thousands):

Shares Available
for Grant (1)

Shares available for grant December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional shares authorized (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units granted (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units cancelled (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares available for grant December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional shares authorized (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units granted (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units cancelled (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 Equity Incentive Plan adjustment (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares available for grant December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional shares authorized (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units granted (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units cancelled (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shares available for grant December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,982
818
(595)
(227)
24
83

4,085
751
(563)
(52)
25
16
(98)

4,164
—
(730)
(49)
135
22

3,542

(1) Shares available for grant do not include treasury stock shares that could be granted if we determined to do

so.

(2) On January 1, 2013, 2014 and 2015, the number of shares authorized for issuance under the 2006 Equity
Incentive Plan was automatically increased pursuant to the terms of the 2006 Equity Incentive Plan.

(3) 2013, 2014 and 2015 include grants of restricted stock units with both service and performance-based

vesting criteria to our executive officers.

(4) 2013, 2014 and 2015 include cancelled restricted stock units with both service and performance-based

vesting criteria.

(5) On June 12, 2014, shares available for grant were adjusted to 4,500,000 pursuant to the terms of the 2014

Plan.

102

The following table summarizes stock option activity under the Stock Plans (in thousands, except weighted-

average exercise price and weighted-average remaining contractual life data):

Balance outstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance outstanding at December 31, 2013 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance outstanding at December 31, 2014 . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number
of Stock
Options

2,956
227
(1,121)
(83)

1,979
52
(256)
(51)

1,724
49
(164)
(334)

$13.41
$28.82
$ 8.22
$18.40

$17.91
$36.26
$16.04
$26.38

$18.50
$11.23
$ 9.57
$20.72

Weighted
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Life (years)

Aggregate
Intrinsic
Value (1)

3.91

41,462

22,486

4.20

56,569

6,472

3.31

12,884

546

—

—
—

Balance outstanding at December 31, 2015 . . . . . . . . . . . . . . . . . . . . .

1,275

$18.79

Vested and expected to vest after December 31, 2015 . . . . . . . .
Exercisable at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,261
1,058

$18.77
$18.41

2.79

2.77
2.48

(1) The aggregate intrinsic value is calculated as the difference between eHealth’s closing stock price as of

December 31 of each year presented and the exercise price of in-the-money options as of those dates.

The total fair value of stock options vested during the years ended December 31, 2013, 2014 and 2015 was

$3.3 million, $2.3 million and $1.6 million, respectively. As of December 31, 2015, there was $1.6 million of
unrecognized stock-based compensation expense related to unvested stock options, which is expected to be
recognized over the next 1.6 years.

The following table summarizes restricted stock unit activity under the Stock Plans (in thousands, except

weighted-average grant date fair value and weighted-average remaining contractual life data):

Number
of
Restricted
Stock
Units (1)

Weighted-
Average
Grant
Date Fair
Value

Weighted-
Average
Remaining
Contractual
Life (years)

Aggregate
Intrinsic
Value (2)

Balance outstanding at December 31, 2012 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance outstanding at December 31, 2013 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance outstanding at December 31, 2014 . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance outstanding at December 31, 2015 . . . . . . . . . . . . . . . . . . .

381
595
(173)
(24)

779
563
(220)
(249)

873
731
(231)
(407)

966

$16.21
$20.73
$15.78
$17.33

$19.57
$37.56
$19.59
$20.62

$30.86
$10.63
$24.07
$34.23

$15.62

2.22

$10,464

2.30

$36,220

2.52

$21,753

2.83

$ 9,636

103

(1)

Includes restricted stock units with both service and performance-based vesting criteria granted to our
executive officers.

(2) The aggregate intrinsic value is calculated as eHealth’s closing stock price as of December 31 multiplied by

the number of restricted stock units outstanding.

The fair value of the restricted stock units is based on eHealth’s stock price on the date of grant.

Compensation expense for awards that include only service-based vesting criteria is recognized on a straight-line
basis over the vesting period. Compensation expense for awards that include both service and performance-based
vesting criteria is recognized using accelerated attribution over the vesting period. The total fair value of
restricted stock units vested during the years ended December 31, 2013, 2014 and 2015 was $3.5 million, $10.3
million and $2.6 million, respectively. As of December 31, 2015, there was $11.7 million of unrecognized stock-
based compensation expense related to restricted stock units, which is expected to be recognized over the next
2.5 years.

Stock Repurchase Programs—On March 31, 2014, we announced that our board of directors approved a
stock repurchase program authorizing us to purchase up to $50 million of our common stock. Purchases under
this program were made in the open market and complied with Rule 10b-18 under the Securities Exchange Act of
1934, as amended. We completed this stock repurchase program in July 2014 having repurchased in the
aggregate 1.4 million shares for approximately $50 million at an average price of $36.91 per share including
commissions. The cost of the repurchase was funded from available working capital.

For accounting purposes, common stock repurchased under our stock repurchase programs is recorded
based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are
presented using the cost method.

Stock repurchase activity under our stock repurchase programs during the year ended December 31, 2013,

2014 and 2015 is summarized as follows (dollars in thousands, except share and per share amounts):

Cumulative balance at December 31, 2012 . . . . . . . .
Repurchases of common stock during 2013 . . . . . . .

Cumulative balance at December 31, 2013 . . . . . . . .
Repurchases of common stock during 2014 . . . . . . .

Total Number of
Shares
Purchased

6,397,803
2,911,466

9,309,269
1,354,619

Cumulative balance at December 31, 2014 . . . . . . . .
Repurchases of common stock during 2015 . . . . . . .

10,663,888
—

Cumulative balance at December 31, 2015 . . . . . . . .

10,663,888

(1) Average price paid per share includes commissions.

Average Price
Paid per Share (1)

Amount of
Repurchase

$14.22
$20.27

$16.11
$36.91

$18.75
$ —

$ —

$ 90,991
59,007

149,998
50,000

199,998

—

$199,998

In addition to the shares repurchased under our repurchase programs as of December 31, 2015, we have in
treasury an additional 362,045 shares that were previously surrendered by employees to satisfy tax withholdings
due in connection with the vesting of certain restricted stock units. As of December 31, 2014 and 2015, we had a
total of 10,945,607 shares and 11,025,933 shares, respectively, held in treasury.

104

Stock-Based Compensation—The fair value of stock options granted to employees for the years ended

December 31, 2013, 2014 and 2015 was estimated using the following weighted average assumptions:

Year Ended December 31,

2013

2014

2015

Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant date fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.3

4.2
4.3
39.3%
47.2% 64.1%
— % — % — %
1.41% 1.17%
0.96%
$9.52

$14.10

$5.67

The weighted-average fair value of the market-based stock unit awards was determined using the Monte

Carlo simulation model using the following weighted average assumptions:

Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended
December 31,

2015

2.59
64.7%
— %
1.13%
$6.69

There were no market-based stock unit awards granted during the year ended December 31, 2014.

The following table summarizes stock-based compensation expense recorded during the years ended

December 31, 2013, 2014 and 2015 (in thousands):

Common stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total stock-based compensation expense . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2013

2014

2015

$2,817
4,985

$7,802

$2,215
3,662

$5,877

$1,522
5,480

$7,002

The following table summarizes stock-based compensation expense by operating function for the years

ended December 31, 2013, 2014 and 2015 (in thousands):

Marketing and advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer care and enrollment
Technology and content
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total stock-based compensation expense . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2013

2014

2015

$2,112
342
1,641
3,707
—

$7,802

$1,692
386
1,611
2,188
—

$5,877

$1,950
477
1,728
2,734
113

$7,002

105

Note 5—Income Taxes

The components of our income (loss) before provision for income taxes were as follows (in thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income (loss) before provision for income taxes . . . . . . . . . . . .

Year Ended December 31,

2013

2014

2015

$3,412
228

$3,640

$(7,057)
197

$(6,041)
435

$(6,860)

$(5,606)

The provision (benefit) for income taxes consisted of the following (in thousands):

Year Ended December 31,

2013

2014

2015

Current:

Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,650
269
—

Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,919

Deferred:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(1,914)
(88)
—

(2,002)

$ 165
113
14

292

7,935
1,292
(174)

9,053

$(584)
(457)
97

(944)

121
10
(30)

101

Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,917

$9,345

$(843)

The following table provides a reconciliation of the federal statutory income tax rate to our effective tax

rate:

Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-qualified stock option shortfalls, net
. . . . . . . . . . . . . . . . . . . . .
Lobbying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development tax credits . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 162(m) limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2013

35.0%
3.9
—
17.4
—
(8.8)
1.2
2.3
1.7

52.7%

2014

2015

35.0%
1.6
—
(6.3)
(164.7)
3.4
(0.8)
(2.7)
(1.8)

35.0%
8.1
(31.6)
(5.5)
14.8
20.1
(23.0)
—
(2.9)

(136.3)% 15.0%

Our effective tax rate in 2013 was higher than statutory federal and state tax rates primarily due to non-
deductible lobbying expenses. Our effective tax rate in 2014 differs from the federal statutory rate primarily due
to the recording of a valuation allowance against our federal and state deferred tax assets. Our effective tax rate
in 2015 differs from the federal statutory rate primarily due to the reversal of previously recorded reserves related
to federal and state tax credits.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of

assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, together with

106

net operating loss and tax credit carry forwards. Significant components of our deferred tax assets were as
follows (in thousands):

As of December 31,

2014

2015

Deferred tax assets:

Federal, state and foreign net operating loss carry forwards . . . . . . . . . . .
Federal and state tax credit carry forwards . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,678
1,076
4,585
1,549
2,138
1,080

$

844
1,547
2,946
4,108
1,782
843

Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14,106
(11,747)

12,070
(10,528)

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities—intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities—fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,359
(2,076)
(307)

(24)

386
(410)

(24)

$

$

$

1,542
(1,667)
—

(125)

204
(329)

(125)

$

$

$

Assessing the realizability of our deferred tax assets is dependent upon several factors, including the

likelihood and amount, if any, of future taxable income in relevant jurisdictions during the periods in which those
temporary differences become deductible. We forecast taxable income by considering all available positive and
negative evidence, including our history of operating income and losses and our financial plans and estimates
that we use to manage the business. These assumptions require significant judgment about future taxable income.
As a result, the amount of deferred tax assets considered realizable is subject to adjustment in future periods if
estimates of future taxable income change. As at the year ended December 31, 2015, the valuation allowance is
$10.5 million, which represents a full valuation allowance against the Company’s federal and state deferred tax
assets. The valuation allowance was recorded as a result of increased uncertainty regarding the Company’s future
taxable income and a lack of sources of other taxable income.

The net valuation allowance decreased by $1.2 million during the year ended December 31, 2015 and
increased by $11.3 million during the year ended December 31, 2014. The change in the net valuation allowance
during the year ended December 31, 2013 was not material.

For tax return purposes, we had net operating loss carry forwards at December 31, 2015 of approximately
$14.7 million and $66.8 million for federal income tax and state income tax purposes, respectively. Included in
the federal and state net operating loss carry forwards are unrealized federal and state net operating loss
deductions resulting from stock option exercises of approximately $13.3 million and $58.3 million, respectively.
The benefit of these unrealized stock option-related deductions has not been included in the deferred tax assets
table above and will be recognized as a credit to additional paid-in capital when realized. Federal and state net
operating loss carry forwards begin expiring in 2015 and 2023, respectively. The federal net operating loss carry
forward is subject to an annual limitation of approximately $2.5 million due to section 382 of the Internal
Revenue Code. Approximately $3.1 million of the state net operating loss carry forward is subject to an annual
limitation of approximately $0.1 million due to section 382 of the Internal Revenue Code.

During the years ended December 31, 2013, 2014, and 2015 we utilized excess tax benefits related to share-

based payments, which resulted in a decrease in cash generated from operating activities and a corresponding

107

increase in cash generated from financing activities of $3.4 million, $0.1 million and none for the years ended
December 31, 2013, 2014, and 2015, respectively.

For tax return purposes, at December 31, 2015, we had tax credit carry forwards of approximately

$4.1 million and $3.1 million for federal income tax and state income tax purposes, respectively. $2.3 million of
the Federal tax credit carry forwards begin expiring in 2021. The remaining $1.8 million of federal tax credits
and the state tax credits carry forward indefinitely.

A reconciliation of the beginning and ending amount of our unrecognized tax benefits is as follows (in

thousands):

Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases based on tax positions related to the prior year . . . . . . . . . . . . . . . . . . . . .
Decreases based on tax positions related to the prior year . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases based on tax positions related to the prior year . . . . . . . . . . . . . . . . . . . . .
Decreases based on tax positions related to the prior year . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases based on tax positions related to the prior year . . . . . . . . . . . . . . . . . . . . .
Decreases based on tax positions related to the prior year . . . . . . . . . . . . . . . . . . . . .
Lapse of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions based on tax positions related to the current year . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Unrecognized
Tax Benefits

$ 4,550
223
—
(66)
890
—

5,597
1,159
—
—
—
—

6,756
344
(24)
(1,301)
409
—

Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 6,184

Tax positions are evaluated in a two-step process. We first determine whether it is more likely than not that

a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition
threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax
position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement. As of December 31, 2015, the total amount of gross unrecognized tax benefits was
$6.2 million, of which $2.8 million, if recognized, would impact our effective tax rate. As of December 31, 2014,
the total amount of gross unrecognized tax benefits was $6.8 million, of which $4.3 million, if recognized, would
affect our effective tax rate. As of December 31, 2013, the total amount of gross unrecognized tax benefits was
$5.6 million, of which $4.6 million, if recognized, would affect our effective tax rate.

We record interest and penalties related to unrecognized tax benefits in income tax expense. At

December 31, 2015, we had approximately $0.4 million accrued for estimated interest related to uncertain tax
positions. For the year ended December 31, 2015, we recorded estimated interest of $0.1 million. We have not
recorded an accrual for penalties.

Included in the balance of income tax liabilities, accrued interest, and accrued penalties at December 31,
2015 is $3.2 million related to tax positions for which it is reasonably possible that the statute of limitations will
expire in various jurisdictions within the next twelve months.

108

We are subject to taxation in various jurisdictions, including federal, state and foreign. Our federal and state
income tax returns are generally not subject to examination by taxing authorities for fiscal years before 2001 due
to our net operating losses. Our 2009 and 2010 California income tax returns are currently under examination by
the California Franchise Tax Board. We continue to assess the impact of the California uncertain tax positions
under examination and cannot conclude on the range of estimates resulting from the 2009 and 2010
examinations.

Note 6—Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average
number of common shares outstanding for the period (excluding shares subject to repurchase). Diluted net
income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average
number of common and common equivalent shares outstanding during the period. Diluted net income (loss) per
share is computed giving effect to all potential dilutive common stock, including options, restricted stock and
restricted stock units. The dilutive effect of outstanding awards is reflected in diluted earnings per share by
application of the treasury stock method.

The following table sets forth the computation of basic and diluted net income (loss) per share (in

thousands, except per share amounts):

Year Ended December 31,

2013

2014

2015

Basic:
Numerator:

Net income (loss) allocated to common stock . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,723

$(16,205) $ (4,763)

Denominator:

Net weighted average number of common stock shares outstanding . . . . . . .
Net income (loss) per share—basic: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted:
Numerator:

19,145
0.09

$

18,367

18,008
(0.88) $ (0.26)

$

Net income (loss) allocated to common stock . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,723

$(16,205) $ (4,763)

Denominator:

Net weighted average number of common stock shares outstanding . . . . . . .
Weighted average number of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of restricted stock units . . . . . . . . . . . . . . . . . . . .

19,145
548
153

18,367
—
—

18,008
—
—

Total common stock shares used in per share calculation . . . . . . . . . . .

19,846

18,367

18,008

Net income (loss) per share—diluted:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

0.09

$

(0.88) $ (0.26)

For each of the years ended December 31, 2013, 2014 and 2015, we had securities outstanding that could
potentially dilute earnings per share, but the shares from the assumed conversion or exercise of these securities
were excluded in the computation of diluted net income (loss) per share as their effect would have been anti-
dilutive. The number of outstanding weighted average anti-dilutive shares that were excluded from the
computation of diluted net income (loss) per share consisted of the following (in thousands):

Common stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

109

Year Ended December 31,

2013

92
6

98

2014

1,815
728

2,543

2015

1,484
866

2,350

Note 7—Restructuring Charges

In March 2015, we implemented an organizational restructuring and cost reduction plan designed to

rebalance our resources and help reduce our cost structure as a result of lower than expected individual and
family health insurance plan membership and revenue. As part of the plan, we eliminated approximately 160 full-
time positions in the United States, representing approximately 15% of our workforce primarily in our
technology and content and customer care and enrollment groups, and to a lesser extent, in our marketing and
advertising and general and administrative groups. We incurred pre-tax restructuring charges of approximately
$3.9 million for employee termination benefits and related costs as well as $0.6 million in other pre-tax
restructuring charges, primarily consisting of facility exit costs. The majority of the restructuring charges were
recorded in the first quarter of 2015, when the activities comprising the plan were approved and substantially
completed. In March 2015, as part of our restructuring activities, we also eliminated certain positions in our
China operation.

The following table summarizes the total cash and non-cash restructuring charges recorded during the year

ended December 31, 2015 (in thousands):

Employee termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash employee termination costs—stock-based compensation . . . . . . . . . . . . . . . . . . . .
Facility and other termination costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2015

$3,791
113
637

$4,541

The following table summarizes the cash-based restructuring charges liability activity during the year

ended December 31, 2015 (in thousands):

Twelve Months Ended December 31, 2015

Beginning balance Charges

Payments Ending balance

Employee termination costs . . . . . . . . . . . . . . . . . . . . .
Facility and other termination costs . . . . . . . . . . . . . . .

Total restructuring liability . . . . . . . . . . . . . . . . . . . . . . . . .

$—
—

$—

$3,791
637

$(3,779)
(216)

$4,428

$(3,995)

Less: non-current restructuring charges associated

with facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restructuring charges liability—current

. . . . . . . . . . . . . . .

Note 8—Commitments and Contingencies

Operating Lease Obligations

$ 12
421

$ 433

(210)

$ 223

We lease our office, operating facilities and certain of our equipment and furniture and fixtures under
various operating leases, the latest of which expires in July 2023. Certain of these leases have free or escalating
rent payment provisions. We recognize rent expense on our operating leases on a straight-line basis over the
terms of the leases, although actual cash payment obligations under certain of these agreements fluctuate over the
terms of the agreements.

In March 2012, we entered into an agreement to lease a building in Mountain View, California, adjacent to
our headquarters office. The term of the operating lease is ten years from the date the building was delivered to
us in August 2013 and the base rent is approximately $0.6 million for the first year of the lease. The base rent
increases annually by 3%. Future minimum payments related to this operating lease total $6.8 million over the
term of the lease plus our proportionate share of certain operating expenses, insurance costs and taxes for each
calendar year during the lease. Lease payments began in the third quarter of 2013.

110

In connection with the Mountain View, California office lease agreement, we entered into a financial
guarantee consisting of a standby letter of credit for $0.6 million, which may be reduced in increments of 25% of
the original amount thereof on the first, second and third anniversaries of the commencement date, subject to our
compliance with the applicable conditions to such reductions set forth in the lease. The remaining balance on the
financial guarantee is $0.3 million as of December 31, 2015.

In April 2013, we entered into an agreement to lease approximately 20,000 square feet of office space in

Westford, Massachusetts. The lease commenced in July 2013 and is for a term of 5 years and 3 months. Future
minimum payments total approximately $1.2 million over the term of the lease.

In August 2014, we renewed our agreement to lease and expanded to approximately 50,000 square feet of

office space in Gold River, California. The lease commenced in August 2014 and is for a term of 4 years and
5 months. Future minimum payments will total approximately $3.6 million over the term of the lease.

Total rent expense under all operating leases was approximately $4.8 million, $5.3 million and $5.4 million

for the years ended December 31, 2013, 2014 and 2015, respectively.

Service and Licensing Obligations

We have entered into service and licensing agreements with third party vendors to provide various services,

including network access, equipment maintenance and software licensing. The terms of these services and
licensing agreements are generally up to three years. As the benefits of these agreements are experienced
uniformly over the applicable contractual periods, we record the related service and licensing expenses on a
straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the
terms of the agreements.

The following table presents a summary of our future minimum payments under non-cancellable operating

lease agreements and contractual service and licensing obligations as of December 31, 2015 (in thousands):

Years Ending December 31,

Operating
Lease
Obligations

Service and
Licensing
Obligations

Total
Obligations

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,869
4,389
3,216
1,046
1,075
2,445

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,040

$ 976
557
—
—
—
—

$1,533

$ 5,845
4,946
3,216
1,046
1,075
2,445

$18,573

Legal Proceedings—On January 26 and March 10, 2015, two purported class action lawsuits were filed
against us, our Chairman and chief executive officer, Gary L. Lauer (“Mr. Lauer”), and our senior vice president
and chief financial officer, Stuart M. Huizinga (“Mr. Huizinga”), in the United States District Court for the
Northern District of California. On May 6, 2015, the Court consolidated the two cases. On June 10, 2015, a
consolidated complaint was filed. The consolidated complaint alleges that the defendants made false and
misleading statements regarding our financial performance, guidance and operations during alleged class periods
of May 1, 2014 to January 14, 2015. The consolidated complaint alleges that we and Messrs. Lauer and Huizinga
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. The consolidated complaint seeks compensatory damages, attorneys’ fees and costs, rescission or a
rescissory measure of damages, equitable/injunctive relief and such other relief as the court deems proper. On
July 15, 2015, defendants moved to dismiss the consolidated complaint. The court held a hearing on defendants’
motion to dismiss the consolidated complaint on September 30, 2015. Because the case is at a preliminary stage,

111

we cannot estimate the likelihood of liability or the amount of potential damages, but an adverse result could
have a material adverse impact on our financial condition and results of operation. We believe the lawsuit to be
without merit and intend to vigorously defend ourselves against it.

In May 2015, an individual plaintiff filed a lawsuit against a health insurance carrier and us in state court in

the state of Texas. The complaint alleged that we and the health insurance carrier engaged in certain false,
misleading and deceptive acts and/or omissions in violation of the Texas Deceptive Trade Practice—Consumer
Protection Act in connection with the plaintiff’s purchase of the health insurance carrier’s health insurance
product. The complaint sought economic and actual damages for alleged harm caused to the plaintiff as well as
multiple damages, exemplary damages and attorney’s fees and costs. In June 2015, we and the health insurance
carrier removed the case to the United States District Court for the Eastern District of Texas, and the court
ordered the plaintiff to file an amended complaint. The plaintiff filed the amended complaint in July 2015. The
amended complaint purports to be a class action lawsuit on behalf of the purchasers of a certain health insurance
product offered by the health insurance carrier. The amended complaint alleges that we and the health insurance
carrier engaged in certain false, misleading and deceptive acts and/or omissions in violation of the Texas
Deceptive Trade Practice—Consumer Protection Act and the Texas Insurance Code in connection with the sale
of the health insurance carrier’s health insurance product. The amended complaint alleges certain other causes of
action against the health insurance carrier. The amended complaint seeks economic and actual damages, multiple
damages, exemplary damages, interest, attorney’s fees and costs, and specific performance. In August 2015 we
and the health insurance carrier moved to dismiss the amended complaint. In January 2016, our motion to
dismiss the amended complaint was denied. Because the case is at a preliminary stage, we cannot estimate the
likelihood of liability or the amount of potential damages, but an adverse result could have a material adverse
impact on our financial condition and results of operation. We believe the lawsuit to be without merit and intend
to vigorously defend ourselves against it.

In the ordinary course of our business, we have received and may continue to receive inquiries from state
regulators relating to various matters. We have become, and may in the future become, involved in litigation in
the ordinary course of our business. If we are found to have violated laws or regulations in any of the states, we
could be subject to various fines and penalties, including revocation of our license to sell insurance in those
states, and our business and financial results would be harmed. We would also be harmed to the extent that
related publicity damages our reputation as a trusted source of objective information relating to health insurance
and its affordability. It could also be costly to defend ourselves regardless of the outcome. At December 31,
2014 and 2015, we had no material liabilities included in our consolidated balance sheet for outstanding legal
claims.

Guarantees and Indemnifications—We have agreed to indemnify members of our board of directors and

our executive officers for fees, expenses, judgments, fines and settlement amounts incurred in any action or
proceeding, including actions or proceedings by or in the right of the Company, to which any of them is, or is
threatened to be, made a party by reason of their service as a director or officer of the Company or service
provided to another company or enterprise at our request. The term of the director and officer indemnification is
perpetual as to events or occurrences that take place while the director or officer is, or was, serving at our
request. As such, the maximum potential amount of future payment we could be required to make under these
indemnification arrangements is unlimited. We, however, maintain directors and officers insurance coverage that
limits our exposure under certain circumstances and that may allow us to recover a portion of future amounts
paid. Accordingly, we have not recorded any liabilities for these agreements as of December 31, 2014 and 2015.

While we have made various guarantees included in contracts in the normal course of business, primarily in

the form of indemnity obligations under certain circumstances, these guarantees do not represent significant
commitments or contingent liabilities of the indebtedness of others. Accordingly, we have not recorded a liability
related to these indemnification provisions.

112

Note 9—Operating Segments, Geographic Information and Significant Customers

Operating Segments—Operating segments are defined as components of an enterprise about which separate

financial information is available that is evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing performance of the Company. We operate
in one segment and accordingly we have provided only enterprise-wide disclosures. Our chief executive officer,
who is our chief operating decision maker, reviews our financial information in a similar manner.

Geographic Information—As of December 31, 2014 and 2015, our long-lived assets consisted primarily of

property and equipment, goodwill and other indefinite-lived intangible assets and finite-lived intangible assets.
Our long-lived assets are attributed to the geographic location in which they are located. Long-lived assets by
geographical area were as follows (in thousands):

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$39,752
437

$40,189

$35,341
436

$35,777

December 31, 2014

December 31, 2015

Significant Customers—Substantially all revenue for the years ended December 31, 2013, 2014 and
2015 was generated from customers located in the United States. Carriers representing 10% or more of our total
revenue for the years ended December 31, 2013, 2014 and 2015 are presented in the table below:

Year Ended December 31,

2013

2014

2015

Humana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Anthem (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UnitedHealthcare (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aetna (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21%
12%
11%
10%

23%
11%
10%
10%

23%
9%
11%
10%

(1) Anthem (formerly Wellpoint) also includes other carriers owned by Anthem.
(2) UnitedHealthcare also includes other carriers owned by UnitedHealthcare.
(3) Aetna also includes other carriers owned by Aetna.

Commission revenue attributable to major medical individual and family health insurance plans was

approximately 69%, 61% and 51% of our total commission revenue in the years ended December 31,
2013, 2014 and 2015, respectively. We define our individual and family plan offerings as major medical
individual and family health insurance plans, which do not include Medicare-related health insurance plan
offerings, small business or other ancillary products such as short-term, stand-alone dental, life, accident, vision,
travel and student insurance plan offerings.

Note 10—Selected Quarterly Financial Data (Unaudited)

Selected summarized quarterly financial information for 2015 and 2014 is as follows (in thousands, except

per share amounts):

2015

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share:

1st Quarter

2ND Quarter

3RD Quarter

4TH Quarter

Year

$61,288
(2,012)
(2,082)

$39,894
5,828
5,750

$38,224
2,925
3,635

$ 50,135
$189,541
(12,392) $ (5,651)
(12,066) $ (4,763)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (0.12)
$ (0.12)

$
$

0.32
0.32

$
$

0.20
0.20

$
$

(0.67) $
(0.67) $

(0.26)
(0.26)

113

2014

1st Quarter

2ND Quarter

3RD Quarter

4TH Quarter

Year

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share:

$50,940
(3,110)
(1,553)

$42,594
6,348
3,023

$41,168
3,766
1,524

$ 44,975
$179,677
(13,766) $ (6,762)
(19,199) $ (16,205)

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (0.08)
$ (0.08)

$
$

0.16
0.15

$
$

0.09
0.08

$
$

(1.08) $
(1.08) $

(0.88)
(0.88)

114

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Our Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated
the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Annual Report on
Form 10-K.

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that

our disclosure controls and procedures are effective to provide reasonable assurance that information we are
required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our management, including our chief executive officer
and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as
amended. Under the supervision and with the participation of our management, including our chief executive
officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2015 based on the guidelines established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework). Our internal control over financial reporting includes policies and procedures that provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Based on the results of our evaluation, our management concluded that our internal control over financial

reporting was effective as of December 31, 2015. We reviewed the results of management’s assessment with our
Audit Committee.

Ernst & Young LLP, our independent registered public accounting firm, has issued a report on the

Company’s internal control over financial reporting as of December 31, 2015, which is presented below.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months
ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our chief executive officer and chief financial officer, believes that our

disclosure controls and our internal control over financial reporting are designed to provide reasonable assurance
of achieving their objectives and are effective at the reasonable assurance level. However, our management does
not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and
all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not

115

absolute, assurance that the objectives of the control system are met. Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a
simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls. The design of any system of controls
also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.

116

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
eHealth, Inc.

We have audited eHealth, Inc.’s internal control over financial reporting as of December 31, 2015, based on

criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). eHealth, Inc.’s management
is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In our opinion, eHealth, Inc. maintained, in all material respects, effective internal control over financial

reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States), the consolidated balance sheets of eHealth, Inc. as of December 31, 2015 and 2014, and the
related consolidated statements of comprehensive income (loss), stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2015 of eHealth, Inc. and our report dated March 14, 2016
expressed an unqualified opinion thereon.

/S/ ERNST & YOUNG LLP

Redwood City, California
March 14, 2016

117

ITEM 9B. OTHER INFORMATION

None.

118

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information concerning our directors, executive officers, compliance with Section 16(a) of the

Securities Exchange Act of 1934, as amended, and corporate governance required by this Item 10 of Form 10-K
is incorporated by reference from the information contained in the Definitive Proxy Statement for the Annual
Meeting of Stockholders, which is expected to be filed within 120 days after the Company’s fiscal year ended
December 31, 2015.

We have adopted a code of ethics that applies to all employees, including our principal executive officer,
Gary Lauer, principal financial and accounting officer, Stuart Huizinga, and all other executive officers. The code
of ethics is available on the about us/investor relations/corporate governance page of our website at
www.eHealth.com. A copy may also be obtained without charge by contacting investor relations, attention
Director of Investor Relations, 440 East Middlefield Road, Mountain View, CA 94043 or by calling
(650) 210-3111.

We plan to post on our website at the address described above any future amendments or waivers of our

Code of Conduct.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated herein by reference from the information

contained in the Definitive Proxy Statement for the Annual Meeting of Stockholders, which is expected to be
filed within 120 days after the Company’s fiscal year ended December 31, 2015.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

As of December 31, 2015, one of our directors and four of our officers are parties to individual Rule 10b5-1

trading plans pursuant to which shares of our common stock will be sold for their account from time to time in
accordance with the provisions of the plans without any further action or involvement by the director.

Additional information required by Item 12 of Form 10-K is incorporated herein by reference from the
information contained in the Definitive Proxy Statement for the Annual Meeting of Stockholders, which is
expected to be filed within 120 days after the Company’s fiscal year ended December 31, 2015.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by Item 13 of Form 10-K is incorporated herein by reference from the information

contained in the Definitive Proxy Statement for the Annual Meeting of Stockholders, which is expected to be
filed within 120 days after the Company’s fiscal year ended December 31, 2015.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 of Form 10-K is incorporated herein by reference from the information

contained in the Definitive Proxy Statement for the Annual Meeting of Stockholders, which is expected to be
filed within 120 days after the Company’s fiscal year ended December 31, 2015.

119

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) We have filed the following documents as part of this Annual Report on Form 10-K:

1. Consolidated Financial Statements

Information in response to this Item is included in Item 8 of Part II of this Annual Report on

Form 10-K.

2. Financial Statement Schedules

All schedules are omitted because they are not applicable, not required or because the required

information is included in the consolidated financial statements or notes thereto.

3. Exhibits

See Item 15(b) below.

(b) Exhibits—We have filed, or incorporated into this Annual Report on Form 10-K by reference, the exhibits
listed on the accompanying Index to Exhibits of this Annual Report on Form 10-K.

(c) Financial Statement Schedule—See Item 15(a) above.

120

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the

registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SIGNATURES

March 14, 2016

eHealth, Inc.

/S/ GARY L. LAUER

Gary L. Lauer
Chief Executive Officer

/S/ STUART M. HUIZINGA

Stuart M. Huizinga
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities indicated on the 14th day of March, 2016.

Signature

Title

/S/ GARY L. LAUER

Gary L. Lauer

/S/ STUART M. HUIZINGA

Stuart M. Huizinga

/S/ SCOTT N. FLANDERS

Scott N. Flanders

/S/ MICHAEL D. GOLDBERG

Michael D. Goldberg

/S/ RANDALL S. LIVINGSTON

Randall S. Livingston

/S/

JACK L. OLIVER III

Jack L. Oliver III

/S/ WILLIAM T. SHAUGHNESSY

William T. Shaughnessy

/S/ ELLEN O. TAUSCHER

Ellen O. Tauscher

Chief Executive Officer (Principal Executive Officer)
and Chairman of the Board of Directors

Chief Financial Officer (Principal Financial and
Accounting Officer)

Director

Director

Director

Director

Director

Director

121

Exhibit
Number

3.1

3.2

4.1

10.1*

EXHIBIT INDEX

Incorporation by Reference Herein

Description of Exhibit

Form

Amended and Restated Certificate
of Incorporation of the Registrant

Registration Statement on Form S-l,
as amended (File No. 333-133526)

Date

April 25, 2006

Amended and Restated Bylaws of
the Registrant

Current Report on Form 8-K
(File No. 001-33071)

November 17, 2008

Form of the Registrant’s Common
Stock Certificate

Registration Statement on Form S-l,
as amended (File No. 333-133526)

Form of Indemnification Agreement
entered into between the Registrant
and its directors and officers

Registration Statement on Form S-l,
as amended (File No. 333-133526)

June 28, 2006

April 25, 2006

April 25, 2006

June 21, 2010

Registration Statement on Form S-l,
as amended (File No. 333-133526)

Current Report on Form 8-K
(File No. 001-33071)

Annual Report on Form 10-K
(File No. 001-33071)

March 21, 2007

Annual Report on Form 10-K
(File No. 001-33071)

March 21, 2007

Annual Report on Form 10-K
(File No. 001-33071)

March 21, 2007

Annual Report on Form 10-K
(File No. 001-33071)

March 21, 2007

Annual Report on Form 10-K
(File No. 001-33071)

March 13, 2009

Annual Report on Form 10-K
(File No. 001-33071)

March 13, 2009

10.2*

2005 Stock Plan of the Registrant

10.3*

10.3.1*

10.3.2*

10.3.3*

10.3.4*

10.3.5*

10.3.6*

2006 Equity Incentive Plan of the
Registrant, as amended and restated
June 15, 2010

Form of Notice of Stock Option
Grant and Stock Option Agreement
under the 2006 Equity Incentive
Plan of the Registrant

Form of Notice of Stock Option
Grant and Stock Option Agreement
(Initial Director Grant) under the
2006 Equity Incentive Plan of the
Registrant

Form of Notice of Stock Option
Grant and Stock Option Agreement
(Annual Director Grant) under the
2006 Equity Incentive Plan of the
Registrant

Form of Notice of Stock Unit Grant
and Stock Unit Agreement under the
2006 Equity Incentive Plan of the
Registrant

Form of Notice of Initial Outside
Director Stock Unit Grant Under the
2006 Equity Incentive Plan of the
Registrant

Form of Notice of Annual Outside
Director Stock Unit Grant Under the
2006 Equity Incentive Plan of the
Registrant

10.3.7*

Form of Outside Director Stock Unit
Agreement

Annual Report on Form 10-K
(File No. 001-33071)

March 13, 2009

122

Incorporation by Reference Herein

Description of Exhibit

Form

Quarterly Report on Form 10-Q
(File No. 001-33071)

Date

May 6, 2011

Exhibit
Number

10.3.8*

10.3.9*

10.4*

10.4.1*

10.4.2*

10.4.3*

10.5*

10.6*

10.7

Form of Notice of Stock Unit Grant
and Stock Unit Agreement
(Performance-Based Vesting) under
the 2006 Equity Incentive Plan of
the Registrant

Form of Notice of Stock Unit Grant
and Stock Unit Agreement
(Performance-Based Vesting) under
the 2006 Equity Incentive Plan of
the Registrant

Employment Agreement, dated
November 30, 1999, between Gary
Lauer and eHealthInsurance
Services, Inc.

Letter Amendment, dated November
2007, amending Offer Letter dated
November 30, 1999, between Gary
Lauer and eHealthInsurance
Services, Inc.

Second Amendment to Offer Letter,
dated December 27, 2008, amending
Offer Letter dated November 30,
1999, as amended, between Gary
Lauer and eHealthInsurance
Services, Inc.

Management Retention Agreement,
effective as of March 4, 2010,
between eHealth, Inc. and Gary L.
Lauer

Employment Agreement, dated
May 4, 2000, between Stuart
Huizinga and eHealthInsurance
Services, Inc., as amended on
August 22, 2000

Letter Agreement, dated
November 17, 2005, between
Jack L. Oliver III and the Registrant

Lease Agreement, dated May 2004,
between eHealthInsurance Services,
Inc. and Brian Avery, Trustee of the
1983 Avery Investments Trust, as
amended

Quarterly Report on Form 10-Q
(File No. 001-33071)

May 7, 2013

Registration Statement on Form S-l,
as amended (File No. 333-133526)

April 25, 2006

Quarterly Report on Form 10-Q
(File No. 001-33071)

November 14, 2007

Annual Report on Form 10-K
(File No. 001-33071)

March 13, 2009

Quarterly Report on Form 10-Q
(File No. 001-33071)

May 10, 2010

Registration Statement on Form S-l,
as amended (File No. 333-133526)

April 25, 2006

Registration Statement on Form S-l,
as amended (File No. 333-133526)

April 25, 2006

Registration Statement on Form S-l,
as amended (File No. 333-133526)

April 25, 2006

123

Incorporation by Reference Herein

Description of Exhibit

Form

Current Report on Form 8-K
(File No. 001-33071)

Date

May 21, 2009

Exhibit
Number

10.7.1

10.7.2

10.7.3

10.8

10.8.1

10.8.2

10.8.3

First Amendment to Lease
Agreement, effective as of May 15,
2009, between eHealthInsurance
Services, Inc. and Brian Avery,
Trustee of the 1983 Avery
Investments Trust

Second Amendment to Lease
Agreement, effective as of August 5,
2010 between eHealth Insurance
Services, Inc. and Brian Avery,
Trustee of the 1983 Avery
Investments Trust

Third Amendment to Lease
Agreement, effective as of July 8,
2011, between eHealthInsurance
Services, Inc. and Brian Avery,
Trustee of the 1983 Avery
Generations Trust

Standard Lease Agreement, dated
June 10, 2004, between
eHealthInsurance Services, Inc. and
Gold Pointe E LLC, as amended

Fourth Amendment to Standard
Lease Agreement (Office), effective
as of November 6, 2007, between
eHealthInsurance Services, Inc. and
Carlsen Investments, LLC

Sixth Amendment to Lease and
Acknowledgment to Standard Lease
Agreement, dated August 29, 2012,
between Carlsen Investments, LLC
and eHealthInsurance Services, Inc.

Seventh Amendment to Lease and
Acknowledgment to Standard Lease
Agreement, dated August 6, 2014,
between Carlsen Investments, LLC
and eHealthInsurance Services, Inc.

Current Report on Form 8-K
(File No. 001-33071)

August 18, 2010

Current Report on Form 8-K
(File No. 001-33071)

July 12, 2011

Registration Statement on Form S-l,
as amended (File No. 333-133526)

April 25, 2006

Current Report on Form 8-K
(File No. 001-33071)

November 7, 2007

Current Report on Form 8-K
(File No. 001-33071)

August 31, 2012

Quarterly Report on Form 10-Q
(File No. 001-33071)

August 8, 2014

124

Incorporation by Reference Herein

Description of Exhibit

Form

Registration Statement on Form S-l,
as amended (File No. 333-133526)

Date

April 25, 2006

Exhibit
Number

10.9

10.9.1

10.9.2

10.9.3

10.9.4

Office Lease Contract, dated
March 31, 2006, among Xiamen
Torch Hi-tech Industrial
Development Zone Finance Services
Center, Xiamen Software Industry
Investment & Development Co.,
Ltd. and eHealth China (Xiamen)
Technology Co., Ltd.; Appendix 1
to Office Lease Contract; and
Property Management Service
Contract, dated April 4, 2006,
between Xiamen Software Industry
Investment & Development Co.,
Ltd. and eHealth China (Xiamen)
Technology Co., Ltd.

Appendix 3 to Office Lease
Contract, dated November 25, 2007,
among Xiamen Torch Hi-tech
Industrial Development Zone
Finance Services Center, Xiamen
Software Industry Investment &
Development Co., Ltd. and eHealth
China (Xiamen) Technology Co.,
Ltd.

Amendment Two to Property
Management Service Contract,
effective January 16, 2008, between
Xiamen Software Industry
Investment & Development Co.,
Ltd. and eHealth China (Xiamen)
Technology Co., Ltd.

Appendix 4 to Office Lease Contract,
dated March 27, 2008, among
Xiamen Torch Hi-tech Industrial
Development Zone Finance Services
Center, Xiamen Software Industry
Investment & Development Co., Ltd.
and eHealth China (Xiamen)
Technology Co., Ltd.

Appendix 5 to Office Lease Contract,
dated May 19, 2009, among Xiamen
Torch Hi-tech Industrial
Development Zone Finance Services
Center, Xiamen Software Industry
Investment & Development Co., Ltd.
and eHealth China (Xiamen)
Technology Co., Ltd.

Annual Report on Form 10-K
(File No. 001-33071)

March 17, 2008

Annual Report on Form 10-K
(File No. 001-33071)

March 17, 2008

Quarterly Report on Form 10-Q
(File No. 001-33071)

May 12, 2008

Current Report on Form 8-K
(File No. 001-33071)

May 21, 2009

125

Exhibit
Number

10.9.5

10.9.6

10.9.7

10.9.8

10.9.9

10.9.10

10.9.11

Description of Exhibit

Form

Date

Incorporation by Reference Herein

Office Lease Contract, dated
September 23, 2009, among Xiamen
Torch Hi-tech Industrial
Development Zone Finance Services
Center, Xiamen Software Industry
Investment & Development Co.,
Ltd. and eHealth China (Xiamen)
Technology Co., Ltd.

Property Management Service
Contract, effective September 24,
2009, between Xiamen Software
Industry Investment & Development
Co., Ltd. and eHealth China
(Xiamen) Technology Co., Ltd.

Supplemental Agreement, effective
as of April 1, 2013, between eHealth
China (Xiamen) Technology Co.,
Ltd. and Xiamen Software Industry
Investment & Development Co.,
Ltd.

Supplemental Agreement, effective
as of September 9, 2013, between
eHealth China (Xiamen)
Technology Co., Ltd. and Xiamen
Software Industry Investment &
Development Co., Ltd.

Supplemental Agreement, effective
as of September 1, 2014, between
eHealth China (Xiamen)
Technology Co., Ltd. and Xiamen
Software Industry Investment &
Development Co., Ltd.

Supplemental Agreement, effective
as of September 15, 2014, between
eHealth China (Xiamen)
Technology Co., Ltd. and Xiamen
Software Industry Investment &
Development Co., Ltd.

Supplemental Agreement, effective
as of September 1, 2015, between
eHealth China (Xiamen)
Technology Co., Ltd. and Xiamen
Software Industry Investment &
Development Co., Ltd.

Quarterly Report on Form 10-Q
(File No. 001-33071)

November 9, 2009

Quarterly Report on Form 10-Q
(File No. 001-33071)

November 9, 2009

Current Report on Form 8-K
(File No. 001-33071)

May 15, 2013

Quarterly Report on Form 10-Q
(File No. 001-33071)

August 8, 2014

Current Report on Form 8-K
(File No. 001-33071)

September 22, 2014

Current Report on Form 8-K
(File No. 001-33071)

September 22, 2014

Quarterly Report on Form 10-Q
(File No. 001-33071)

August 7, 2015

10.10*

Executive Bonus Plan 2015

Quarterly Report on Form 10-Q
(File No. 001-33071)

May 8, 2015

126

Exhibit
Number

10.11*

10.12

10.12.1

10.13*

10.14

10.15*

10.15.1*

10.15.2*

10.15.3*

10.15.4*

10.15.5

10.15.6

Incorporation by Reference Herein

Description of Exhibit

Form

eHealth, Inc. Performance Bonus
Plan

Definitive Proxy Statement on
Schedule 14A (File No. 001-33071)

Current Report on Form 8-K
(File No. 001-33071)

Date

April 28, 2014

March 27, 2012

2014 Equity Incentive Plan of the
Registrant

Definitive Proxy Statement on
Schedule 14A (File No. 001-33071)

Registration Statement on Form S-8
(File No. 333-196675)

April 28, 2014

June 11, 2014

Lease Agreement, dated March 23,
2012, between 340 Middlefield,
LLC and eHealth, Inc.

First Amendment to Lease
Agreement, effective as of May 28,
2013, between 340 Middlefield,
LLC and eHealth, Inc.

Employment Agreement, dated
March 9, 2012, between eHealth,
Inc. and William Shaughnessy.

Office Lease, dated May 7, 2012,
between Lake Pointe Three, LC, and
eHealthInsurance Services, Inc.

Form of Notice of Stock Option
Grant and Stock Option Agreement
under the 2014 Equity Incentive
Plan of the Registrant

Form of Notice of Stock Unit Grant
and Stock Unit Agreement under the
2014 Equity Incentive Plan of the
Registrant

Form of Notice of Stock Unit Grant
and Stock Unit Agreement (Initial
Director Grant) under the 2014
Equity Incentive Plan of the
Registrant

Form of Notice of Stock Unit Grant
and Stock Unit Agreement (Annual
Director Grant) under the 2014 Equity
Incentive Plan of the Registrant

Form of Notice of Stock Option
Grant and Stock Option Agreement
(People’s Republic of China) under
the 2014 Equity Incentive Plan of
the Registrant

Form of Notice of Stock Unit Grant
and Stock Unit Agreement (People’s
Republic of China) under the 2014
Equity Incentive Plan of the
Registrant

Current Report on Form 8-K
(File No. 001-33071)

May 29, 2013

Quarterly Report on Form 10-Q
(File No. 001-33071)

August 9, 2012

Quarterly Report on Form 10-Q
(File No. 001-33071)

August 9, 2012

Registration Statement on Form S-8
(File No. 333-196675)

June 11, 2014

Registration Statement on Form S-8
(File No. 333-196675)

June 11, 2014

Registration Statement on Form S-8
(File No. 333-196675)

June 11, 2014

Registration Statement on Form S-8
(File No. 333-196675)

June 11, 2014

Registration Statement on Form S-8
(File No. 333-196675)

June 11, 2014

127

Exhibit
Number

10.15.7*

10.16.1*

10.16.2*

Form of Notice of Stock Unit Grant
and Stock Unit Agreement
(Performance-Based Vesting) under
the 2014 Equity Incentive Plan of
the Registration

Form of Deferral Election Form for
Newly Eligible Individual with
Existing Awards

Form of Deferral Election Form for
Eligible Individual for Awards to be
Granted in the Next Calendar Year

Incorporation by Reference Herein

Description of Exhibit

Form

Current Report on Form 8-K (File
No. 001-33071)

Date

March 23, 2015

Quarterly Report on Form 10-Q
(File No. 001-33071)

November 6, 2015

Quarterly Report on Form 10-Q
(File No. 001-33071)

November 6, 2015

21.1

List of Subsidiaries

Annual Report on Form 10-K
(File No. 001-33071)

March 15, 2012

23.1†

31.1†

31.2†

32.1‡

32.2‡

Consent of Independent Registered
Public Accounting Firm

Certification of Gary L. Lauer,
Chief Executive Officer of eHealth,
Inc., pursuant to Exchange Act
Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002

Certification of Stuart M. Huizinga,
Chief Financial Officer of eHealth,
Inc., pursuant to Exchange Act
Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002

Certification of Gary L. Lauer,
Chief Executive Officer of eHealth,
Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002

Certification of Stuart M. Huizinga,
Chief Financial Officer of eHealth,
Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of
2002

†
‡
*

Filed herewith.
Furnished herewith.
Indicates a management contract or compensatory plan or arrangement.

128

CORPORATE INFORMATION

Corporate Headquarters
eHealth, Inc.

440 East Middlefield Road

Mountain View, CA 94043

Phone: 650-584-2700

Fax: 650-961-2110

Website: www.ehealth.com

Annual Meeting
eHealth’s Annual Meeting of Stockholders is scheduled to be held

at 8:30 a.m. PDT, Thursday, June 16, 2016, at the Garden Court

Hotel, 520 Cowper Street, Palo Alto, CA 94301

Independent Registered Public
Accounting Firm
Ernst & Young LLP

Palo Alto, CA

Outside Counsel
Wilson Sonsini Goodrich & Rosati PC

Palo Alto, CA

Transfer Agent
Computershare Investor Services

College Station, TX

Stockholder Inquiries

Phone: 877-373-6374

Website: www.computershare.com/investor

eHealth Stock
Since its initial public offering in October 2006, eHealth’s

common stock has been listed on the NASDAQ Global Market

under the symbol EHTH.

Investor Relations
For further information about eHealth, Inc., additional copies

of our Annual Report on Form 10-K, or other financial information,

please contact:

Kate Sidorovich

440 East Middlefield Road

Mountain View, CA 94043

Phone: 650-210-3111

eHealth and eHealthInsurance are registered trademarks of
eHealth, Inc. in the United States. PlanPrescriber is a registered

trademark of PlanPrescriber, Inc.

Additional information is available on

eHealth’s website: www.ehealth.com

Executive Officers
Gary L. Lauer

Chairman of the Board of Directors

and Chief Executive Officer

William T. Shaughnessy

Director, President and Chief Operating Officer

Stuart M. Huizinga

Senior Vice President and Chief Financial Officer

Robert S. Hurley

Executive Vice President, Sales and Operations

Tom G. Tsao

Executive Vice President, Chief Technology and Product Officer

Board of Directors
Gary L. Lauer

Chairman of the Board of Directors

and Chief Executive Officer

William T. Shaughnessy

Director, President and Chief Operating Officer

Ellen O. Tauscher

Strategic Advisor, Baker, Donelson, Bearman, Caldwell &

Berkowitz, PC and former member of the U.S. House of

Representatives from California’s 10th Congressional District

and Under Secretary of State for Arms Control and International

Security Affairs

Scott N. Flanders

Chief Executive Officer and Member of the Board of Directors,

Playboy Enterprises, Inc.

Michael D. Goldberg

Executive Chairman, DNAnexus, Inc.

Randall S. Livingston

Chief Financial Officer and Vice President

for Business Affairs, Stanford University

Jack L. Oliver III

Senior Advisor, Bryan Cave, LLP

and Senior Advisor, Barclay’s PLC

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440 E. Middlefield Road
Mountain View, CA 94043
www.ehealth.com