Soft benefits activity hits Connecture earnings

Insurance technology vendors

Jeff Surges said the private exchange market is real but has grown more slowly than expected. (Image: Thinkstock) Jeff Surges said the private exchange market is real but has grown more slowly than expected. (Image: Thinkstock)

One of the pioneers in the web-based health insurance sales business says it suffered from lower-than-expected revenue growth in the fourth quarter of 2016.

The company, Connecture Inc., is reporting a net loss of $6.2 million for the quarter on $21 million in revenue, compared with $4.3 million in net income on $29 million in revenue for the fourth quarter of 2015.

Francisco Partners, a San Francisco-based private equity firm that already owned a stake in Connecture, and another investment firm invested $17.5 million in the company earlier this March. Francisco Partners now controls about 56 percent of Connecture's stock, the company said in its earnings release.

Related: A look at the earnings of 3 health market players

A bank lender readjusted loan terms and gave the company another $2.5 million in 2017 liquidity, the company said.

Connecture provides systems and services for private exchanges, brokers, health insurers and insurers outside the major medical market. It's winding down a unit that supported an Affordable Care Act public exchange program.

Connecture executives said earlier this week, during a conference call with securities analysts that was streamed live on the web, that the company's systems now serve client systems with about 1.2 million users under the age of 65 and about 2.3 million people ages 65 and older.

Overall 2016 enrollment through Connecture systems was up about 15 percent from 2015 levels, but fourth-quarter growth at some clients that pay volume-based fees was lower than expected.

Jeff Surges, the company's president, said during the conference call that he believes Connecture has been affected by some of the same forces facing the rest of the health insurance industry.

"The private exchange market in the United States, while real, has failed to achieve the growth trajectory that many were predicting," Surges said.

Weakness in the individual and family market has also created uncertainty and slowed insurer and broker investment in that sector, Surges said.

Connecture believes it has been spending too much cash, and it hopes to cut overall 2017 expenses by about $15 million, Surges said.

Surges said he does see reasons for optimism: The company recently made a system sale to a regional health plan with about 500,000 enrollees, and it made another sale to a company that works with brokers.

Related:

Connecture faces life as a public company

Blues to start private exchange for retirees

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