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 and will continue to change the health insurance industry in substantial ways. Among several other provisions, they include a mandate requiring individuals to be insured or face tax penalties; a mandate that certain employers offer their employees group health insurance coverage or face tax penalties; a requirement that persons 26 years of age and younger be able to stay on a parent’s health insurance plan; prohibitions against insurance companies using pre-existing health conditions as a reason to deny an application for health insurance; establishment of state and/or federal health insurance exchanges to facilitate access to, and the purchase of, health insurance; subsidies and cost-sharing credits to make health insurance more affordable for those below certain income levels; and 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
Commission Revenue-For individual, family, Medicare Supplement and small business plans, our compensation generally represents a percentage of the premium amount collected by the carrier during the period that a member maintains coverage under a policy (commissions) and, to a much lesser extent, override commissions that health insurance carriers pay us for achieving certain objectives. Premium-based commissions are reported to us after the premiums are collected by the carrier, generally on a monthly basis. 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. We recognize commission revenue for individual, family and small business plans as the commissions are reported to us by the carrier, net of an estimate for future forfeiture amounts due to policy cancellations. We determine that there is persuasive evidence of an arrangement when we have a commission agreement with a health insurance carrier, a carrier reports to us that it has approved an application submitted through our ecommerce platform and the applicant starts making payments on the policy. Our services are complete when a carrier has approved an application. The seller’s price is fixed or determinable and collectibility is reasonably assured when commission amounts have been reported to us by a carrier.
customer care center we established in Salt Lake City, Utah and, to a lesser extent, with an increase in customer care center personnel servicing individual and family health insurance applications submitted through our website. As a result, compensation, benefits and other personnel costs increased $2.5 million and facility and operating costs increased $0.3 million in 2010.
The following table presents our interest and other income (expense), net, for the years ended December 31, 2009, 2010 and 2011 and the dollar and percentage change from the prior year (dollars in thousands):
(1) Cumulative balances at December 31, 2009, 2010 and 2011 include shares repurchased in connection with our stock repurchase programs announced on July 27, 2010 and June 14, 2011, as well as a previous stock repurchase plan announced in 2008.
2010-Net cash used in investing activities of $10.6 million during 2010 was attributable to net cash paid of $27.2 million in connection with the acquisition of PlanPrescriber, capital expenditures of $2.9 million and consideration of $2.5 million paid to a partner for transferring certain of its existing Medicare plan members to us as the broker of record on the underlying policies, partially offset by maturities of marketable securities of $22.1 million.
We rely on health insurance carriers to report accurately and in a timely manner the amount of commissions earned by us, and we calculate our commission revenues, prepare our financial reports, projections and budgets, and direct our marketing and other operating efforts based on the reports we receive from them. Each month we analyze the reports we receive from health insurance carriers by comparing such data to the database we maintain on our members. It is often difficult for us to independently determine whether or not carriers are reporting all commissions due to us, primarily because members on individual, family and small business policies typically terminate their policies by discontinuing their premium payments to the carrier instead of by informing us of the cancellation. Also, some of our individual, family and small business members pay their premiums less frequently than monthly. This results in our having to identify underpayment or non-payment of commissions on
a policy and follow up with a carrier to obtain an explanation and/or request correction of the amount of commissions paid to us.
On April 30, 2010, we acquired 100% of the outstanding common shares and voting interest of PlanPrescriber, Inc., formerly Experion Systems, Inc., a privately-held company. The purchase price totaled $28.0 million and was primarily paid in cash. PlanPrescriber is a leading provider of online and pharmacy-based tools to help Medicare eligible individuals navigate their Medicare health insurance options. PlanPrescriber is a wholly-owned subsidiary of eHealth. We recorded the purchase of PlanPrescriber using the acquisition method of accounting and we recognized the assets acquired and liabilities assumed at their fair values as of the date of acquisition. Under the acquisition method, the total purchase price was allocated to PlanPrescriber’s net tangible and intangible assets based upon their estimated fair values as of April 30, 2010. The excess purchase price over the value of the net tangible and identifiable intangible assets was recorded as goodwill. The results of operations are included in our consolidated results of operations beginning with the date of the acquisition. Pro forma results of operations have not been presented because the effects of the acquisition of PlanPrescriber were not material to our consolidated results of operations.
As of December 31, 2010 and 2011, our cash and cash equivalent balances were invested as follows (in thousands):
Service and Licensing Obligations-We have entered into service and licensing agreements with third party vendors to provide various services, including network access, equipment maintenance and software licensing. The terms of these services and licensing agreements are generally up to three years. We record the related service and licensing expenses on a straight-line basis, although actual cash payment obligations under certain of these agreements fluctuate over the terms of the agreements.
Book of Business Transfer-In February 2012 we entered into an agreement with a partner, whereby the partner transferred certain of its existing Medicare plan members to us as the broker of record on the underlying policies. Total consideration of $4.4 million will be amortized to cost of revenue in the consolidated statements of operations as we recognize commission revenue related to the transferred Medicare plan members over a period of up to five years.