Approved Members represents the number of individuals on submitted applications that were approved by the relevant insurance carrier for the identified product during the current period. The applications may be submitted in either the current period or prior periods. Approved members may not pay for their plan and become paying members.
Health insurance carriers bill and collect insurance premiums paid by our members. The carriers do not report to us the number of members that we have as of a given date. The majority of our members who terminate their plans do so by discontinuing their premium payments to the carrier and do not inform us of the cancellation. Also, some of our members pay their premiums less frequently than monthly. Given the number of months required to observe non-payment of commissions in order to confirm cancellations, we estimate the number of members who are active on insurance policies as of a specified date.
2018 compared to 2017 - Cost of revenue increased $0.6 million in 2018 compared to 2017, due primarily to an increased amount of payments to our marketing partners.
The following table presents our marketing and advertising expenses for the years presented below (dollars in thousands):
The following table presents our general and administrative expenses for the years presented below (dollars in thousands):
During 2017, we incurred $0.6 million of costs associated with our acquisition of Wealth, Health and Life Advisors, LLC, which was completed on January 22, 2018. Acquisition costs incurred in the year ended December 31, 2018 were immaterial. We did not incur any acquisition costs in the year ended December 31, 2019.
Year Ended December 31, 2019 - Cash used in operating activities was $71.5 million in 2019, consisted of net income of $66.9 million and adjustments for non-cash items totaling $71.1 million, offset by cash used for working capital needs and other activities of $209.5 million. Adjustments for non-cash items primarily consisted of $24.1 million change in fair value of earnout liabilities, $22.6 million of stock-based compensation expense, $16.2 million increase in deferred income taxes, $3.8 million of amortization of internally-developed software, $3.0 million of depreciation and amortization and $2.2 million of amortization of intangible assets. The cash decrease resulting from changes in working capital in 2019 primarily consisted of $243.4 million increase in commissions receivable, partially offset by increases of $19.7 million in accounts payable, $8.8 million in accrued compensation and benefits, $1.9 million in accrued expenses and other liabilities, $1.7 million in deferred revenue and $1.0 million in accrued marketing expenses.
Our audit procedures also included, among others, evaluating the methodology used and significant assumptions discussed above, and testing the completeness and accuracy of the underlying data used by the Company. We involved our valuation specialists to assist in our testing of the estimated average plan duration, which includes member attrition assumptions, used to develop the Medicare Advantage LTV, including performing certain corroborative calculations. We inspected and compared the results of the Company’s retrospective review analysis of historical estimates for certain plan effective years to historical cash collection experience, including reperforming the calculations and validating the completeness and accuracy of the underlying data used. In addition, we performed inquiries of key personnel regarding their evaluation of changes to LTV, the adjustments made to the constraint for current and expected future economic conditions, and any decisions on the timing and amount of adjustment revenue recognized. We also reviewed analyst reports, press releases, and other relevant third-party and/or industry trends data for contrary evidence.
has been less than six months. For all other ancillary health insurance plan LTVs, the estimated average plan duration has historically varied from 1 to 3 years. To the extent we make changes to the assumptions we use to calculate constrained LTVs, we recognize any material impact of the changes to commission revenue in the reporting period in which the change is made, including revisions of estimated lifetime commissions either below or in excess of previously estimated constrained LTV recognized as revenue.
Other Revenue - 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, which is recognized when control has been transferred. We also offer Medicare advertising 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 as control is transferred ratably over the service period.
Deferred Revenue - Deferred revenue includes deferred technology licensing implementation fees and amounts billed to or collected from sponsorship or technology licensing customers in advance of our performing our service for such customers. It also includes the amount by which both unbilled and billed services provided under our technology licensing arrangements exceed the straight-line revenue recognized to date.
Our direct channel expenses primarily consist of costs for direct mail, email marketing and television and radio advertising. 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 and retargeting campaigns. Advertising costs for our marketing partner channel and our online advertising channel are expensed as incurred.
Income Taxes - We account for income taxes using the liability method. Deferred income taxes are determined based on the differences between the financial reporting and tax bases of assets and liabilities, using enacted statutory tax rates in effect for the year in which the differences are expected to reverse.
Since the adoption of ASC 606, we have evaluated changes in estimated cash collections and compare these to the initial estimates of LTV at the time of approval. We have historically recorded adjustment revenue in the period when the risk of significant reversal in not probable. We continue to enhance our LTV estimation models to improve the accuracy and to reduce the fluctuations of our LTV estimates. For Medicare Advantage, our principal product, the quarterly revisions to expected cash collections have generally exceeded the estimated constrained LTVs and revenue recognized at the time of approval. At the time of ASC 606 adoption, we had been selling Medicare Advantage plans for approximately 7 years with limited volumes until the enrollment season in the fourth quarter of 2015 and volumes have continued to increase. During the fourth quarter of 2019, with additional data on Medicare Advantage plans and the application of statistical tools we were able to enhance our Medicare Advantage LTV estimation model to increase the accuracy of LTV estimates with an emphasis on improving member attrition forecasting. The enhancements to the Medicare Advantage LTV estimation model provide greater statistical certainty on expected cash collections, particularly for earlier period cohorts. As we had sufficient additional information with respect to increases in LTVs and estimates of future cash collections related to earlier period cohorts, we concluded that it was probable that a significant reversal of cumulative revenue would not occur for certain prior period cohorts and, accordingly, recognized adjustment revenue related to these prior period cohorts in 2019. For the Medicare segment, we recognized adjustment revenue of $55.3 million for the year ended December 31, 2019, of which $50.8 million was recognized for Medicare Advantage plans during the fourth quarter of 2019. For the Individual, Family and Small Business segment, we recognized adjustment revenue of $32.9 million for the year ended December 31, 2019, in response to observing longer plan duration than initially anticipated at the time of enrollment for these plans.
Depreciation and amortization expense related to property and equipment totaled $3.0 million, $2.5 million, and $2.8 million in the years ended December 31, 2019, 2018 and 2017, respectively.
We measure the earnout liability using internally developed assumptions; therefore, it is classified as Level 3. The fair value of the earnout liability was measured using probability-weighted analysis and is discounted using a rate that appropriately captures the risk associated with the obligation. The fair value of the earnout liability as of December 31, 2019 was adjusted to the amount that we settled in January 2020. Key assumptions included new enrollments and volatility for the years ended December 31, 2019 and 2018 and our stock price at the time of payment.
The following table summarizes activity under our 2014 Equity Incentive Plan (the “2014 Plan”) for the year ended December 31, 2019 (in thousands):
On January 1, 2019, we adopted ASC 842 - Leases, using the optional modified retrospective transition method. We have operating and finance leases for our corporate offices and certain equipment. Our leases have remaining lease terms of 1 to 10 years. Our operating lease expense recognized under ASC 842 was $6.4 million for the year ended December 31, 2019, and our cash outflows related to operating leases were $5.4 million for the year ended December 31, 2019. As a result of adopting the ASC, on January 1, 2019, we recorded a right-of-use asset and lease liability of $23.3 million and $24.6 million, respectively. During 2019, we recorded an additional lease liability of $10.8 million related to newly leased office space in Indianapolis, Indiana, which is described further below, and $1.1 million and $0.8 million related to an expansion and lease extension, respectively, of our office space in Gold River, California. We recorded additional lease liabilities totaling $4.9 million related to amendments made to our Salt Lake City office lease agreement during 2019. During the year ended December 31, 2019, we had non-cash investing activities of $40.6 million relating to right-of-use assets in the Consolidated Statements of Cash Flows.
The borrowing base under the Credit Agreement is comprised of an amount equal to (a) the lesser of (i) eighty percent (80%) of Eligible Commissions Receivables (as defined in the Credit Agreement) we actually collected by during the immediately preceding period of three months or (ii) eighty percent 80%) of our Eligible Commission Receivables for the immediately succeeding period of three months, plus (b) fifty percent (50%) of our Eligible Commission Receivables for the immediately succeeding period of six months (excluding the immediately succeeding period of three months), in each case subject to reserves established by RBC (the “Borrowing Base”). The proceeds of the loans under the Credit Agreement may be used for working capital and general corporate purposes. The Borrowers have the right to prepay the loans under the Credit Agreement in whole or in part at any time without penalty. Subject to availability under the Borrowing Base, amounts repaid may be reborrowed.
Included in the balance of income tax liabilities and accrued interest as of December 31, 2019 is an immaterial amount related to tax positions for which it is reasonably possible that the statute of limitations will expire in various jurisdictions and income tax exams will close within the next twelve months.
* See Note 2 - Revenue for details regarding the change in estimate in the fourth quarter of 2019.