Health Insurance Innovations sinks following reports of ACA ad spend cuts

Shares of Health Insurance Innovations (HIIQ) have slid over the last two sessions after several media outlets reported that President Trump’s administration is cutting spending on advertising and promotion for enrollment under the Affordable Care Act.

Health Insurance Innovations, Inc. operates as a developer, distributor, and administrator of cloud-based individual health and family insurance plans, and supplemental products in the United States. The company offers short-term medical plans that cover individuals for up to 364 days with various deductible and copay levels; hospital indemnity plans, which provide daily cash benefit for hospital treatment and doctor office visits, as well as accidental injury and death or dismemberment benefits

The New York Times said earlier this week that the Trump administration wanted to stabilize health insurance markets, but refused to say if the government would promote enrollment under the ACA.

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WHAT’S NEW

The New York Times reported yesterday that officials at the Department of Health and Human Services told reporters on a conference call that the advertising budget for the open enrollment period for ACA that begins in November would be slashed to $10M, a 90% drop from the $100M spent by the Obama administration a year ago.

In addition, grants to roughly 100 nonprofit groups that help people enroll in health plans offered by the insurance marketplaces will be reduced to $36M from roughly $63M, the report said. The HHS officials told the Times that the administration felt that the cuts were necessary due to “diminishing returns” from advertising, noting that the number of first-time enrollees in ACA coverage fell by 42% this year, compared with 2016.

According to Talking Points Memo, HHS Press Secretary Caitlin Oakley said in a statement in defense of the cuts, “Judging effectiveness by the amount of money spent and not the results achieved is irresponsible and unhelpful to the American people. Under the Trump Administration, we’re committed to more responsible, effective government.”

CANACCORD SEES ENTRY POINT

Canaccord analyst Richard Close attributes the sharp dip in Health Insurance Innovations to all this news, saying he views a less stabilized ACA market as being positive for the stock, noting that people would increasingly look for lower-cost alternatives in a market with higher premium rates and fewer options.

The analyst added that, with less advertising and funding to promote ACA, it is possible that fewer people would seek insurance, thus fewer people will seek lower-cost alternatives, which would be a negative for Health Insurance Innovations.

On the other hand, #Close said he sees this action by the administration as a potential positive for the company, since less advertising also implies a potentially lower cost per lead/conversion and he still expects solid demand for its offerings. The analyst maintained a Buy rating and a $39 price target on the shares.

PRICE ACTION

In Friday afternoon’s trading, Health Insurance Innovations (HIIQ) is down 10% to $30.25. Over the last two days, the stock has declined about 17%.

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This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.