What happened

Shares of eHealth (NASDAQ:EHTH), an online source of private health-insurance options for individuals, families, and businesses, surged higher by as much as 22% after reporting its first-quarter earnings results following Thursday's closing bell. As you can probably guess by the reaction, investors are happy with what they're hearing.

So what

For the quarter, eHealth reported revenue of $78.9 million, which represents a 7% increase from Q1 2016, with commission revenue growing 10% year on year. Comparatively, Wall Street had been looking for just $70 million in revenue.

A stethoscope laying on a health insurance enrollment form.

Image source: Getty Images.

The entire reason for this revenue growth can be traced to the $58 million derived from its Medicare segment, a 33% increase from the prior-year quarter. Medicare enrollment increased to 284,900 as of the end of Q1, up from 220,300 a year earlier.

Conversely, individual, family, and business revenue was a disappointment. Revenue in this segment was $21 million, down 31% year over year, although eHealth remained profitable on this segment "despite the challenging market environment and declining member base." Membership in this segment was practically halved from 523,000 in Q1 2016 to 265,200 in the recently ended quarter.

Looking at the bottom line, eHealth generated $33.4 million in net income, or $1.80 a share, which compared very favorably to the $0.99 per-share profit in Q1 2016 and the $0.39 in earnings per share (EPS) that Wall Street was expecting.

What's more, eHealth raised its outlook for the full year. The company now anticipates $165 million to $175 million in revenue, which is still right in line with where Wall Street has the company pegged, and foresees a narrower loss of $0.86 to $0.96 per share compared to a prior loss-per-share forecast of $1.46 to $1.59.

A doctor discussing Medicare options with an elderly patient.

Image source: Getty Images.

Now what

There have been virtually no certainties with the rollout of the Affordable Care Act (ACA) over the past three-plus years, but volatility in eHealth's earnings results might be the closest thing we can get to a guarantee -- and that's not a good thing.

Individual and family membership was expected to be a major boon for eHealth, but the private health insurer simply hasn't caught on with the public as expected. And the ACA hasn't lived up to a smorgasbord of expectations, which has also hurt eHealth's ability to attract new individual and family business.

On the other hand, eHealth is getting more aggressive with its Medicare business, and with the current aging population, that could be a smart move. If eHealth's margin-boosting initiatives work over the long run, the company may be able to reduce its quarterly result lumpiness and deliver a recurring full-year profit. But we're likely talking about a multi-year initiative, so investors are going to have to be patient.

For the time being, I'm perfectly satisfied sticking to the sidelines and keeping an eye on eHealth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.