After the Trump administration said it will cut spending on ads for the Affordable Care Act, or Obamacare, by 90% and reduce payments to third parties that help individuals select health insurance plans, shares of Health Insurance Innovations (NASDAQ: HIIQ) had lost 11.7% of their value by 1:30 p.m. EDT.
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Health Insurance Innovations sells short-term health insurance and hospital indemnity plans online and via third-party distributors, and while its plans aren't directly tied to Obamacare, changes in marketing plans could lead to lower demand for health insurance overall.
The company acts as an intermediary between health insurance consumers and health insurers, and demand for short-term health insurance solutions that aren't subject to Obamacare mandates has been brisk.
In the second quarter, management reported record revenue of $61.8 million, up 39% year over year and adjusted EPS of $0.46, up 70% from one year ago.
It's unclear to what extent the company's distributors could be negatively impacted by changes or how much demand could be crimped by lower advertising. However, investors are undeniably selling on the uncertainty.
The company finished the quarter with about 359,000 policies in force, prompting management to increase its full-year guidance.
In the first quarter, it forecast full-year revenue growth of between 15% to 20% to between $212 million and $222 million. It also expected EPS of $1.40 to $1.50. Now, it thinks revenue will grow 22% to 25% year over year to between $225 million to $230 million, and adjusted EPS will be between $1.45 to $1.55, up 29% to 38% from last year.
Until today, Health Insurance Innovations shares were at all-time highs, and while healthcare reform does create uncertainty, I think today's sell-off might be providing investors with an opportunity to buy.
Depending on what shape reform takes, demand for short-term insurance solutions could grow, not shrink, and the company's already proven it can succeed under the current law, so if reform fails, it shouldn't pose too big of a threat.
Certainly, a drop in advertising and payments to third parties could create problems for the industry, but overall, I think this stock is intriguing enough to consider owning it.
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