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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 001-33071
_____________________________________________
EHEALTH, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________

Delaware
56-2357876
(State or other jurisdiction of incorporation or organization)(I.R.S Employer Identification No)

2625 AUGUSTINE DRIVE, SECOND FLOOR
SANTA CLARA, CA 95054
 (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 classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.001 per shareEHTHThe Nasdaq Stock Market LLC

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 x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of October 31, 2020 was 25,897,314 shares.




EHEALTH, INC.
FORM 10-Q

TABLE OF CONTENTS

PART I FINANCIAL INFORMATIONPAGE
Item 1.
Item 2.
Item 3.
Item 4.
PART II 
OTHER INFORMATION
Item 1.
Item 1A.
Item 6.

1




PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
EHEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 September 30, 2020*December 31, 2019
Assets(Unaudited)
Current assets:
Cash and cash equivalents$87,833 $23,466 
Short-term marketable securities108,637  
Accounts receivable3,854 2,332 
Contract assets – commissions receivable – current158,773 174,526 
Prepaid expenses and other current assets19,335 7,822 
Total current assets378,432 208,146 
Contract assets – commissions receivable – non-current445,572 414,696 
Property and equipment, net14,488 10,518 
Long-term marketable securities1,294  
Operating lease right-of-use assets43,886 36,621 
Restricted cash3,354 3,354 
Other assets24,790 18,004 
Intangible assets, net8,856 10,062 
Goodwill40,233 40,233 
Total assets$960,905 $741,634 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$21,439 $24,554 
Accrued compensation and benefits22,140 29,578 
Accrued marketing expenses6,592 12,041 
Earnout liability – current 37,273 
Lease liabilities – current5,111 4,759 
Deferred revenue26,471 2,570 
Other current liabilities4,731 2,210 
Total current liabilities86,484 112,985 
Deferred income taxes – non-current52,782 64,130 
Lease liabilities – non-current42,400 34,305 
Other non-current liabilities3,553 3,050 
Stockholders’ equity:
Common stock38 35 
Additional paid-in capital719,104 455,159 
Treasury stock, at cost(199,998)(199,998)
Retained earnings256,282 271,852 
Accumulated other comprehensive income260 116 
Total stockholders’ equity775,686 527,164 
Total liabilities and stockholders’ equity$960,905 $741,634 
_____________
* Reflects the impact from the adoption of ASC 326 on January 1, 2020. See Note 1Summary of Business and Significant Accounting Policies for details.

The accompanying notes are an integral part of these condensed consolidated financial statements.
2




EHEALTH, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except per share amounts, unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2020201920202019
Revenue:  
Commission$73,544 $59,762 $253,986 $184,595 
Other20,740 10,151 35,472 19,858 
Total revenue94,284 69,913 289,458 204,453 
Operating costs and expenses:
Cost of revenue482 410 2,160 782 
Marketing and advertising33,405 25,812 104,042 72,857 
Customer care and enrollment43,342 40,144 101,025 81,567 
Technology and content17,673 12,033 46,786 31,487 
General and administrative19,942 16,608 60,308 42,748 
Amortization of intangible assets287 547 1,207 1,641 
Change in fair value of earnout liability (5,400) 15,106 
Total operating costs and expenses115,131 90,154 315,528 246,188 
Loss from operations(20,847)(20,241)(26,070)(41,735)
Other income (expense), net(101)568 724 1,824 
Loss before benefit from income taxes(20,948)(19,673)(25,346)(39,911)
Benefit from income taxes(6,443)(8,649)(10,923)(17,974)
Net loss$(14,505)$(11,024)$(14,423)$(21,937)
 
Net loss per share:
Basic and diluted$(0.55)$(0.47)$(0.56)$(0.96)
Weighted-average number of shares used in per share amounts:
Basic and diluted26,487 23,493 25,838 22,840 
Comprehensive loss:
Net loss$(14,505)$(11,024)$(14,423)$(21,937)
Unrealized holding gain (loss) for available for sales debt securities, net of tax(97) 71  
Foreign currency translation adjustment104 (34)73 (30)
Comprehensive loss$(14,498)$(11,058)$(14,279)$(21,967)

The accompanying notes are an integral part of these condensed consolidated financial statements.
3




EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, unaudited)

Three Months Ended September 30, 2020
 Common StockAdditional Paid-in
Capital
Treasury StockRetained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
 SharesAmountSharesAmount
Balance as of June 30, 202037,373 $37 $720,976 11,698 $(199,998)$270,787 $253 $792,055 
Issuance of common stock in connection with equity incentive plans275 1 262 — — — — 263 
Repurchase of shares to satisfy employee tax withholding obligations— (9,014)112 — — — (9,014)
Stock-based compensation— — 6,880 — — — — 6,880 
Other comprehensive income, net of tax— — — — — — 7 7 
Net loss— — — — — (14,505)— (14,505)
Balance as of September 30, 202037,648 $38 $719,104 11,810 $(199,998)$256,282 $260 $775,686 

Three Months Ended September 30, 2019
 Common StockAdditional Paid-in
Capital
Treasury StockRetained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
 SharesAmountSharesAmount
Balance as of June 30, 201934,267 $34 $449,046 11,482 $(199,998)$194,052 $131 $443,265 
Issuance of common stock in connection with equity incentive plans335 1 1,912 — — — 1,913 
Repurchase of shares to satisfy employee tax withholding obligations— — (8,059)89 — — (8,059)
Stock-based compensation— — 5,510 — — — 5,510 
Foreign currency translation adjustment, net of taxes— — — — — (34)(34)
Net loss— — — — — (11,024)— (11,024)
Balance as of September 30, 201934,602 $35 $448,409 11,571 $(199,998)$183,028 $97 $431,571 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4




EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, unaudited)

Nine Months Ended September 30, 2020
 Common StockAdditional Paid-in
Capital
Treasury StockRetained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
 SharesAmountSharesAmount
Balance as of December 31, 201934,752 $35 $455,159 11,616 $(199,998)$271,852 $116 $527,164 
Cumulative effect from the adoption of ASU 2016-13— — — — — (1,147)— (1,147)
Issuance of common stock in connection with equity incentive plans531 1 1,576 — — — — 1,577 
Repurchase of shares to satisfy employee tax withholding obligations— — (17,174)194 — — — (17,174)
Shares issued in equity offering2,070 2 228,022 — — — — 228,024 
Settlement of earnout liability295 — 28,521 — — — — 28,521 
Stock-based compensation— — 23,000 — — — — 23,000 
Other comprehensive income, net of tax— — — — — — 144 144 
Net loss— — — — — (14,423)— (14,423)
Balance as of September 30, 202037,648 $38 $719,104 11,810 $(199,998)$256,282 $260 $775,686 

Nine Months Ended September 30, 2019
 Common StockAdditional Paid-in
Capital
Treasury StockRetained EarningsAccumulated Other Comprehensive IncomeTotal Stockholders’ Equity
 SharesAmountSharesAmount
Balance as of December 31, 201830,863 $31 $298,024 11,426 $(199,998)$204,965 $127 $303,149 
Issuance of common stock in connection with equity incentive plans684 1 5,167 — — — — 5,168 
Repurchase of shares to satisfy employee tax withholding obligations— — (11,511)145 — — — (11,511)
Shares issued in equity offering2,760 3 126,048 — — — — 126,051 
Settlement of earnout liability295 — 17,264 — — — — 17,264 
Stock-based compensation— — 13,417 — — — — 13,417 
Foreign currency translation adjustment, net of taxes— — — — — — (30)(30)
Net loss— — — — — (21,937)— (21,937)
Balance as of September 30, 201934,602 $35 $448,409 11,571 $(199,998)$183,028 $97 $431,571 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5




EHEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(in thousands, unaudited)
Nine Months Ended September 30,
 20202019
Operating activities:
Net loss$(14,423)$(21,937)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization2,604 2,153 
Amortization of internally developed software5,307 2,443 
Amortization of intangible assets1,207 1,641 
Stock-based compensation expense21,722 13,417 
Deferred income taxes(10,982)(18,166)
Change in fair value of earnout liability 15,106 
Other non-cash items421 (936)
Changes in operating assets and liabilities:
Accounts receivable(1,522)2,920 
Contract assets – commissions receivable(16,772)(11,878)
Prepaid expenses and other assets(9,398)(9,346)
Accounts payable(3,196)13,155 
Accrued compensation and benefits(7,438)(2,624)
Accrued marketing expenses(5,449)(6,927)
Deferred revenue23,901 8,207 
Accrued expenses and other liabilities3,059 (1,942)
Net cash used in operating activities(10,959)(14,714)
Investing activities:
Capitalized internal-use software and website development costs(12,082)(6,356)
Purchases of property and equipment and other assets(6,454)(5,616)
Purchases of marketable securities(180,505) 
Proceeds from redemption and maturities of marketable securities70,750  
Payments for security deposits (72)
Net cash used in investing activities(128,291)(12,044)
Financing activities:
Proceeds from issuance of common stock, net of issuance costs228,024 126,051 
Net proceeds from exercise of common stock options1,577 5,168 
Repurchase of shares to satisfy employee tax withholding obligations(17,174)(11,511)
Repayment of debt (5,000)
Acquisition-related contingent payments(8,751)(9,542)
Principal payments in connection with leases(121)(81)
Net cash provided by financing activities
203,555 105,085 
Effect of exchange rate changes on cash, cash equivalents and restricted cash62 8 
Net increase in cash, cash equivalents and restricted cash64,367 78,335 
Cash, cash equivalents and restricted cash at beginning of period26,820 13,089 
Cash, cash equivalents and restricted cash at end of period$91,187 $91,424 


 The accompanying notes are an integral part of these condensed consolidated financial statements.
6






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1Summary of Business and Significant Accounting Policies

Description of Business – eHealth, Inc. (the “Company,” “eHealth,” “we” or “us”) is a leading health insurance marketplace with a technology and service platform that provides consumer engagement, education and health insurance enrollment solutions. Our mission is to connect every person with the highest quality, most affordable health insurance and Medicare plans for their life circumstances. Our platform integrates proprietary and third-party developed educational content regarding health insurance plans with decision support tools to aid consumers in what has traditionally been a confusing and opaque health insurance purchasing process, and to help them obtain the health insurance products that meet their individual health and economic needs. Our omni-channel consumer engagement platform is designed to meet the consumer wherever they prefer to engage with us, and enables consumers to use our services online, through interactive chat, or by telephone with a licensed insurance agent. We have created a marketplace that offers consumers a broad choice of insurance products that includes thousands of Medicare Advantage, Medicare Supplement, Medicare Part D prescription drug, individual and family, small business and other ancillary health insurance products from over 180 health insurance carriers across all fifty states and the District of Columbia.

Basis of Presentation – The accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, the condensed consolidated statements of comprehensive loss and stockholders’ equity for the three and nine months ended September 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, respectively, are unaudited. The condensed consolidated balance sheet data as of December 31, 2019 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 2, 2020. The accompanying financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K.

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. The condensed consolidated financial statements include the accounts of eHealth, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with those rules and regulations. Certain reclassifications have been made to conform with the current presentation. However, the Company believes that the disclosures made are adequate to make the information not misleading.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2019 and include all adjustments necessary for the fair presentation of our financial position as of September 30, 2020 and December 31, 2019, and our results of operations for the periods presented. Our financial position as of September 30, 2020, results of operations for the three and nine months ended September 30, 2020, and cash flows for the nine months ended September 30, 2020 were not materially impacted by the COVID-19 pandemic but the Company is continuously assessing the evolving situation related to the pandemic. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for any subsequent period or for the year ending December 31, 2020 and therefore should not be relied upon as an indicator of future results.

Significant Accounting Polices, Estimates and Judgements – The preparation of condensed 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 condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates, including those related to, but not limited to, the commissions we expect to collect for each approved member cohort, allowance for credit loss, the useful lives of intangible assets, fair value of investments, recoverability of intangible assets, valuation allowance for deferred income taxes, provision (benefit) 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.
7






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
With the exception of the change for the accounting of credit losses as a result of the adoption of Accounting Standard Updates (“ASU”) No. 2016-13, Financial InstrumentsCredit Losses discussed below, there have been no material changes to our significant accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Seasonality – Open enrollment periods drive the seasonality of our business. A greater number of our Medicare-related health insurance plans are sold in our fourth quarter during the Medicare annual enrollment period when Medicare-eligible individuals are permitted to change their Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug coverage for the following year. As a result, our Medicare plan-related commission revenue is highest in our fourth quarter. Any changes or additional enrollment periods may change the seasonality of our business. For instance, due to the recent reintroduction of the Medicare Advantage open enrollment period that takes place in the first quarter of the year, our first quarter is generally the second-highest revenue generating quarter.

The majority of our major medical individual and family health insurance plans are sold in the fourth quarter during the annual open enrollment period under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act. Individuals and families generally are not able to purchase major medical individual and family health insurance outside of the open enrollment period, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance or moving to another state.

Recently Adopted Accounting Pronouncement

Financial Instruments – Credit Losses (Topic 326) – In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial InstrumentsCredit Losses (Topic 326), that requires companies to present certain financial assets net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability. Contract assets – commissions receivable were the Company's only financial assets that were materially impacted by this guidance.

We adopted ASU 2016-13, including applicable amendments in other ASUs issued subsequent to ASU 2016-13, using a modified retrospective transition method on January 1, 2020 for all financial assets measured at amortized cost. Results for periods after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported under the previous accounting standards. We recorded a $1.1 million decrease, net of income taxes, to retained earnings as of January 1, 2020 for the cumulative effect of adopting ASU 2016-13. See Note 3Supplemental Financial Statement Information for further discussion on credit losses.

The impact from the adoption of ASU 2016-13 is summarized as follows (in thousands):

Balance Sheet Impact:December 31, 2019Transition AdjustmentsJanuary 1, 2020
Contract assets – commissions receivable – current$174,526 $(71)$174,455 
Contract assets – commissions receivable – non-current414,696 (1,442)413,254 
Other assets*18,004 366 18,370 
Total assets741,634 (1,147)740,487 
Retained earnings271,852 (1,147)270,705 
____________

*Adjustment to Other assets is due to the increase in deferred tax assets resulting from the adoption of ASU 2016-13.


8






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Financial Instruments (Topic 820) – In 2018, the FASB issued ASU No. 2018-13, to change the disclosure requirements for fair value measurement with the objective of improving the effectiveness of the notes to financial statements. This new guidance removed and modified certain disclosure requirements under Topic 820. We adopted this guidance in the first quarter of 2020 with no material impact on our condensed consolidated financial statements.

Intangible – Goodwill and Other (Topic 350) – In 2017, the FASB issued ASU 2017-04 to simplify the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. In addition, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019. We adopted this guidance in the first quarter of 2020 with no material impact on our condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

Income Taxes (Topic 740) – In December 2019, the FASB issued ASU No. 2019-12, Income Tax, Simplifying the Accounting for Income Taxes, which aims to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application of and simplify U.S. GAAP for other areas under this Topic by clarifying existing guidance. ASU 2019-12 will be effective for us beginning January 1, 2021. The amendments in this standard update have individually different adoption approaches. We do not anticipate a material impact on our consolidated financial statements and disclosures from the adoption of this standard update.


9






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 2Revenue

Disaggregation of Revenue – The table below disaggregates our revenue by product (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020201920202019
Medicare
Medicare Advantage$41,901 $36,735 $168,834 $113,185 
Medicare Supplement7,321 8,229 32,384 25,082 
Medicare Part D329 1,805 7,148 5,906 
Total Medicare49,551 46,769 208,366 144,173 
Individual and Family (1)
Non-Qualified Health Plans9,915 3,146 12,585 11,592 
Qualified Health Plans1,466 839 3,559 4,900 
Total Individual and Family11,381 3,985 16,144 16,492 
Ancillary
Short-term2,438 3,151 6,724 7,162 
Dental4,452 1,420 5,791 3,138 
Vision1,798 537 2,228 1,294 
Other847 1,104 2,693 2,778 
Total Ancillary9,535 6,212 17,436 14,372 
Small Business1,723 1,938 6,975 6,576 
Commission Bonus1,354 858 5,065 2,982 
Total Commission Revenue73,544 59,762 253,986 184,595 
Other Revenue20,740 10,151 35,472 19,858 
Total Revenue$94,284 $69,913 $289,458 $204,453 
_____________

(1)We define our individual and family plan offerings as major medical individual and family health insurance plans, which does not include Medicare-related, small business or ancillary plans. Individual and family health insurance plans include both qualified and non-qualified plans. Qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are offered through the government-run health insurance exchange in the relevant jurisdiction. Non-qualified health plans are individual and family health insurance plans that meet the requirements of the Affordable Care Act and are not offered through the exchange in the relevant jurisdiction. Individuals that purchase non-qualified health plans cannot receive a subsidy in connection with the purchase of non-qualified plans.


Revenue Recognition Based on Estimated Constrained LTV

Our revenue primarily consists of commission revenue generated from health insurance carriers, which we define as our customers under the Accounting Standards Codification 606 – Revenue from Contracts with Customers (“ASC 606”). We recognize revenue for plans approved during the period by applying the latest estimated constrained lifetime value (“LTV”) for that product. We recognize adjustment revenue for plans approved in prior periods when changes in assumptions for constrained LTV calculations are made and when there is sufficient evidence demonstrating a trend that is different from the estimated constrained LTV at the time of approval resulting in a change in estimate to expected cash collections. Net adjustment revenue consists of increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts. We recognize positive adjustment revenue to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We assess the risk of significant revenue reversal based on statistical and qualitative analysis given historical information and current market conditions.

10






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our commission revenue for each product line is based on a number of assumptions, which include, but are not limited to, estimating conversion of an approved member to a paying member, forecasting average plan duration and forecasting the commission amounts likely to be received per member. These assumptions are based on our analysis of historical trends for different cohorts and incorporate management’s judgment in interpreting those trends and in applying the constraints discussed below. For our Medicare commission revenue, which represented 82% and 78% of our total commission revenue for the nine months ended September 30, 2020 and 2019, respectively, the estimated average plan duration, which is the average length of time paying members are active on their plans, used to calculate Medicare health insurance plan LTVs historically has been approximately 3 years for Medicare Advantage plans, approximately 5 years for Medicare Part D prescription drug plans, and approximately 5 years for Medicare Supplement plans. While the average plan duration has been approximately 3 years for Medicare Advantage plans, certain members may have a duration of up to 15 years. The estimated average plan duration used to calculate the LTV for major medical individual and family health insurance plans historically has been approximately 1.5 to 2 years. For short term health insurance plan LTVs, the estimated average plan duration historically has been approximately six months. For all other ancillary health insurance plan LTVs, the estimated average plan duration has historically varied from 1 to 3 years.

Constraints are applied to LTV for revenue recognition purposes to help ensure that the total estimated lifetime commissions expected to be collected for an approved member’s plan are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with future commissions receivable from the plan is subsequently resolved. Significant judgment can be involved in determining the constraint. To determine the constraints to be applied to LTV, we compare prior calculations of LTV to actual cash received and review the reasons for any variations. We then apply judgment in assessing whether the difference between historical cash collections and LTV is representative of differences that can be expected in future periods. We also analyze whether circumstances have changed and consider any known or potential modifications to the inputs into LTV in light of the factors that can impact the amount of cash expected to be collected in future periods, including but not limited to commission rates, carrier mix, plan duration, cancellations of insurance plans offered by health insurance carriers with which we have a relationship, changes in laws and regulations, and changes in the economic environment. We evaluate the appropriateness of our constraints on a quarterly basis, and we update our assumptions when we observe a sufficient amount of evidence that would suggest that the long-term expectation underlying the assumptions has changed.

Since the adoption of ASC 606, we re-compute LTVs for all outstanding cohorts on a quarterly basis. We continually review and monitor changes in the data used to estimate LTV and compare the cash received for each cohort to our original estimates at the time of approval. The fluctuations of cash received for each cohort as compared to our estimates and the fluctuations in LTV can be significant and may or may not be indicative of the need to adjust revenue for prior period cohorts. Changes in LTV may result in an increase or a decrease to revenue and a corresponding increase or decrease to contract assets – commissions receivable. We analyze these fluctuations and, to the extent we see changes in our estimates of the cash commission collections that we believe are indicative of an increase or decrease to prior period LTVs, we adjust revenue for the affected cohorts at the time such determination is made and when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. As we accumulate more historical data, we continue to enhance our LTV estimation models using statistical tools to increase the accuracy of LTV estimates with an emphasis on improving member attrition forecasting. The enhancements to the LTV estimation model provide greater statistical certainty on expected cash collections, particularly for earlier period cohorts where there is more historical data available.

During the first half of 2020, our LTV estimation models indicated increases in LTVs and estimates of future cash collections for earlier period cohorts of certain products within our Individual, Family and Small Business segment. However, after considering various market factors and recent changes due to the impact of COVID-19 on the U.S. economy, such as increases in unemployment rate, potential delays in insurance premium payments and/or health insurance carrier commission payments, potential changes to enrollment periods, and potential changes to qualified health plan subsidies, we limited the adjustment revenue recognized during the six months ended June 30, 2020 to actual cash collected in excess of previously recognized revenue for certain individual and family and ancillary plan cohorts.

During the three months ended September 30, 2020, despite the impact of COVID-19 and uncertainties regarding the Presidential election and the U.S. economy, we continued to observe stronger member retention rates in our latest LTV assessment for the majority of the earlier period cohorts of certain products in our Individual, Family and Small Business segment. Based on our evaluation of the updated LTV models and current retention trends, we recognized $18.2 million of net adjustment revenue for the Individual, Family and Small Business segment during the three months ended September 30, 2020.
11






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
We will continue to monitor our member retention rates as compared to our forecasts and other market factors and evaluate whether any addition or reduction of adjustment revenue shall be recorded as we continue to assess our LTV models in future periods.

Commission revenue by segment is summarized as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020201920202019
Medicare
Commission Revenue from Members Approved During the Period (1)
$52,040 $43,888 $205,330 $141,898 
Net Commission Revenue from Members Approved in Prior Periods (2)
(698)3,813 8,966 5,226 
Total Medicare Segment Commission Revenue$51,342 $47,701 $214,296 $147,124 
Individual, Family and Small Business
Commission Revenue from Members Approved During the Period (1)
$4,012 $4,392 $14,170 $14,403 
Net Commission Revenue from Members Approved in Prior Periods (2)
18,190 7,669 25,520 23,068 
Total IFP/SMB Segment Commission Revenue$22,202 $12,061 $39,690 $37,471 
Total Commission Revenue from Members Approved During the Period (1)
$56,052 $48,280 $219,500 $156,301 
Total Net Commission Revenue from Members Approved in Prior Periods (2) (3)
17,492 11,482 34,486 28,294 
Total Commission Revenue$73,544 $59,762 $253,986 $184,595 
_____________

(1)These amounts include commission bonus revenue.
(2)These amounts reflect our revised estimates of cash collections for certain members approved prior to the relevant reporting period that are recognized as net adjustment revenue within the relevant reporting period. The net adjustment revenue includes both increases in revenue for certain prior period cohorts as well as reductions in revenue for certain prior period cohorts.
(3)The impacts of total net commission revenue from members approved in prior periods were $0.66 and $0.49 per basic and diluted share for the three months ended September 30, 2020 and 2019, respectively; and $1.33 and $1.24 per basic and diluted share for the nine months ended September 30, 2020 and 2019, respectively. The total reductions to revenue from members approved in prior periods were $5.3 million and $2.1 million for the nine months ended September 30, 2020 and 2019, respectively, and $3.7 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively. These reductions to revenue primarily related to the Medicare segment.


Note 3Supplemental Financial Statement Information

Cash, Cash Equivalents and Restricted Cash

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. We also invested in marketable securities that are measured and recorded at fair value. See Note 4Fair Value Measurements for further discussion about our marketable securities. As of September 30, 2020 and December 31, 2019, our cash, cash equivalent and restricted cash balances were invested as follows (in thousands):
September 30, 2020December 31, 2019
Cash$41,441 $16,205 
Cash equivalents46,392 7,261 
Restricted cash3,354 3,354 
Total cash, cash equivalents and restricted cash$91,187 $26,820 

12






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
As of September 30, 2020 and December 31, 2019, we had $3.4 million of restricted cash which was classified as a non-current asset on our Condensed Consolidated Balance Sheets. This amount collateralizes letters of credit related to certain lease commitments.

Contract Assets and Accounts Receivable

We do not require collateral or other security for our contract assets and accounts receivable. We believe the potential for collection issues with any of our customers was minimal as of September 30, 2020.

Our contract assets and accounts receivable consisted of the following for the periods presented (in thousands):
 September 30, 2020December 31, 2019
Contract assets – commissions receivable – current$158,773 $174,526 
Contract assets – commissions receivable – non-current445,572 414,696 
Accounts receivable3,854 2,332 
Total contract assets and accounts receivable$608,199 $591,554 

We estimate the allowance for credit loss balance using relevant available information from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Specifically, for the purpose of measuring the probability of default parameters, we utilize Capital IQ’s, Standard & Poor’s and Moody’s analytics. Our estimates of loss given default are determined by using our historical collections data as well as historical information obtained through our research and review of other insurance related companies. Our estimated exposure at default is determined by applying these internal and external data sources to our commission receivable balances. As such, we apply an immediate reversion method and revert to historical loss information when computing our credit loss exposure. Credit loss expenses are assessed quarterly and included in general and administrative expense on our Condensed Consolidated Statement of Comprehensive Loss.

Subsequent to the adoption of ASC 326, we considered the impact of recent events and global economic condition when evaluating the appropriate adjustments to our allowance as of September 30, 2020. Determining the extent of these adjustments in the three and nine months ended September 30, 2020 was especially challenging because we do not have any historical loss information for a period of similar economic decline. We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined that the estimate of credit losses was not materially impacted as of September 30, 2020. Credit loss expenses recorded during the three and nine months ended September 30, 2020 were immaterial.

Our contract assets – commission receivable activities, net of credit loss allowance are summarized as follows (in thousands):
Nine Months Ended September 30, 2020
Medicare SegmentIFP/SMB SegmentTotal
Beginning balance$550,922 $38,300 $589,222 
Commission revenue from members approved during the period205,330 14,170 219,500 
Net commission revenue adjustments from members approved in prior period8,966 25,520 34,486 
Cash receipts(201,256)(35,957)(237,213)
Net change in credit loss allowance*(1,536)(114)(1,650)
Ending balance$562,426 $41,919 $604,345 

13






EHEALTH, INC. 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Nine Months Ended September 30, 2019
Medicare SegmentIFP/SMB SegmentTotal
Beginning balance$311,977 $33,881 $345,858 
Commission revenue from members approved during the period141,898 14,403 156,301 
Net commission revenue adjustments from members approved in prior period5,226 23,068 28,294 
Cash receipts(133,425)(39,292)(172,717)
Ending balance$325,676 $32,060 $357,736 
_____________

*Amount consists of transition adjustment of $1.5 million related to the adoption of ASC 326 as of January 1, 2020 and the subsequent credit loss adjustment of $0.1 million during the nine months ended September 30, 2020. See Note 1Summary of Business and Significant Accounting Policies for details regarding the adoption impact.


Credit Risk

Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents, contract assets – commissions receivable, 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 a major bank in China that are denominated in both U.S. dollars and Chinese Yuan Renminbi and are not insured by the U.S. federal government. The deposits in China were $3.4 million as of September 30, 2020.

We do not require collateral or other security for either our contract assets or accounts receivable. Carriers that represented 10% or more of our total contract assets and accounts receivable balance are summarized as of the dates presented below:
 September 30, 2020December 31, 2019
Humana21 %22 %
Aetna (1)
21 %20 %
UnitedHealthCare