Access Plans, Inc. (OTCBB: ALHC) is a leading membership and insurance marketing company with three complementary distribution channels offering multiple opportunities for growth. The Wholesale Plans Division specializes in turnkey, private label membership benefit plans offered through retail outlets including rent-to-own centers. The Retail Plans Division markets healthcare-related discount products and services to consumers through third-party marketers. Program components in both membership plan divisions range from medical, dental and pharmacy discounts to grocery, restaurant, automotive, travel and other consumer discounts. The Insurance Marketing Division comprises America's Health Care Plans (AHCP), one of the nation's largest independent agent networks for distributing individual major medical health insurance.
BUSINESS OVERVIEW
We are a leading provider of consumer membership plans, healthcare savings membership plans and a leading marketer for individual major medical health insurance products. In partnership with our wholesale and retail clients, we design and build membership plans that contain benefits aggregated from our vendors that appeal to our clients’ customers. Our major medical health insurance products are offered and sold through a national network of independent agents.
Our current operations are organized under three business divisions.
Wholesale Plans
Our Wholesale Plans Division provides our clients customized membership marketing plans that leverage their brand name, customer relationships and typically their payment mechanism, plus offer benefits that appeal to their customers. The value provided by our plans to our clients, includes increased customer attraction and retention, plus incremental fee income with limited risk or capital cost. By implementing these plans repetitively, our management team is uniquely qualified to efficiently assist our clients in achieving their goals, while avoiding operational and marketing pitfalls.
This division currently delivers membership plans to over 210 companies, including retail purchase dealers, insurance companies, financial institutions, retail merchants, and consumer finance companies. At September 30, 2009, our wholesale plans were offered at approximately 4,800 locations. Of the locations at September 30, 2009, 2,850 locations were Rent-A-Center company owned locations operated under their brand. Rent-A-Center, Inc., a Nasdaq (symbol RCII) traded company, is the largest rent-to-own company in the United States, Puerto Rico and Canada. Our revenue attributable to the contractual arrangements with Rent-A-Center was approximately $11.6 million, (30% of total revenue) during the fiscal year ended September 30, 2009, compared to $11.6 million, (55% of total revenue) during the fiscal year ended September 30, 2008. Total revenue for our Wholesale Plans’ division accounted for $19.5 million, (50% of total revenue) and $18.1 million, (86% of total revenue) during the fiscal years ended September 30, 2009 and September 30, 2008, respectively. Our growth in wholesale plans revenue is dependent in significant part on an increase in the number of rent-to-own locations at which these plans are offered and the selling efforts at those locations. Although our revenue from wholesale plans continues to grow, we expect this revenue source to decline as a percentage of total revenues as we diversify our revenue sources. Although we have long-term contracts with Rent-A-Center and other rent-to-own companies, the loss of these contractual arrangements, especially with Rent-A-Center would have a significant adverse impact on our revenues, profitability and our ability to negotiate discounts with our vendors.
Retail Plans
Our Retail Plans’ offerings include healthcare savings plans and association memberships that provide insurance features. These healthcare savings plans are not insurance, but allow members access to a variety of healthcare networks to obtain discounts from usual and customary fees. We offer wellness programs, prescription drug and dental discount programs, medical discount cards, and limited benefit insured plans. Our members pay providers the discounted rate at the time services are provided to them. These plans are designed to serve the markets in which individuals either have no health insurance or limited healthcare benefits. Our revenue attributable to retail plans was approximately $12.8 million, (33% of total revenue) and $7.3 million, (35% of total revenue) during the fiscal years ended September 30, 2009 and 2008, respectively. This division is comprised of the membership business of Alliance Healthcard, The Capella Group, Inc. (“Capella”) and Protective Marketing Enterprises, Inc. (“PME”). Capella and PME are subsidiaries of Access Plans USA which we acquired on April 1, 2009. PME also owns and manages proprietary networks of dental and vision providers that provide services at negotiated rates to certain members of our plans and other plans that have contracted with us for access to our networks.
Through our healthcare savings plans, we believe customers save an average of 35% on their medical costs and between 10% and 50% on services through other discount medical providers. These discounts for services that do not require the use of a medical PPO are more difficult to track because our members pay a discounted rate at point of service.
Operationally, this division utilizes two platforms: the “Affinity” system that is operated under a third party license to PME and the “Alliance” system that is a proprietary system we developed. These systems are utilized primarily for the following functions:
• Maintaining member eligibility
• Generate periodic reporting to contracted third party networks and other vendors
• Paying commissions
• Maintaining a database of providers and provider locator services
• Drafting member accounts and tracking cash receipts
In addition to our wholesale and retail offerings, certain clients may choose to include our benefits with their own membership plan offering. In these instances, the client bears the cost of marketing and fulfillment, and we provide customer service. These offerings are designed to enhance our clients’ existing offering and improve their product value relative to their competition and in some instances to improve their customer retention. While these plans provide lower periodic member fees, we incur limited implementation costs and receive higher revenue participation rates. Our additional distribution channels also include network marketing representatives, independent agents and consumer direct sales call centers. We also market to internet portals and financial institutions.
In order to deliver our membership offerings, we contract with a number of different vendors to provide various products and services to our members. The majority of these vendor relationships involve the vendor providing our members access to their network or providers or their locations and our members obtain a discount at the time of service. We have vendor relationships with medical networks, automotive service companies, insurance companies, travel related entities and food and entertainment consumer discount providers. Our vendors value the relationship with us because we deliver many customers to them without incremental capital cost or risk on their part and these relationships are governed by multi-year agreements and aggregated volume scaling.
Insurance Marketing
Our Insurance Marketing division offers and sells individual major medical health insurance products and related benefit plans, including specialty insurance products, primarily through a national network of independent agents. America’s Healthcare/Rx Plan Agency (AHCP) is the centerpiece of the Insurance Marketing division. AHCP distributes major medical, short term medical, critical illness and related health insurance products to small businesses, self-employed and other individuals and families through a network of approximately 5,800 independent agents. The primary insurance carriers that we represent include: Golden Rule Insurance Company, World Insurance Company, American Community Insurance Company, Aetna and Colorado Bankers.
We support our agents and recruit new agents via access to proprietary and private label products, leads for new sales, commission advance programs, incentive programs, including an annual convention, web-based technology, and back-office support. More specifically, our agent support and recruiting tools include:
• e-Agent Center — provides agents with access to real-time rate quoting, on-line licensing and contracting, insurance application submission, access to brochures and other marketing materials.
• Lead Distribution — we utilize an electronic system to connect agents with an on-line lead ordering and delivery system. Leads are also provided in certain situations as incentives to sell certain policies.
• Incentive programs — to assist with agent motivation and recruitment, we provide paid annual convention trips and periodic sales contests.
• Agent advances — with most of the major medical products we represent, agents are entitled to from 3 to 9 months of advance commissions either funded by AHCP or our insurance carrier partner. Our ability to grow this segment will depend, in part, on our continued access to working capital to fund these advances.
• Home office support — this includes agent and product training, marketing materials and agent communication. The training programs include both on-site and in-house schools, DVDs and webcasts covering product knowledge and sales techniques as well as market conduct and regulatory compliance issues. In addition, our support includes development and distribution of a wide variety of marketing materials including flyers, brochures, email blasts and letters. We also promote and inform our agents on important news and updates via a weekly newsletter.
Our strategy for the Insurance Marketing division is to:
• continue working with insurance carriers in the development of proprietary products for our agents to represent;
• expand the number of carriers that we represent for more product choice for customers and expanded geographic representation; and
• enhance our e-agent platforms in order to better serve our existing agents and improve attraction to new agents to sell plans we represent
We generate most of our revenue in this segment from commissions paid to us by health insurance carriers whose health insurance policies we have sold. Our revenue attributable to commission and fee revenue was approximately $11.1 million and represented 97% of our total revenue in this segment for the fiscal year ended September 30, 2009. The remainder of our revenue is primarily attributable to interest earned on commissions advanced to our agents.
Operating results of the Insurance Marketing division are only for the six months ended September 30, 2009 following completion of our acquisition of Access Plans USA on April 1, 2009.
