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EHealth Posts a Loss

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The Patient Protection and Affordable Care Act of 2010 (PPACA) has already taken a bite out of the business of eHealth Inc., the parent of the health insurance distribution site

EHealth, Mountain View, Calif. (Nasdaq:EHTH), is reporting a net loss of $249,000 for the third quarter on $35 million in revenue, compared with $2.6 million in net income on $37 million in revenue for the third quarter of 2010.

The company has no debt and a pile of about $126 million in cash on hand, and Gary Lauer, the chief executive officer, made no complaints during the company’s earnings call about health insurers cutting commissions.

Commission revenue fell to $28 million during the quarter, from $32 million during the comparable quarter a year ago, but that seems to be primarily due to PPACA, Lauer said.

PPACA provisions that took effect Sept. 23, 2010, require group plans and individual coverage issuers that offer dependent coverage to make dependent coverage available to children up to age 26. Other provisions have made more types of other coverage available to children but reduced availability of child-only coverage in some states.

The result of the changes was a 20% decrease in application volume during the third quarter, largely due to a drop in the number of applications for coverage for young adults, Lauer said.

The drop came as total enrollment in eHealth’s system increased 4%, to about 810,000.

The older consumers who are continuing to apply for coverage tend to apply for coverage for more people per application, and those older consumers seem to be choosing higher-priced policies, Lauer said.

“I don’t think we anticipated this quite to the degree that we’re seeing,” Lauer said.

Year-over-year application flow comparisons should look better as eHealth starts reporting current-quarter and year-ago comparisons involving year-ago quarters in which the PPACA young adult coverage access rules were already in effect, Lauer said.