Online Advertising. Our online advertising channel consists of consumers who access our website through paid keyword search advertising from search engines such as Google, MSN and Yahoo!, as well as various Internet marketing programs such as banner advertising, email marketing and an integrated partnership with MSN. For the years ended December 31, 2004, 2005 and 2006, applications submitted through us for individual and family health insurance products from our online advertising channel constituted approximately 29%, 26% and 25%, respectively, of all individual and family health insurance applications submitted on our website.
Customer care and enrollment expenses increased by $2.2 million, or 25%, in 2006 compared to 2005, primarily due to higher compensation and related expenses associated with the increased number of personnel necessary to service the increased volume of health insurance applications submitted through our website. As a percentage of total revenue, customer care and enrollment expenses decreased to 18% in 2006 from 21% in 2005 as a result of economies of scale achieved by our customer care and enrollment operations in 2006.
technology and content costs decreased to 17% in 2006 from 19% in 2005 as a result of economies of scale achieved by our technology and content operations in 2006.
In November 2005, we entered into an agreement with a third-party service provider to provide certain information services for our website. We record the related service expenses on a straight-line basis although actual cash payment obligations under this agreement escalate over the term of the agreement.
The Company invests in accordance with a policy that seeks to maximize returns while ensuring both liquidity and minimal risk of principal loss. The policy limits investments to certain types of instruments issued by institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issue.
Lesser of useful life (typically 5 to 7 years) or related lease term
Classification-Prior to our IPO, our certificate of incorporation provided that a change in control was deemed to be a liquidation event and that any consideration paid in connection with such a transaction be distributed in accordance with the provisions regarding liquidation preferences. As a result, a cash redemption of our convertible preferred stock could have been triggered by a change in control, which was outside our control. Thus, in accordance with EITF Topic D-98, Classification and Measurement of Redeemable Securities, all series of our convertible preferred stock were classified outside of permanent equity in the accompanying consolidated balance sheets.
The following table summarizes activity under the eHealth China Plan (in thousands):
Deferred Stock-Based Compensation Expense-In connection with certain stock options granted to employees, we recorded deferred stock-based compensation expense representing the difference between the option exercise price, if any, and the deemed fair value of the underlying common stock determined for financial reporting purposes on the grant date (intrinsic value method) as prescribed in APB 25. The deferred stock-based compensation is being recognized as an expense over the vesting period of these options, which is generally four years. We recorded deferred stock-based compensation of $109,000 during the year ended December 31, 2003 associated with stock options granted under the Stock Plans during 2003, net of reversals for terminated employees. No deferred stock-based compensation was recorded during the years ended December 31, 2004 and 2005. Net amortization of deferred stock-based compensation totaled $25,000, $30,000 and $26,000 for the years ended December 31, 2004, 2005 and 2006, respectively. As of December 31, 2006, the remaining unamortized deferred stock-based compensation totaled $17,000 related to these grants.
We also account for Class A nonvoting common stock awards granted prior to January 1, 2006 in accordance with the provisions of APB 25. Due to uncertainty of the events that would have triggered a
Service and Licensing Agreements-In November 2005, we entered into an agreement with a third-party service provider to provide certain information services for our website. We record the related service expenses on a straight-line basis although actual cash payment obligations under this agreement escalate over the term of the agreement. In June 2006, we entered into a three-year software licensing agreement that requires us to make annual licensing payments of $115,000. As of December 31, 2006, future cash payment commitments for services provided in connection with these agreements were as follows (in thousands):
Legal Proceedings-In September 2006, we received an order from the Office of the Insurance Commissioner of the State of Washington in connection with our publication of a report in July 2006 entitled The Most Affordable Cities for Children’s and Family Health Insurance. The Office of the Insurance Commissioner of the State of Washington contends that the report is advertising and that our alleged mischaracterization of the affordability of individual health insurance in Spokane, Washington caused a violation of various Washington laws governing advertising, including prohibitions against false and misleading advertising in the conduct of insurance business. In general terms, the order requires us to cease and desist from further publication, distribution or republication of the report and from granting permission to republish, or assisting in the republication of, the report. We have challenged the order through an administrative proceeding and the order has been stayed pending the resolution of that proceeding.