HIIQ--the good and the ugly...

This little niche company recently caught by attention. A micro cap company, here is how the describe what they do:

Health Insurance Innovations, Inc. (HIIQ) - (NASDAQ: HIIQ), is a leading developer and administrator of affordable, web-based individual health insurance plans and ancillary products. HIIQ integrates its third-generation experience, diverse range of products and its cloud-based, proprietary technology platform, establishing the business as a member of the vanguard of Managing Underwriters, Third-Party Administrators, and Active Insurance Technology companies.

As pioneers of the “Quote, Buy, and Print” model of online insurance sales, we have simplified the application process via direct electronic communication with carriers, enabling licensed agents to provide savvy consumers with convenient access to insurance products and lifestyle benefits backed by the best-in-class carriers with whom we have nurtured long-standing relationships.

The company’s stock has been on a tear since November 8th, 2016 (Election Day), up over 440%. My take on why this has happened is that the short term insurance policies they deal in do not meet ACA requirements, and with the indications from Congressional proposals and from the Administration and through the overall turmoil of “repeal and replace,” it is much more likely now that people will no longer be penalized for not having a minimum level of insurance. This situation has helped HIIQ quite a bit, IMHO. In addition to this, the collapse or near collapse of insurance markets in some areas, has also likely sent people to HIIQ’s platforms. HIIQ short term policies can also provide a bridge for people in transition, for one reason or another, and therefore can’t or don’t want to purchase a long term health insurance policy.

And certainly the company continues to grow quickly. Here are their most recent financial results:

Second Quarter 2017 Consolidated Financial Highlights

Record revenue was $61.8 million, an increase of 38.9% over $44.5 million in the second quarter of 2016.
Record total collections from customers (premium equivalents) of $98.9 million, an increase of 28.5% over $77.0 million in the second quarter of 2016.
Record adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $12.5 million, compared to $6.5 million in the second quarter of 2016, an increase of 92.3%.
GAAP diluted earnings per share was $0.35, compared to $0.24 in the second quarter of 2016, an increase of 45.8%.
Record adjusted earnings per share also referred to as Adjusted Net Income per Share, was $0.46 compared to $0.27 in the second quarter of 2016, an increase of 70.4%.
Record policies in force as of June 30, 2017, totaled approximately 359,500, a 39.1% increase from 258,400 as of June 30, 2016.

Here is the recent upbeat investor conference call with more information on the quarter:


This Investor Presentation from May, 2017 provides an excellent overview of HIIQ’s overall strategy, TAM, and direction


The company was founded in 1942 by the Kosloske family in Illinois. The founder’s son still works for the company with the title of “Founder, and Chief of Product Innovation” The company’s CEO gets a 100% rating on Glassdoor and 100% of the reviewers say they would recommend the company to a friend:


So I’m cruising along thinking that there might be something here to consider as an investment. Great growth, founders still involved in company, fantastic reviews on Glassdoor, long runway for growth, scalable business model, etc… Then my next bit of research has me slamming on the brakes! A visit to the Better Business Bureau’s website reveals that Health Insurance Innovations receives an “F” rating and scathingly bad reviews, with many consumers using terms such as “scam,” “fraud,” and “misleading.” Here is one example of more than 80 negative reviews on the BBB website with very similar themes:

This is a total scam. I signed-up for this plan for my family of four and was told all kinds of wonderful things. I have received four charges on my account and have received no benefit! I called back and specifically asked if this would exempt me from the health insurance penalty and was told yet. I even specified that it was the whole reason I was getting insurance. This is a total scam! I have been calling for a MONTH and can not get through. I want to cancel my plan and I want my money back.

You can read many more like this here: https://www.bbb.org/west-florida/business-reviews/health-ins…

Whoa. So what is going on here? If you looked at the investor presentation linked above, you noted on Slide 15 the HIIQ on of the key components of of a continue path to growth is “maintaining best in class customer service.” If you read the BBB complaints, the company seems far from “best in class.” On the other hand, I wonder if this is also a result of a company acting as a middleman in a complex market where both the company’s salesforce and its customers do not fully grasp what the role of HIIQ is in the marketplace. The one fully positive review on the BBB website gets at this issue well:

This review is in response to the complaints below. Just a tip. HII doesn’t sell the insurance, it just runs the financial accounts. I bought a STM plan that is billed though HII and after talking to my accountant a few of the issues were made clear. The STM plans do come with a 1095 B for taxes. They do not meet the ACA requirements but no one has yet had to pay a penalty for having STM, basically the penalty hasn’t been enforced by the IRS at this point in time. So they say you won’t have to pay the tax but it is a slight risk that you would be audited and have to pay it if you could not show the insurance card. Some other major insurance plans also don’t meet ACA rules and the same thing there, no penalty has been enforced YET. I decided the risk of audit was too high for me as I am an independent contractor and get audited frequently. If you really need minimum coverage, this could prevent you from paying the tax, although it sounds a little fraudulent to not specify on your taxes that it was a STM. If you want to cancel a STM policy you need to contact the agent or agents office that sold it. Mine was Everest and they were super easy to deal with. They confirmed the information my accountant had given me and refunded my original plan over the phone immediately. They also said the ACA department would contact me with information on plans that do meet the ACA and MEN standards. If you are on this page to file a complaint on not getting a refund, you are not dealing with the proper company. You have to contact the people that sell the insurance not the billing company. If you do contact HII to cancel, there is an online option to just click the coverage you want to cancel and it is done. The insurance isn’t a scam, it is short term medical and is useful for people that don’t make the healthcare.gov deadlines, need additional coverage or are between jobs… It’s pretty sad the BBB reports HII as D+ as they are just a payment company.

Even with compelling growth over the last number of quarters, my instinct is this ticker is too complicated for a variety of reason primarily related to the volatility and complexity of the health care market at the moment caused by the political/policy confusion at the federal level (please, no political talk in this thread–that is not what this post is about, I am merely reflecting the commonly accepted view of the current status quo for context). In addition, as a consumer facing company, I worry about the consistently bad reviews on the BBB site. Looking for thoughts from the smart investors on this site. Saul? Others?

Best, Swift…
No position HIIQ