What happened

Health Insurance Innovations (NASDAQ:HIIQ) shareholders have endured a horrible September that included short-sellers questioning the long-term viability of its business model and most recently, the quality of the company's third-party network of brokers. In the wake of these questions, investors knocked 24% off of the company's valuation in today's session alone.

So what

Health Insurance Innovations markets short-term health insurance and hospital indemnity plans online and via third-party distributors. These plans offer consumers stop-gap coverage in a pinch. However, they aren't compliant with Obamacare health insurance requirements and it's uncertain if that fact is being appropriately discussed with consumers prior to their becoming customers. 

A business person biting his nails.

IMAGE SOURCE: GETTY IMAGES.

Demand for stop-gap plans has been increasing, and that's led to Health Insurance Innovations reporting significant sales growth. In the second quarter, revenue grew 39% year over year, to $61.8 million, and adjusted earnings per share (EPS) grew 70%, to $0.46.

The company's success, however, could be short-lived, according to reports issued by short-sellers. These reports maintain that investigations into its Health Insurance Innovations' business practices could result in settlements that materially impact the company's ability to continue selling plans. Currently, a 42-state investigation is underway.

These short reports also question the company's ability to continue doing business if it doesn't get granted a license to act as a third-party administrator (TPA) in its home state of Florida. Florida rejected the company's license application in June, citing a failure to respond in a timely manner, and "that the applicant is not competent."

If those concerns aren't worrisome enough, short-sellers now are wondering if the third-party brokers who sell this company's plans are about to see a reckoning because of questionable backgrounds and a lack of licensure.

Now what

Management says it's still discussing licensure in Florida, and that the investigation into its marketing practices is ongoing. Therefore, any outcome stemming from it is uncertain. However, in the company's last quarterly SEC filing, management left the door open for a negative material impact (emphasis mine):

The Company is aware of and managing additional claims and inquiries in other states that, except for the inquiries described below, the Company does not believe are material at this time. Except as otherwise described below, it is too early to determine whether any of these regulatory examinations will have a material impact on the Company.

Given all of the questions regarding the company's licensure and investigations, plus new questions regarding the quality of the third-party brokers responsible for the vast majority of Health Insurance Innovations customers, investors are right to think this company has too many question marks to justify owning it anymore.

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.