| Organization, Basis of Presentation and Summary of Significant Accounting Policies | 1. Organization, Basis of Presentation and Summary of
Significant Accounting Policies In this quarterly
report, unless the context suggests otherwise, references to the “Company,” “we,” “us” and
“our” refer (1) prior to the February 13, 2013 closing of an initial public offering (“IPO”) of the Class
A common stock of Health Insurance Innovations, Inc. and related transactions, to Health Plan Intermediaries, LLC (“HPI”)
and its consolidated subsidiaries and (2) after the IPO and related transactions, to Health Insurance Innovations, Inc. and its
consolidated subsidiaries. The terms “HII”, “HPIH”, and “ICE” refer to the stand-alone entities
Health Insurance Innovations, Inc., Health Plan Intermediaries Holdings, LLC, and Insurance Center for Excellence, LLC, respectively.
The term “Secured” refers to (a) prior to or at the time of their July 17, 2013 acquisition by us, Sunrise Health Plans,
Inc., Sunrise Group Marketing, Inc. and Secured Software Solutions, Inc., collectively, and (b) following our July 17, 2013 acquisition,
the entities described in (a) and the limited liability companies into which such entities were converted shortly following such
acquisition. The terms “HealthPocket” or “HP” refer to HealthPocket, Inc., our wholly owned subsidiary
which was acquired by HPIH on July 14, 2014. The term “ASIA” refers to American Service Insurance Agency LLC, a wholly
owned subsidiary which was acquired by HPIH on August 8, 2014. HPIH, ICE, Secured, HP and ASIA are consolidated subsidiaries of
HII. Principles of Consolidation and Basis
of Presentation The accompanying
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the
United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the financial
information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements
include the accounts of Health Insurance Innovations, Inc., its wholly-owned subsidiaries, and Variable Interest Entities (“VIE”),
of which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in
preparing the consolidated financial statements. The results of operations for business combinations are included from their respective
dates of acquisition. Noncontrolling
interests are included in the condensed consolidated balance sheets as a component of stockholdersÂ’ equity that is not attributable
to the equity of the Company. We report separately the amounts of consolidated net loss or income attributable to us and noncontrolling
interests. The information
included in this quarterly report, including the interim condensed consolidated financial statements and the accompanying notes,
should be read in conjunction with the audited consolidated financial statements and related notes included in the CompanyÂ’s
Annual Report on Form 10-K for the year ended December 31, 2015. The condensed consolidated results for the three and six months
ended June 30, 2016 are not necessarily indicative of the results to be expected for any interim subsequent period or for the year
ending December 31, 2016. As an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we benefit from
certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements. We have also elected under the JOBS Act to delay the adoption of new
and revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.
As a result of this election, our financial statements may not be comparable to companies that comply with public company effective
dates. These exemptions will apply for a period of five years following the completion of our IPO which closed on February 13,
2013. However, if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before
that time, we would cease to be an emerging growth company as of the following December 31. Business Description and Organizational
Structure of the Company Our Business We are a developer,
distributor and virtual administrator of affordable, cloud-based individual health and family insurance plans (“IFP”)
and supplemental products, which include short-term medical (“STM”) insurance plans and guaranteed-issue and underwritten
hospital indemnity plans. STM plans provide
up to six, eleven or twelve months of health insurance coverage with a wide range of deductible and copay levels. STM plans generally
offer qualifying individuals comparable benefits for fixed short-term durations with premiums that are substantially more affordable
than the premiums of individual major medical (“IMM”) plans which offer lifetime renewable coverage. STM plans feature
a streamlined underwriting process offering immediate coverage options. Hospital indemnity plans are guaranteed-issue and underwritten
plans that pay fixed cash benefits for covered procedures and services for individuals under the age of 65. We also offer a
variety of additional insurance and non-insurance products such as pharmacy benefit cards, dental plans, vision plans, cancer/critical
illness plans, deductible and gap protection plans and life insurance policies that are frequently purchased as supplements to
IFP. We design and structure
these products on behalf of insurance carriers and market them to individuals through our internal and external distribution network.
We manage member relations via our online member portal, which is available 24 hours a day, seven days a week. Our online enrollment
process allows us to aggregate and analyze consumer data and purchasing habits to track market trends and drive product innovation. As the managing
general underwriter of our individual health insurance plans and supplemental products, we receive all amounts due in connection
with the plans we sell on behalf of the providers of the services, third-party commissions and referral fees. We refer to these
total collections as premium equivalents, which typically represent a combination of premiums, fees for discount benefit plans
(a non-insurance benefit product that supplements or enhances an insurance product), fees for distributors, our enrollment fees
and third-party commissions and referral fees. From premium equivalents, we remit risk premium to carriers and amounts earned by
discount benefit plan providers, who we refer to as third-party obligors, such carriers and third-party obligors being the ultimate
parties responsible for providing the insurance coverage or discount benefits to the member. Our revenues consist of the balance
of the premium equivalents. We collect premium
equivalents upon the initial sale of the plan and then monthly upon each subsequent periodic payment under such plan. We receive
most premium equivalents through online credit card or ACH processing. As a result, we have limited accounts receivable. We remit
the risk premium to the applicable carriers and the amounts earned by third-party obligors on a monthly basis based on the respective
compensation arrangements. We also provide
consumers with access to health insurance information search and comparison technology through our website, HealthPocket.com. This
free website allows consumers to easily and clearly compare and rank all health insurance plans available for an individual, family,
or small business, empowering consumers to make health plan decisions and reduce their out of pocket costs. In addition, the data
aggregated by HealthPocket (“HP”) is used to research consumer needs and to measure product demand to help us design
and manufacture high-demand insurance products. In 2015, we launched
a direct-to-consumer insurance website that allows consumers to research health insurance trends, comparison shop, and purchase
IFP under the AgileHealthInsurance ® Our History Our business began
operations as HPI in 2008. To facilitate the IPO, HII was incorporated in the State of Delaware in October 2012. In November 2012,
through a series of transactions, HPI assigned the operating assets of our business to HPIH, and HPIH assumed the operating liabilities
of HPI. Since November 2012, we have operated our business through HPIH and its subsidiaries. Our Reorganization and
IPO HII was incorporated
in the State of Delaware in October 2012 to facilitate the IPO and to become a holding company owning as its principal asset membership
interests in HPIH. Since November 2012, we have operated our business through HPIH and its consolidated subsidiaries. See [Note
7] for more information about the IPO. HII sold 4,666,667
shares of common stock for $14.00 per share in the IPO on February 13, 2013. Simultaneous with the offering, HII obtained a 35%
membership interest, 35% economic interest and 100% of the voting interest in HPIH. Upon completion
of the offering, HII became a holding company the principal asset of which is its interest in HPIH. All of HIIÂ’s business
is conducted through HPIH and its subsidiaries. HII is the sole managing member of HPIH and has 100% of the voting rights and control. HII has two classes
of outstanding capital stock: Class A common stock and Class B common stock. Class A shares represent 100% of the economic rights
of the holders of all classes of our common stock to share in our distributions. Class B shares do not entitle their holders to
any dividends paid by, or rights upon liquidation of, HII. Shares of our Class A common stock vote together with shares of our
Class B common stock as a single class, except as otherwise required by law. Each share of our Class A common stock and our Class
B common stock entitles its holder to one vote. As of June 30, 2016, Michael Kosloske, our Executive Chairman of the Board and
Chief of Product Innovation, beneficially owns 46.7% of our outstanding Class A common stock and Class B common stock on a combined
basis, which equals his combined economic interest in the Company. HPIH has two series
of outstanding equity: Series A Membership Interests, which may only be issued to HII, as sole managing member, and Series B Membership
Interests. The Series B Membership Interests are held by HPI and Health Plan Intermediaries Sub, LLC (“HPIS”), a subsidiary
of HPI, and these entities are beneficially owned by Mr. Kosloske. As of June 30, 2016, and December 31, 2015, (i) the Series A
Membership Interests held by HII represent 53.3% and 53.1%, respectively, of the outstanding membership interests, 53.3% and 53.1%,
respectively, of the economic interests and 100% of the voting interests in HPIH and (ii) the Series B Membership Interests held
by the entities beneficially owned by Mr. Kosloske represent 46.7% and 46.9%, respectively, of the outstanding membership interests,
46.7% and 46.9%, respectively, of the economic interests and no voting interest in HPIH. Reclassifications Certain amounts
in prior periodsÂ’ consolidated financial statements have been reclassified to conform to the current period presentation.
Such reclassifications include excluding amounts payable for third-party commission expense and third-party obligors payable from
restricted cash and including such amounts in cash and cash equivalents in the accompanying condensed consolidated statements of
cash flows. Use of Estimates The preparation
of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. These estimates also affect the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates. Summary of Significant Accounting
Policies The following is
an update to our significant accounting policies described in Note 1, Organization, Basis of Presentation, and Summary of Significant
Accounting Policies, in our audited consolidated financial statements for the year ended December 31, 2015 included in our Annual
Report on Form 10-K. Restricted
Cash In our capacity
as the policy administrator, we collect premiums from members and distributors and, after deducting our earned commission and fees,
remit these premiums to our contracted insurance carriers, discount benefit vendors and distributors. Where contractually obligated,
we hold the unremitted funds in a fiduciary capacity until they are disbursed, and the use of such funds is restricted. We hold
these funds in bank accounts. These unremitted amounts are reported as restricted cash in the accompanying condensed consolidated
balance sheets with the related liabilities reported in accounts payable. The Company previously referred to such restricted cash
as cash held on behalf of others. The Company also
holds restricted cash as pledged deposits with certain institutions. These deposits are contractually required and are pledged
as security for such institutions. At June 30, 2016, $5.0 million was held restricted for this purpose. No such amounts were restricted
as of December 31, 2015. Stock-based Compensation During the second
quarter of 2016, the company issued stock appreciation rights (“SARs”) that contain performance vesting conditions.
In accordance with GAAP, performance conditions that affect vesting are not reflected in estimating the fair value of an award
at the grant date and accruals of compensation cost for an award with a performance condition shall be based on the probable outcome
of that performance condition. Compensation cost shall be accrued if it is probable that the performance condition will be achieved
and shall not be accrued if it is not probable that the performance condition will be achieved. As such, management must make certain
judgements regarding the probability of achievement of certain targets defined within the respective SAR agreements that may materially
affect the timing of recognized compensation cost, if any at all. Recent Accounting Pronouncements
In the following
summary of recent accounting pronouncements, all references to effective dates of Financial Accounting Standards Board (“FASB”)
guidance relate to nonpublic entities. As noted above, we have elected to delay the adoption of new and revised accounting pronouncements
applicable to public companies until such pronouncements are made applicable to private companies under provisions of the JOBS
Act. In March 2016,
the FASB issued an amendment to its accounting guidance for stock compensation as part of the FASBÂ’s simplification initiative.
The amendments affect all entities that issue share-based payment awards to their employees. The areas for simplification involve
several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of
awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification
apply only to nonpublic entities. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periods
within annual periods beginning after December 15, 2018. Early adoption is permitted. We will adopt this guidance in reporting
periods beginning after December 15, 2017. We are currently evaluating the impact of this guidance on our condensed consolidated
financial statements. In February 2016,
the FASB issued an amendment to its accounting guidance for leases to increase transparency and comparability by requiring organizations
to recognize lease assets and lease liabilities on the balance sheet and increasing disclosures about key leasing arrangements.
The amendment updates the critical determinant from capital versus operating to whether a contract is or contains a lease because
lessees are required to recognize lease assets and lease liabilities for all leases – financing and operating – other
than short term. This guidance is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. We
are currently evaluating the impact of this guidance on our condensed consolidated financial statements. In April 2015,
the FASB issued an update to its accounting guidance related to debt issuance costs as a part of its initiative to reduce complexity
in accounting standards. To simplify presentation of debt issuance costs, the amendments in this update require that debt issuance
costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of
that debt liability, consistent with debt discounts. This guidance is effective for fiscal years beginning after December 15, 2016
and all interim periods within. Early adoption is permitted. We will adopt this guidance in reporting periods beginning after December
15, 2016. The impact of adopting this pronouncement on our condensed consolidated financial statements will be immaterial. In May 2014, the
FASB issued an amendment to its accounting guidance related to revenue recognition. The amendment clarifies the principles for
recognizing revenue. The guidance is based on the principle that revenue is recognized to depict the transfer of goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and
cash flows arising from customer contracts, including significant judgments and changes in the judgments and assets recognized
from costs incurred to obtain or fulfill a contract. We will adopt this guidance in reporting periods beginning after December
15, 2018. We are currently evaluating the impact of adopting this pronouncement on our condensed consolidated financial statements. |
