| Organization, Basis of Presentation and Summary of Significant Accounting Policies | 1. Organization, Basis of Presentation, and Summary of Significant Accounting Policies In this annual 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 term
“SIL” refers to Simple Insurance Leads LLC, previously, a partially-owned venture we and a third-party formed in June
2013; we sold our interest in SIL to our joint venture partner on March 23, 2015. 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. SIL was a consolidated subsidiary of HII through March 2015. Principles of Consolidation and Basis of
Presentation The accompanying consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America
(“GAAP”). The consolidated financial statements include the accounts of Health Insurance Innovations, Inc., its wholly
owned subsidiaries, one of which is a Variable Interest Entity (“VIE”), of which the Company is the primary beneficiary.
See Note 3 for further information on the VIE. 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 consolidated balance sheets as a component of stockholders’ 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. 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 we record $1 billion in total annual gross revenue before that time or 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 cloud-based administrator of affordable 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 months, eleven months, or 364 days of health insurance coverage with a wide range of deductible and copay levels however, beginning
April 1, 2017, new limits set STM duration to periods of less than three months but allows for re-applications with the same or
different health insurance carrier. STM plans generally offer qualifying individuals insurance benefits for fixed short-term durations.
STM plans feature a streamlined underwriting process offering immediate coverage options. Generally, our IFP premiums are substantially
more affordable than the premiums of individual major medical (“IMM”) plans which offer lifetime renewable coverage. Included in IFP are hospital
indemnity plans which are guaranteed-issue and underwritten plans that pay fixed cash benefits for covered procedures and services
for individuals under the age of 65. These highly customizable products are on an open provider network without copayments or deductibles
and do not have defined policy term lengths. 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 discount benefit providers and market them to individuals through our internal
and external distribution network. We manage customer 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. Our scalable, proprietary,
and web-based technology platform provides customers, whom we refer to as members, immediate access to the products we sell through
our internal and third-party distribution channels. The health insurance products we develop are underwritten by insurance carriers,
and we assume no underwriting, insurance or reimbursement risk. Members can tailor product selections to meet their personal insurance
and budget needs, buy policies and print policy documents and identification cards in real-time. Our technology platform uses abbreviated
online applications, some with health questionnaires, to provide an immediate accept or reject decision for products that we offer.
Once an application is accepted, individuals can use our automated payment system to complete the enrollment process and obtain
instant electronic access to their policy fulfillment documents, including the insurance policy, benefits schedule and identification
cards. We receive credit card and Automated Clearing House (“ACH”) payments directly from members at the time of sale.
Our technology platform provides scalability as we add members and on a per-policy-basis, reduces the costs associated with marketing,
selling, underwriting and administering policies. Our sales of IFP and supplemental
products focus on the large and under-penetrated segment of the U.S. population who are uninsured or underinsured. These respective
classes include individuals not covered by employer-sponsored insurance plans, such as the self-employed, small business owners
and their employees, individuals who are unable to afford the rising cost of IMM premiums, underserved “gap populations”
that require insurance due to changes caused by life events: new graduates, divorcees, early retirees, military discharges, the
unemployed, part-time and seasonal employees and customers seeking health insurance between the open enrollment periods created
under the Patient Protection and Affordable Care Act (“PPACA”). As the managing general
underwriter of our IFP 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), our enrollment fees 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 agreements. 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 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® brand. AgileHealthInsurance.com is one of the few internet sites dedicated to helping
consumers understand the benefits of Term Health Insurance. We use the term “Term Health Insurance” to refer to
health insurance products of less than one year in duration, such as STM. These new plans are the culmination of extensive research
on health insurance needs in the PPACA era, and we believe consumers will easily be able to find affordable prices for these
plans on AgileHealthInsurance.com. AgileHealthInsurance.com utilizes plan comparison and online enrollment tool, to accompany
these new plans. The underlying technology was developed by engineers with decades of experience working on top-tier e-Commerce
websites known for their ease-of-use. 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
9 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 HII’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 December 31, 2016, Mr. Kosloske, our Chief of Product
Innovation, beneficially owns 46.0% 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 December 31, 2016, and 2015, (i) the
Series A Membership Interests held by HII represent 54.0% and 53.1%, respectively, of the outstanding membership interests, 54.0%
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 46.0% and 46.9%, respectively, of the outstanding
membership interests, 46.0% and 46.9%, respectively, of the economic interests and no voting interest in HPIH. Use of Estimates The preparation of the
consolidated 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 consolidated financial statements. These estimates also affect the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ materially from those estimates. Summary of Significant Accounting Policies Revenue Recognition
Our revenues primarily
consist of commissions and fees earned for IFP and supplemental products issued to members, enrollment fees paid by members, referral
fees, fees for discount benefit plans, and administration fees paid by members as a direct result of our enrollment services, brokerage
services or referral sales. Revenues reported by the Company are net of risk premiums remitted to insurance carriers and fees paid
for discount benefit plans. Revenues are net of an allowance for policies expected to be cancelled by members during a limited
cancellation period. We establish an allowance for estimated policy cancellations through a charge to revenues. The allowance is
estimated using historical data to project future experience. Such estimates and assumptions could change in the future as more
information becomes known, which could impact the amounts reported. We periodically review the adequacy of the allowance and record
adjustments as necessary. The net allowance for estimated policy cancellations as of December 31, 2016 and 2015 was $641,000
and $352,000, respectively. Commission rates for our
products are agreed to in advance with the relevant insurance carrier and vary by carrier and policy type. Under our carrier compensation
agreements, the commission rate schedule that is in effect on the policy effective date governs the commissions over the life of
the policy. Commission revenues are earned based on commission rates contracted with insurance carriers or supplemental insurance
product vendors, net of an estimate for forfeited amounts payable for future policy cancellations. In addition, we earn enrollment
and administration fees on policies issued. All amounts due to insurance carriers and discount benefit vendors are reported and
paid to them according to the procedures provided for in the contractual agreements between the individual carrier or vendor and
us. Risk premiums are typically reported and remitted to insurance carriers on the 15th of the month following the end of the month
in which they are collected. In concluding that revenues
should be reported on a net basis, we considered Financial Accounting Standards Board (“FASB”) requirements and whether
we have the responsibility to provide the goods or services to the customer or if we rely on a supplier to provide the goods or
services to the customer. We are not the ultimate party responsible for providing the insurance coverage or discount benefits to
the member and, therefore, we are not the primary obligor in the arrangement. The supplier, or insurance carrier, bears the risk
for that insurance coverage. We therefore report our revenues net of amounts paid to the contracted insurance carrier companies
and discount benefit vendors. Third-Party Commissions and Advanced
Commissions We utilize a broad network
of licensed third-party distributors, in addition to our internal distributors to sell the plans that we develop. We pay commissions
to these distributors based on a percentage of the policy premium that varies by type of policy. We also pay fees to the distributors
for discount benefit plans issued. Advanced commissions outstanding
as of December 31, 2016 and 2015 totaled $37.0 million and $24.5 million, respectively. Advanced commissions consist of amounts
advanced to certain third-party distributors. We perform ongoing credit evaluations of our distributors, all of which are located
in the United States. We recover the advanced commissions by withholding future commissions earned on premiums collected over the
period in which policies renew. While we have not experienced any significant write offs from commission advances, we have recognized
a provision for bad debt expense of $454,000 and $327,000 for the years ended December 31, 2016 and 2015, respectively. In addition,
from time to time, certain of these advanced commissions arrangements include a loan agreement for the purposes of securing the
advanced payments we make. Generally, these loans will be repaid by withholding payments on future commissions earned by the distributor,
as described in the respective agreements. A fee for the advance commission of up to 2% of the insurance premium sold is charged
to the distributors and recognized as a reduction of the related commissions expense over the period of advance. The reductions
of commission expense related to this practice for the years ended December 31, 2016 and 2015 were $2.6 million and $614,000,
respectively. Cash and Cash Equivalents
We account for cash on
hand and demand deposits with banks and other financial institutions as cash. Short-term, highly liquid investments with original
maturities of three months or less, when purchased, are considered cash equivalents. Investments in cash equivalents include, but
are not limited to, demand deposit accounts, money market accounts and certificates of deposit with original maturities of three
months or less. 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 risk 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 consolidated balance
sheets with the related liabilities reported in accounts payable and accrued expenses. The Company previously referred to such
restricted cash as cash held on behalf of others at December 31, 2015. Restricted cash at December 31, 2016 and 2015 was $11.9
million and $7.9 million, respectively. Accounts Receivable
Accounts receivable represent
amounts due to us for premiums collected by a third-party and are generally considered delinquent 15 days after the due date. The
underlying insurance contracts are cancelled retroactively if the payment remains delinquent. We have not experienced any material
credit losses from accounts receivable and have not recognized a significant provision for uncollectible accounts receivable. Property and Equipment
Property and equipment
is recorded at cost, less accumulated depreciation, in the accompanying consolidated balance sheets. Depreciation expense for property
and equipment is computed using the straight-line method over the following estimated useful lives:
Website development and internal-use software (1) 3 – 5 years
Computer equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements Shorter of the lease term or estimated useful life (1) Included
in property and equipment, net are certain website development and internally developed software costs. These costs incurred in
the development of websites and internal-use software are either expensed as incurred or capitalized depending on the nature of
the cost and the stage of development of the project under which a website or internal-use software are developed. The capitalization
policies for website development and internal-use software vary as described below. Website development Generally, the costs incurred
during the planning stage are expensed as incurred; costs incurred for activities during the website application and infrastructure
development stage are capitalized; costs incurred during the graphics development stage are capitalized if such costs are for the
creation of initial graphics for the website; subsequent updates to the initial graphics are expensed as incurred, unless they
provide additional functionality; costs incurred during the content development stage are expensed as incurred unless they are
for the integration of a database with the website, which are capitalized; and the costs incurred during the operating stage are
expensed as incurred. Upon reaching the operating
phase of the website application and infrastructure phase, the capitalized costs are amortized over the estimated useful life of
the asset, which we generally expect to be five years. During the year ended
December 31, 2015, we capitalized $895,000 of costs incurred, consisting primarily of direct labor, in the development of a website
for which the software underlying the website will not be marketed externally. The operating phase of the development of this website
commenced on July 1, 2015. No additional costs have since been capitalized. As of December 31, 2016 and 2015, $179,000 and
$90,000, respectively, of amortization has been recorded related to the capitalized website development costs. Internal-use software Generally, the costs incurred
during the preliminary project stage are expensed as incurred; costs incurred for activities during the application development
stage are capitalized; and costs incurred during the post-implementation/operation stage are expensed as incurred. Upon reaching the post-implementation/operation
stage of the development of internal-use software, the capitalized costs are amortized over the estimated useful life of the asset,
which we generally expect to be three years. As of December 31, 2016
and 2015, we capitalized $3.1 million and $889,000, respectively, of costs incurred, consisting primarily of direct labor, in the
application development stage of the internal-use software. Substantially all of the costs incurred during the period were
part of the application development phase. As of December 31, 2016 and 2015, $774,000 and $45,000, respectively, of amortization
has been recorded for projects in the post-implementation/operation phase of development. The Company’s management
periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying
value of the assets may not be recoverable. No impairment losses were recognized for the periods presented. Goodwill and Other
Intangible Assets Goodwill As a result of our various
acquisitions, we have recorded goodwill which represents the excess of the consideration paid over the fair value of the identifiable
net assets acquired in a transaction accounted for as a business combination. An impairment test is performed by us at least annually
as of October 1st of each year, or whenever events or circumstances indicate a potential for impairment. Under FASB guidance, we
have the option of performing a qualitative assessment to determine whether based on the facts and circumstances it is more likely
than not that the fair value of the reporting unit exceeds the carrying value of its net assets. A qualitative assessment requires
judgments involving relevant factors, including but not limited to, changes in the general economic environment, industry and regulatory
considerations, current economic performance compared to historical economic performance and other relevant company-specific events
such as changes in management, key personnel or business strategy, where applicable. If we elect to bypass the qualitative assessment,
or if we determine, based upon our assessment of those qualitative factors that it is more likely than not that the fair value
of the unit is less than its carrying value, a quantitative assessment for impairment is required. The quantitative assessment
for evaluating the potential impairment of goodwill involves a two-step assessment process which requires significant estimates
and judgments by us to be used during the analysis. In step one we determine if there is an indication of goodwill impairment by
determining the fair value of the reporting unit’s net assets and comparing that value to the reporting unit’s carrying
value including the goodwill. If the carrying value of the net assets exceed the fair value, then the second step of the impairment
assessment is required. The step two assessment determines if an impairment exists, and if so, the magnitude of the impairment
by comparing the estimated fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The excess
of the carrying value over the estimated fair value of the goodwill determines the amount of impairment which would then be recorded
as a loss on our statement of operations in the year the impairment occurred. See Note 14 for further information on our change
in reporting units that occurred in the first quarter of 2015. While performing an impairment
assessment we use a combination of valuation approaches including the market approach and the income approach. The market approach uses
a guideline company methodology, which is based upon a comparison of the reporting unit to similar publicly-traded companies within
our industry. We derive a market value of invested capital or business enterprise value for each comparable company by multiplying
the price per share of common stock of the publicly traded companies by their total common shares outstanding and adding each company’s
current level of debt. We calculate a business enterprise multiple based on revenue and earnings from each company, then apply
those multiples to our revenue and earnings to calculate a business enterprise value. Assumptions regarding the selection of comparable
companies are made based on, among other factors, capital structure, operating environment and industry. As the comparable companies
were typically larger and more diversified than our business, multiples were adjusted prior to application to our revenues and
earnings to reflect differences in margins, long-term growth prospects and market capitalization. The income approach uses
a discounted debt-free cash flow analysis to measure fair value by estimating the present value of future economic benefits. To
perform the discounted debt-free cash flow analysis, we develop a pro forma analysis of the reporting unit to estimate future available
debt-free cash flow and discounting estimated debt-free cash flow by an estimated industry weighted average cost of capital based
on the same comparable companies used in the market approach. Per FASB guidance, the weighted average cost of capital is based
on inputs (e.g., capital structure, risk, etc.) from a market participant’s perspective and not necessarily from the reporting
unit’s perspective. Future cash flow is projected based on assumptions for our economic growth, industry expansion, future
operations and the discount rate, all of which require significant judgments by management. We establish our assumptions
and arrive at the estimates used in these calculations based upon our historical experience, knowledge of our industry and by incorporating
third-party data, which we believe results in a reasonably accurate approximation of fair value. Nevertheless, changes in the assumptions
used could have an impact on our assessment of recoverability. We believe our projected sales are reasonable based on, among other
things, available information regarding our industry. We also believe the discount rate is appropriate. The weighted average discount
rate is impacted by current financial market trends and will remain dependent on such trends in the future. After computing a separate
business enterprise value under the above approaches, we apply a weighting to them to derive the business enterprise value of the
reporting unit. The weightings are evaluated each time a goodwill impairment assessment is performed and give consideration to
the relative reliability of each approach at that time. The estimated fair value is then compared to the reporting unit’s
carrying value. During the second quarter
of 2016, the Department of Health and Human Services issued a proposal to limit the duration of STM to a period of no longer than
three months compared to the current period of up to one year. The proposed rule led to a decline in stock price which was deemed
to be a triggering event for a goodwill impairment analysis and accordingly the Company performed step one of the two step impairment
test under GAAP. Upon completion of the step one analysis as of June 30, 2016, we determined that the fair value of the reporting
unit exceeded its carrying value. As such, a step two analysis was not required. The Company also performed its annual impairment
as of October 1, 2016 and upon completion of the analysis in step one we determined that the fair value of the reporting unit exceeded
its carrying value. As such, a step two analysis was not required. Our goodwill balance arose
from our previous acquisitions. See Note 2 for further information on the acquisitions. See Note 5 for further discussion of our
goodwill. Other Intangible Assets Our other intangible assets
arose primarily from acquisitions. Finite-lived intangible assets are amortized over their useful lives from two to fifteen years.
See Note 5 for further discussion of our intangible assets. Intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group
may not be recoverable. Recoverability of the asset or asset group is measured by comparison of its carrying amount to undiscounted
future net cash flows the asset is expected to generate. If the carrying amount of an asset or asset group is not recoverable,
we recognize an impairment loss based on the excess of the carrying amount of the long-lived asset or asset group over its respective
fair value which is generally determined as the present value of estimated future cash flows or as the appraised value. No
impairments on intangible assets were recorded during the year ended December 31, 2016. Related to our restructuring, the Company
recognized an impairment of certain intangible assets in the amount of $878,000 for the year ended December 31, 2015. See Notes
5 and 8 for further discussion on the impairment and restructuring activities. Advertising and
Marketing Costs Advertising and marketing
costs are expensed as incurred. Advertising and marketing expenses for the years ended December 31, 2016 and 2015 were $11.1 million
and $9.8 million respectively and are classified as selling, general and administrative expense (“S, G & A”). Accounting for
Stock-based Compensation Expense for stock-based
compensation is recognized based upon estimated grant date fair v |
