We lease all of the principal properties. In addition, we also lease office facilities in San Francisco, California and Westford, Massachusetts for our marketing and advertising, technology and content, customer care and enrollment, and general and administrative personnel. All of our properties are fully used for current operations. We believe our existing facilities are adequate for our current needs and that suitable additional space will be available in the future to accommodate the expansion of our operations, if necessary.
We actively market the availability of Medicare-related health insurance plans through our online Medicare plan platforms www.eHealthMedicare.com and www.PlanPrescriber.com. Our Medicare plan platforms enable consumers to research and compare Medicare-related health insurance plans, including Medicare Advantage, Medicare Supplement and Medicare Part D prescription drug plans. Commission payments we receive for Medicare Advantage and Medicare Part D prescription drug plans sold by us are typically fixed and are earned over a period of six years, or longer depending on the carrier arrangement, and are paid to us either monthly or annually.
As a result of our commission structure, much of our revenue for a given financial reporting period relates to health insurance plans that we sold prior to the beginning of the period and is recurring in nature. Additionally, health insurance pricing, which is set by the health insurance carrier and approved by regulators, is not subject to negotiation or discounting by health insurance carriers or our competitors.
In March 2010, the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act were signed into law. These health care reform laws contain provisions that have changed and will continue to change, the health insurance industry in substantial ways. Among several other provisions, these laws and the regulations implementing them include a mandate requiring individuals to maintain health insurance or face tax penalties; a mandate that certain employers offer and contribute to their employees group health insurance coverage or face tax penalties if they do not do so in 2015 and thereafter; prohibitions against insurance companies using pre-existing health conditions as a reason to deny an application for health insurance; requirements for minimum individual and small business health insurance benefit levels, including prohibitions on lifetime coverage limits and limitations on annual coverage limits; medical loss ratio requirements that require each health insurance carrier to spend a certain percentage of their premium revenue on reimbursement for clinical services and activities that improve health care quality; establishment of state and/or federal government-run health insurance exchanges to facilitate access to, and the purchase of, health insurance; open enrollment periods for the purchase of individual health insurance during specified times of the year; Medicaid expansion so that a greater number of individuals will be insured under Medicaid programs; and subsidies and cost-sharing credits to make health insurance more affordable for those below certain income levels if they are eligible and purchase individual or small group health insurance through the state or federal health insurance exchange.
carriers resulted in a reduction in the commission rates that we are paid for selling individual and family health insurance plans. These commission rate changes began to impact our individual and family plan commission revenue in 2011. Under health care reform an eighty-five percent medical loss ratio requirement for Medicare Advantage plans became effective in 2014.
The initial open enrollment period under health care reform began in October 2013 and is scheduled to run through March 2014. Individuals and families cannot purchase individual and family health insurance outside this period until the open enrollment period for the following year, unless they qualify for a special enrollment period as a result of certain qualifying events, such as losing employer-sponsored health insurance, moving to another state or becoming eligible or ineligible for a government subsidy for their health insurance. Moreover, in order to be eligible for a subsidy, qualified individuals must purchase subsidy-qualifying health plans through a government-run health insurance exchange during the open enrollment period or special enrollment period. A substantial number of our existing members are likely eligible for subsidies in connection with their purchase of health insurance. During the third quarter of 2013, we entered into two agreements with the Centers for Medicare and Medicaid Services, or CMS to allow us to enroll subsidy-eligible individuals in qualified health insurance plans online in the 36 states where the federal government is operating an exchange during the initial open enrollment period. We may experience difficulty in satisfying the conditions and requirements to offer qualified health plans to our existing members and new potential members. If we are not able to satisfy these conditions and requirements as well as enter into functioning relationships with government-run health insurance exchanges to offer qualified health insurance plans that are required for individuals to receive a subsidy, we may lose existing members and new members. We are currently in the process of integration and testing with the federal exchange, and the federal government is in the process of completing development of this capability. Our integration with the federal exchange to enroll individuals and families online through the federal exchange so that they may receive a subsidy is dependent upon completion of integration and development as well as the federal government’s resolution of technological problems. Although we are working to provide consumers with access to subsidy-eligible plans, the date on which we will be able to do so is uncertain and it is unlikely we will be able to enroll individuals and families into qualified health plans in our online process during the current initial open enrollment period that is scheduled to end on March 31, 2014. Additionally, we have not entered into a similar relationship with any of the other 14 states that are operating their own exchanges.
We derive revenue from our online sponsorship and advertising program that allows carriers to purchase advertising space in specific markets in a sponsorship area on our website. In return, we are typically paid a monthly fee and a performance-based fee based on metrics such as submitted health insurance applications. We also offer Medicare advertising services, which allow Medicare plan carriers to purchase advertising on a separate website developed, hosted
We generate revenue primarily from commissions we receive from health insurance carriers whose health insurance policies are purchased through us. Commissions for individual and family, small business and ancillary health insurance policies, such as stand-alone dental, life, student, vision, accident and short-term insurance plan offerings, have generally represented a percentage of the insurance premium and, to a much lesser extent, commission override payments that insurance carriers pay us for achieving sales volume thresholds or other objectives. Commission rates vary by carrier and by the type of plan purchased by a member. Commission rates can vary based upon the amount of time that the policy has been active, with commission rates for individual and family plans typically being higher in the first twelve months of the policy. After the first twelve months, commission rates generally decline significantly. As a result, if we do not add a sufficient number of members on new policies, our revenue growth will be negatively impacted. Individuals, families and small businesses purchasing health insurance through us typically pay their premiums on a monthly basis. Insurance carriers typically pay commissions to us on these policies monthly, after they receive the premium payment from the member. We generally continue to receive the commission payment from the relevant insurance carrier until the health insurance policy is cancelled or we otherwise do not remain the agent on the policy. As a result, the majority of our commission revenue is recurring in nature.
During 2013 we received communication from many health insurance carriers indicating that in 2014 our commissions will change from a percentage of premium to a flat amount per-member-per-month. The amount paid per-member-per-month will generally decline after the initial policy year. To date, we have received commission rate schedules applicable to 2014 coverage from substantially all of our individual and family health insurance carriers. These rate schedules are generally effective for policies with 2014 effective dates, although existing policies for some carriers have also been affected. Based on our analysis, we determined that the average commission dollars per policy for individual and family policies under the new rates are equal to, or slightly higher than, our average commission dollars per policy for policies we sold during the period from July 2011 to June 2012. This period was selected because it was after the medical loss requirements went into effect at the beginning of 2011 and allowed for enough time to generate both first year and renewal commissions on the policies analyzed. Assuming the ratio of flat amount per member per month commissions to percentage of premium commissions as well as average policy premiums remain constant; our analysis was performed by applying the changes in both the first year and renewal year commissions to the individual and family plan members and comparing commission revenues that were actually generated by these members to what these commission revenues would have been under the new rates.
We generally recognize individual and family, small business and ancillary health insurance plan revenue when commissions are reported to us by a health insurance carrier, net of an estimate for future forfeiture amounts payable to carriers due to policy cancellations. Commissions are reported to us by a cash payment and commission statement. We generally receive these communications simultaneously. In instances when we receive the cash payment and commission statement separately and in different accounting periods, we recognize revenue in the period that we receive the earliest communication, provided we receive the second corroborating communication shortly after the end of the accounting period. If the second corroborating communication is not received shortly after the end of the accounting period, we recognize revenue in the period the second communication is received. We use the data in the commission statements to help identify the members for which we are receiving a commission payment and the amount received for each member, and to estimate forfeitures payable to carriers. As a result, we recognize the net amount of compensation earned as the agent in the transaction. Commission override revenue, which we recognize on the same basis as premium commissions, is generally
reported to us in a more irregular pattern than premium commissions. As a result, our revenue for a particular quarter could be higher or lower than expectations due to the timing of the reporting of commission override revenue to us.
Historically, the number of individual and family health insurance applications submitted through our ecommerce platform generally increased in our first quarter compared to our fourth quarter and in our third quarter compared to our second quarter. Conversely, we generally experienced a decline or flattening of individual and family submitted applications in our second quarter compared to our first quarter and in our fourth quarter compared to our third quarter. This trend changed in the fourth quarter of 2013 as a result of an increase in the number of individual and family applications submitted during the initial open enrollment period under health care reform which began on October 1, 2013 and is scheduled to run through March 31, 2014. The number of submitted individual and family plan applications increased significantly, relative to historical levels, during the fourth quarter of 2013.
We recognize commission revenue for both Medicare Advantage and Medicare Part D prescription drug plans for the entire policy year once the annual or first monthly commission amount for the policy year is reported to us by the carrier, net of an estimate for future forfeiture amounts due to policy cancellations. For commissions paid to us on a monthly basis, we record a receivable for the commission amounts to be received over the remainder of the policy year, net of an estimate for commission amounts not expected to be collected due to policy cancellations, which is included in Accounts Receivable in the accompanying consolidated balance sheets. We continue to receive the commission payments from the relevant insurance carrier until the earlier of the cancellation of the policy, our no longer remaining the agent on the policy, or our commission term with the carrier expires, typically for a period of six years from the effective date of the policy, or longer depending on the carrier arrangement. We determine that there is persuasive evidence of an arrangement when we have a commission agreement with a health insurance carrier. Our services are complete when a carrier has approved an application in the initial year and when a member has renewed in a renewal year. The seller’s price is fixed or determinable and collectability is reasonably assured when a carrier has approved an application and the carrier reports to us the annual or first monthly renewal commission amount for each policy year.
The majority of Medicare plans are sold in our fourth quarter during the Medicare annual enrollment period, when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. As a result, we generate a significant amount of Medicare plan-related revenue in the fourth quarter resulting from the sale of new Medicare plans. Additionally, we recognize a majority of our renewal Medicare Advantage and Medicare Part D prescription drug plan commission revenue in the first quarter of each year as the majority of policies sold during the annual enrollment period typically renew on January 1 of each year.
Commission revenue attributable to major medical individual and family health insurance plans was 86%, 75% and 69% of commission revenue in the years ended December 31, 2011, 2012 and 2013, respectively. The decline in the percentage of commission revenue attributable to major medical individual and family health insurance plans in 2012 compared to 2011 was due primarily to an increase in commission revenue attributable to Medicare-related insurance plans. The decline in the percentage of commission revenue attributable to major medical individual and family health plans in 2013 compared to 2012 was due primarily to increases in commission revenue attributable to both ancillary health insurance plans, consisting primarily of dental, accident and vision insurance plan offerings, and Medicare-related insurance plans.
In addition to the commission revenue we derive from the sale of health insurance plans, we derive other revenue from our online sponsorship and advertising program, from licensing the use of our ecommerce technology and from generating and delivering leads, primarily for Medicare plans.
Technology Licensing. We derive revenue from licensing the use of our health insurance ecommerce technology. Our technology platform enables health insurance carriers and agents to market and distribute health insurance plans online. In our technology licensing business, we are paid implementation fees and performance-based fees that are based on metrics such as submitted health insurance applications. Typically, we are paid a one-time implementation fee commencing once the technology is available for use by the third party, which we recognize on a straight-line basis over the term of the agreement. In addition, we generate revenue based on performance criteria that are either measured based on data tracked by us, or based on data tracked by the third party. In instances where the performance criteria data are tracked by us, we recognize revenue in the period of performance. In instances where the performance criteria data are tracked by the third party, we recognize revenue when the amounts earned are fixed or determinable and collection is reasonably assured. Typically, this occurs through our receipt of a cash payment from the third party along with a detailed statement containing the data that is tracked by the third party.
We expect other revenue to decline in absolute dollars in 2014 compared to 2013 due primarily to a decrease in online sponsorship and advertising revenue.
Marketing Partners. Our marketing partner member acquisition channel consists of consumers who access our websites through a network of affiliate partners and financial services and other companies. Growth in our marketing partner channel depends upon our expanding marketing programs with existing partners and adding new partners to our network. For the years ended December 31, 2011, 2012 and 2013, applications submitted through us for individual and family health insurance plans from our marketing partner member acquisition channel constituted approximately 32%, 32% and 36%, respectively, of all individual and family health insurance applications submitted on our website.
Our marketing partner channel expenses consist primarily of fees paid to marketing partners with which we have a relationship. We compensate a significant number of our marketing partners by paying a fee each time a consumer referral from a partner results in a submitted health insurance application, regardless of whether the consumer’s application is approved by the health insurance carrier. Many of our marketing partners have tiered arrangements in which the amount of the fee increases as the volume of submitted applications we receive from the marketing partner increases over a particular period. We recognize these expenditures in the period when a marketing partner’s referral results in the submission of a health insurance application. Since a significant portion of our marketing and advertising expenses are driven by the number
of health insurance applications submitted on our ecommerce platform, those expenses are influenced by seasonal submitted application patterns. As a result, marketing and advertising expenses related to individual and family health insurance plans has historically been highest in our first and third quarters, while marketing and advertising expenses related to Medicare-related plans has historically been highest in our third and fourth quarters. However, with the implementation of the initial open enrollment period for individual and family plans in October 2013, we experienced an increase in marketing and advertising expenses related to individual and family plans during the fourth quarter of 2013. The future impact of annual open enrollment periods for individual and family health insurance on our submitted applications and marketing and advertising expenses is unclear.
We expect customer care and enrollment expenses to increase in absolute dollars in 2014 compared to 2013 as a result of additional personnel we have hired and expect to hire to service the expected increase in the volume of Medicare demand and the expected increase in the volume of individual and family demand in 2014 and due to an increase in expenditures to further develop our sales capabilities.
content group is located at our wholly-owned subsidiary in China, where technology development costs are generally lower than in the United States.
For small business health insurance policies, we estimate the number of members using the number of initial members at the time the group is approved, and we update this number for changes in membership if such changes are reported to us by the group or carrier in the period it is reported. However, groups generally notify the carrier directly of policy cancellations and increases or decreases in group size without informing us.
During the year ended December 31, 2013, there were no significant changes to our critical accounting policies and estimates.
Certain commission amounts are subject to forfeiture when the policy is subsequently cancelled and either the carrier takes back all or a portion of the commission they have paid to us or we will no longer receive monthly commission payments for the remainder of the policy year. We record an estimate for these forfeitures based on our historical cancellation experience using data provided on commission statements. Policy cancellations and the commission amounts, if any, to be taken back by the carrier are typically reported to us by health insurance carriers several months after the policy’s cancellation date. Our estimate for forfeitures payable to a carrier, which is included in Other Current Liabilities in the consolidated balance sheets, includes an estimate of both the reporting time lag and the forfeiture amount, based on our historical experience by policy type. Similarly, our estimate for commission amounts not expected to be collected due to policy cancellations, which is recorded as a reduction of Accounts Receivable in the consolidated balance sheets, includes an estimate of the annual policy cancellation rate, based on our historical experience by policy type. Changes in our historical trends would result in changes to our estimated forfeitures in future periods. There were no changes in our average
Online Sponsorship and Advertising-Our sponsorship and advertising program allows carriers to purchase advertising space in specific markets in a sponsorship area on our website. In return, we are typically paid a monthly fee, which is recognized over the period that advertising is displayed, and often a performance fee based on metrics such as submitted health insurance applications. We also offer Medicare sponsorship services, which include website development, hosting and maintenance. In these instances, we are typically paid a fixed, up-front fee, which we recognize as revenue over the service period.
technology licensing arrangements exceed the straight-line revenue recognized to date. We defer commission amounts that have been paid to us related to transactions where our services are complete, but where we cannot currently estimate future forfeitures related to those amounts.
The following table presents our commission, other revenue and total revenue for the years ended December 31, 2011, 2012 and 2013 and the dollar and percentage changes from the prior year (dollars in thousands):
Other revenue decreased $6.5 million, or 21%, in the year ended December 31, 2012 compared to the year ended December 31, 2011, due primarily to a $10.8 million decrease in Medicare lead referral revenue and a $5.9 million decrease in revenue related to our government systems business. The decrease in lead referral revenue was the result of our strategic decision to reduce the number of Medicare leads sold to third parties and to instead act as a health insurance agent to those leads. Our government systems business revenue was adversely impacted by the expiration of our technology licensing contract with the federal government in January 2012. These decreases in other revenue were partially offset by a $10.3 million increase in online sponsorship and advertising revenue, primarily related to Medicare plan carriers.
The following table presents our cost of revenue for the years ended December 31, 2011, 2012 and 2013 and the dollar and percentage changes from the prior year (dollars in thousands):
2013 compared to 2012-Cost of revenue increased $0.7 million, or 14%, in the year ended December 31, 2013 compared to the year ended December 31, 2012, due primarily to an increase of $0.4 million in amortization expense associated with the consideration we paid to a broker partner in connection with the transfer of several Medicare plan books-of-business to us whereby we became the broker of record on the underlying policies, an increase of $0.1 million due to revenue-sharing with partners, and an increase of $0.1 million in direct costs associated with technology licensing revenue.
plan books-of-business to us whereby we became the broker of record on the underlying policies, and an asset impairment charge of $0.4 million related to one of the transferred Medicare plan books-of-business.
The following table presents our marketing and advertising expenses for the years ended December 31, 2011, 2012 and 2013 and the dollar and percentage changes from the prior year (dollars in thousands):
2012 compared to 2011-Technology and content expenses decreased $0.3 million, or 1%, in the year ended December 31, 2012 compared to the year ended December 31, 2011, due primarily to a decrease of $0.9 million in compensation, benefits, stock-based compensation and other personnel costs. Partially offsetting this decrease was a $0.5 million increase in internet and data center infrastructure costs associated with an increase in employee headcount.
The following table presents our general and administrative expenses for the years ended December 31, 2011, 2012 and 2013 and the dollar and percentage changes from the prior year (dollars in thousands):
2013 compared to 2012-Amortization expense related to intangible assets purchased through our acquisition of PlanPrescriber decreased for the year ended December 31, 2013 compared to the year ended December 31, 2012 due to certain acquired intangible assets becoming fully amortized in May 2012.
The following table presents our provision for income taxes for the years ended December 31, 2011, 2012 and 2013 and the dollar change from the prior year (dollars in thousands):
Our effective tax rates for the years ended December 31, 2011, 2012 and 2013 were higher than statutory federal and state tax rates due primarily due to non-deductible lobbying expenses and for 2011 and 2012, tax shortfalls related to share-based payments.
The following table presents a summary of our cash flows for the years ended December 31, 2011, 2012 and 2013 (in thousands):
Historically, we have experienced a reduction in operating cash flows during the first quarter of the year compared to the other quarters due to the payment of annual performance bonuses to employees in the first quarter of the year. In the first quarter of 2012, we collected a substantial amount of lead referral payments related to Medicare leads sold during the annual enrollment period in the fourth quarter of 2011. The seasonal impact of Medicare lead referral collections was minimal in 2013 as we have transitioned away from lead referral transactions. Additionally, a significant portion of our marketing and advertising expenses are driven by the number of health insurance applications submitted on our ecommerce platform. Since our marketing and advertising costs are expensed as incurred and the revenue from approved applications is recognized as commissions are subsequently reported to us, our operating cash flows could be adversely impacted by a substantial increase in the volume of applications submitted during a quarter or positively impacted by a substantial decline in the volume of applications submitted during a quarter. The impact of the open enrollment period that began during the fourth quarter of 2013 for the purchase of major medical health individual and family insurance plans resulted in increased marketing and advertising expenses during the fourth quarter of 2013. The impact of open enrollment periods on our future cash flows is
unclear. The first open enrollment period began in October 2013 and is scheduled to run through March 2014. In addition to the initial open enrollment period scheduled to end in March 2014, the annual open enrollment period for individual and family health insurance is proposed to run from November 15, 2014 through February 15, 2015 for coverage effective in 2015. Thereafter, the scheduled dates of annual open enrollment period are unknown. We expect the total marketing expenses to increase, however, the expected trend and timing of the increase is unclear.
2012-Net cash provided by financing activities of $2.4 million during the year ended December 31, 2012 was due to $9.4 million used to repurchase 0.6 million shares of our common stock and $1.0 million used to net-share settle the tax obligation related to vesting equity awards, partially offset by $8.4 million of net proceeds from the exercise of common stock options and $4.5 million of excess tax benefits from stock-based compensation.
We have audited the accompanying consolidated balance sheets of eHealth, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of eHealth, Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), eHealth, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 12, 2014 expressed an unqualified opinion thereon.
Property and Equipment-Property and equipment are stated at cost, less accumulated depreciation and amortization. Capital lease amortization expenses are included in depreciation expense in our consolidated statements of comprehensive income. Depreciation and amortization is computed using the straight-line method based on estimated useful lives as follows:
complete when a carrier has approved an application. The seller’s price is fixed or determinable and collectability is reasonably assured when commission amounts have been reported to us by a carrier.
agreement), commencing once the technology is available for use by the third party, and a performance fee based on metrics such as submitted health insurance applications. The metrics used to calculate performance fees for both sponsorship and advertising and technology licensing are based on performance criteria that are either measured based on data tracked by us, or based on data tracked by the third party. In instances where the performance criteria data is tracked by us, we recognize revenue in the period of performance. In instances where the performance criteria data is tracked by the third party, we recognize revenue when the amounts earned are both fixed and determinable and collection is reasonably assured. Typically, this occurs through our receipt of a cash payment from the third party along with a detailed statement containing the data that is tracked by the third party.
Multiple-element Arrangements-We allocate revenue to all units of accounting within an arrangement with multiple deliverables at the inception of the arrangement using the relative selling price method. The relative selling price method allocates any discount in an arrangement proportionally to each deliverable on the basis of each deliverable’s relative selling price. The relative selling price established for each deliverable is based on vendor-specific objective evidence of fair value (“VSOE”) if available, third-party evidence of selling price if VSOE is not available, or best estimate of selling price if neither VSOE nor third-party evidence is available. When used, the best estimate of selling price reflects our best estimates of what the selling prices of certain deliverables would be if they were sold regularly on a stand-alone basis. Our process for determining best estimate of selling price for deliverables without VSOE or third-party evidence of selling price considers multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable. Key factors considered by us in developing the relative selling prices for our technology licensing fees include prices charged by us for similar offerings and our historical pricing practices. We may also consider additional factors as appropriate, including competition.
Our direct channel expenses primarily consist of costs for e-mail marketing and may also include costs for television advertising, radio advertising, print advertising and direct mail marketing. Advertising costs for our direct channel are expensed the first time the related advertising takes place. Our marketing partner channel expenses primarily consist of fees paid to marketing partners with which we have a relationship. Our online advertising channel expenses primarily consist of paid keyword search advertising on search engines. Advertising costs for our marketing partner channel and our online advertising channel are expensed as incurred.
Research and Development Expenses-Research and development expenses consist primarily of compensation and related expenses incurred for enhancements to the functionality of our website. Research and development costs, which totaled $7.3 million, $8.4 million and $10.1 million for the years ended December 31, 2011, 2012 and 2013, respectively, are included in technology and content expense in the accompanying consolidated statements of comprehensive income.
Internal-Use Software and Website Development Costs-We capitalize costs of materials, consultants and compensation and benefits costs of employees who devote time to the development of internal-use software; however, we usually expense as incurred website development costs for new features and functionalities because it is not probable that they will result in additional functionality until they are both developed and tested with confirmation that they are more effective than the current set of features and functionalities on our website. Our judgment is required in determining the point at which various projects enter the phases at which costs may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized, which is generally three years. To the extent that we change the manner in which we develop and test new features and functionalities related to our website, assess the ongoing value of capitalized assets or determine the estimated useful lives over which the costs are amortized, the amount of website development costs we capitalize and amortize in future periods would be impacted. During the year ended December 31, 2013, we capitalized $0.2 million in website development costs.
Stock-Based Compensation-We recognize stock-based compensation expense in the accompanying consolidated statements of comprehensive income based on the fair value of our stock-based awards over their respective vesting periods, which is generally four years. The estimated grant date fair value of our stock options is determined using the Black-Scholes-Merton pricing model and a single option award approach. The weighted-average expected term for stock options granted is calculated using historical option exercise behavior. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date stock price. Through December 31, 2013, we had not declared or paid any cash dividends, and we do not expect to pay any in the foreseeable future. We base the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of our stock options. The estimated attainment of performance-based awards and related expense is based on the expectations of revenue target achievement. The assumptions used in calculating the fair value of stock-based payment awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. We will continue to use judgment in evaluating the expected volatility related to our own stock-based awards on a prospective basis, and incorporating these factors into the model. Changes in key assumptions could significantly impact the valuation of such instruments.
Seasonality- In years prior to 2013, the number of individual and family health insurance applications submitted through our ecommerce platform generally increased in our first quarter compared to our fourth quarter and in our third quarter compared to our second quarter. This trend changed in the fourth quarter of 2013 as a result of an increase in the number of individual and family applications submitted during the initial open enrollment period under the federal Patient Protection and Affordable Care Act and related amendments in the Health Care and Education Reconciliation Act, which began on October 1, 2013 and is scheduled to run through March 31, 2014. The number of submitted individual and family plan applications increased, relative to historical levels, during the fourth quarter of 2013.
The majority of Medicare plans are sold in our fourth quarter during the Medicare annual enrollment period, when Medicare-eligible individuals are permitted to change their Medicare Advantage and Medicare Part D prescription drug coverage for the following year. As a result, we generate a significant amount of Medicare plan-related revenue in the fourth quarter of the year resulting from the sale of new Medicare plans. Additionally, we recognize a majority of our renewal Medicare Advantage and Medicare Part D prescription drug plan commission revenue in the first quarter of each year as the majority of policies sold during the annual enrollment period typically renew on January 1 of each year.
Since a significant portion of our marketing and advertising expenses are driven by the number of health insurance applications submitted on our ecommerce platform, those expenses are influenced by seasonal submitted application patterns. As a result, in years prior to 2013 marketing and advertising expenses related to individual and family health insurance plans have been highest in our first and third quarters, while marketing and advertising expenses related to Medicare-related plans have been highest in our third and fourth quarters. However, the historical trend of marketing and advertising expenses related to individual and family health insurance plans was impacted by the initial open enrollment period for individual and family plans that began in October 2013. These expenses increased in the fourth quarter of 2013 relative to historical levels, consistent with the increase in submitted applications.
Recent Accounting Pronouncements-Effective January 1, 2013, we adopted an accounting standards update with new guidance on the presentation of reclassifications from accumulated other comprehensive income to net income. This
standard requires an entity to present reclassifications from accumulated other comprehensive income to net income either on the face of the consolidated financial statements or in the notes to the consolidated financial statements. In the year ended December 31, 2013 we did not have any reclassifications from accumulated other comprehensive income to net income.
In March 2013, the Financial Accounting Standards Board ("FASB") issued an accounting standards update providing guidance with respect to the release of cumulative translation adjustments into net income when a parent sells either a part or all of its investment in a foreign entity. The update also requires the release of cumulative translation adjustments when a company no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity, and provides guidance for the acquisition in stages of a controlling interest in a foreign entity. The standards update is effective for fiscal years beginning after December 15, 2013, with early adoption permitted. We do not believe the adoption of this standards update will have a material impact on our consolidated financial statements.
As of December 31, 2012 and 2013, our cash and cash equivalent balances were invested as follows (in thousands):
Concentration of Credit Risk-Our financial instruments that are exposed to concentrations of credit risk principally consist of cash, cash equivalents and accounts receivable. We invest our cash and cash equivalents with major banks and financial institutions and, at times, such investments are in excess of federally insured limits. We also have deposits with major banks in China that are denominated in both U.S. dollars and Chinese Renminbi and are not insured by the U.S. federal government.
As of December 31, 2012 and 2013, our accounts receivable consisted of the following (in thousands):
During the years ended December 31, 2011, 2012 and 2013, amortization expense related to intangible assets totaled $2.0 million, $1.6 million and $1.4 million, respectively. Amortization expense for the year ended December 31, 2011 includes an impairment charge of $0.3 million related to certain acquired intangible assets.
As of December 31, 2012 and 2013, our cash equivalents were invested in money market funds and were classified as Level 1. We endeavor to utilize the best available information in measuring fair value. We used observable prices in active markets in determining the classification of our money market funds as Level 1.
December 31, 2013, no shares were subject to repurchase. Our restricted stock unit awards granted under the 2006 Plan generally vest over four years at a rate of 25% after one year and 25% annually thereafter.
In 2011, 2012 and 2013, we issued restricted stock units with both service and performance-based vesting criteria to our executive officers. The performance-based contingency period for our restricted stock units with both service and performance-based vesting criteria granted in the fiscal years 2011 and 2012 were the fiscal years ending December 31, 2011 and 2012, respectively, and the measurement of achievement was based on our revenue, non-GAAP operating earnings and EBITDA results for the fiscal years ending December 31, 2011 and 2012, respectively. The performance-based contingency period for our restricted stock units with both service and performance-based vesting criteria granted in the fiscal year 2013 is the fiscal years ending December 31, 2013 and 2014, and the measurement of achievement is based on our revenue results for the fiscal years ending December 31, 2013 and 2014. The amount of expense recorded for the performance-based restricted stock units is based on expected attainment of performance criteria and is expensed over the respective service period of the awards. Our performance-based restricted stock units are granted pursuant to the terms of our 2006 Plan. Shares earned and eligible to vest will vest one-third annually following the performance-based contingency period for performance-based restricted stock units granted in 2011 and 2012. Shares earned and eligible to vest will vest annually during a four year service period following the performance-based contingency period for performance-based restricted stock units granted in 2013.
The following table summarizes activity under our Stock Plans (in thousands):
2011, 2012 and 2013 include grants of restricted stock units with both service and performance-based vesting criteria to our executive officers.
2011, 2012 and 2013 include cancelled restricted stock units with both service and performance-based vesting criteria.
Stock Repurchase Programs-On June 14, 2011, we announced that our board of directors approved a stock repurchase program authorizing us to purchase up to an additional $30 million of our common stock. Repurchases under this program began in the third quarter of 2011. Purchases under the repurchase program were made in the open market and complied with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. In February 2012, we completed this stock repurchase program, having repurchased in aggregate 2.2 million shares for approximately $30 million at an average price of $13.78 per share including commissions. The cost of the repurchased shares was funded from available working capital.
Stock repurchase activity under our stock repurchase programs during the year ended December 31, 2011, 2012 and 2013 is summarized as follows (dollars in thousands, except share and per share amounts):
Stock-Based Compensation-The fair value of stock options granted to employees for the years ended December 31, 2011, 2012 and 2013 was estimated using the following weighted average assumptions:
The following table summarizes stock-based compensation expense by operating function for the years ended December 31, 2011, 2012 and 2013 (in thousands):
Our effective tax rates in 2011, 2012 and 2013 were higher than statutory federal and state tax rates primarily due to non-deductible lobbying expenses and for 2011 and 2012, tax shortfalls related to share-based payments.
Total rent expense under all operating leases was approximately $4.0 million, $4.3 million and $4.8 million for the years ended December 31, 2011, 2012 and 2013, respectively.
The following table presents a summary of our future minimum payments under non-cancellable operating lease agreements and contractual service and licensing obligations as of December 31, 2013 (in thousands):
Guarantees and Indemnifications-We have agreed to indemnify members of our board of directors and our executive officers for fees, expenses, judgments, fines and settlement amounts incurred in any action or proceeding, including actions or proceedings by or in the right of the Company, to which any of them is, or is threatened to be, made a party by reason of