eHealth (EHTH): A Medicare-Driven Surge or a Risky Bet?

eHealth, Inc. (NASDAQ: EHTH) delivered a stellar fourth-quarter performance, with revenue and earnings soaring amid strong growth in its Medicare business. Yet, beneath the headline numbers lies a mixed picture of opportunity and risk. Investors now face a critical question: Does the company’s Medicare momentum justify a buy, or do its vulnerabilities in other segments and cautious guidance warrant caution?

The Medicare Engine Roars

The standout in eHealth’s Q4 results is its dominance in Medicare Advantage (MA) and Medicare Supplemental plans. Medicare segment revenue surged 56% year-over-year to $159.88 million, while MA submissions jumped 42% and approved members rose 39% to 222,631. This growth fueled a 27% increase in total revenue to $315.2 million, with Medicare now accounting for over 90% of total approved members.

The Medicare segment’s success isn’t just about volume. Margins expanded dramatically: Medicare unit margins rose 16% year-over-year as acquisition costs per MA member dropped 23%, while commissions (LTV) increased. This efficiency helped boost Q4 adjusted EBITDA to $121.3 million, a 74% year-over-year leap. For the full fiscal year, adjusted EBITDA more than quadrupled to $69.3 million from $14.1 million in 2023.

But the E&I Segment Is Struggling

While Medicare shines, the Employer and Individual (E&I) segment is a glaring weakness. Approved E&I members plummeted 23% to 7,131 in Q4, and the segment’s gross profit collapsed 57% to $4.02 million. This decline underscores the company’s reliance on Medicare, which now accounts for nearly 90% of its revenue. Overconcentration in one market segment could amplify risks if Medicare enrollment trends reverse—say, due to regulatory changes or economic shifts.

Guidance: Caution Amid Optimism

Management’s 2025 outlook reveals a tempered approach. Revenue growth is projected to slow to an 8% CAGR, down from the 18% growth in 2023–2024. Adjusted EBITDA is expected to drop to $35–60 million, implying a margin of just 9%—far below Q4’s 38% margin. The guidance also assumes operating cash flow could turn negative again, a reminder of past volatility.

The company cites “market dynamics” and “regulatory changes” as risks. For instance, the Biden administration’s push to expand public Medicare options or tighten private plan regulations could disrupt eHealth’s model.

Valuation and Risks

At current prices, eHealth trades at a forward P/E of ~25–30x based on 2025 estimates, a premium to peers like Oscar Health (OSCR) or UnitedHealth (UNH). Investors are pricing in continued Medicare dominance. However, the stock’s 40% year-to-date rally may already reflect much of this optimism.

The risks are significant. A slowdown in Medicare enrollment, rising competition, or regulatory headwinds could upend projections. The company’s $1 billion in commissions receivable—a record—also highlights cash flow timing risks if insurers delay payments.

Conclusion: Hold for Now

eHealth’s Q4 results are undeniably impressive, fueled by Medicare’s explosive growth. The margin improvements and revenue gains suggest a well-executed strategy in this segment. However, the reliance on Medicare, the declining E&I business, and cautious 2025 guidance temper enthusiasm.

The stock’s valuation is stretched relative to the projected slowdown in growth. While Medicare’s tailwinds could continue, investors should wait for clearer signs of stabilization in E&I or regulatory certainty before leaning bullish. Hold remains prudent, with a Buy rating reserved for those willing to bet on sustained Medicare dominance and a turnaround in other segments.

In sum, eHealth is a high-reward, high-risk play. The Medicare surge is real, but so are the risks of overexposure to one market. For now, investors should tread carefully.