What happened

Health Insurance Innovations (NASDAQ:HIIQ) investors have been selling stock ever since shares soared following news of a settlement with insurance regulators on Dec. 13. Today, the company's stock price continued its tumble, falling 11% at 2:30 p.m. EST. 

The drop brings the Health Insurance Innovations decline this week to 18% following word that a Texas federal judge ruled last Friday that the Affordable Care Act's mandate made the law unconstitutional.

A person holds his palm against his forehead in front of a wall displaying a declining stock price chart.

IMAGE SOURCE: GETTY IMAGES.

So what

The company came under fire from short-sellers last year because of a multistate investigation into allegedly boiler-room style sales tactics by third parties to drive sales of Health Insurance Innovations' short-term health insurance and hospital indemnity plans higher.

On Dec. 13, Health Insurance Innovations announced it had reached a settlement for $3.4 million with regulators investigating it, and the company promises to put stricter monitoring and compliance procedures in place.

The news is a plus for the company because it removes an overhang. However, this will increase the company's ongoing costs, and it isn't entirely clear that changes and any damage to its reputation caused by the investigation could negatively impact its sales.

Investor uncertainty also picked up this week after a federal judge in Texas ruled the Affordable Care Act is unconstitutional because of its mandate. On the surface, this would seem to be a tailwind for short-term policy sales. However, one reason Health Insurance Innovations has seen demand grow over the past few years has been consumers investigating whether its plans satisfy the ACA insurance requirement.

Therefore, the possible setback to the ACA could result in a fall-off in consumer interest in researching these policies, reducing policy sales and renewals. 

Now what

The company's plans aren't ACA compliant, and the settlement agreement requires that this be disclosed to everyone. If misconceptions or less-than-thorough compliance with disclosure in the past helped increase policy sales, then greater disclosure could create a headwind. Couple that uncertainty with the possibility of perceptions regarding the importance of insurance declining, and you could see a flattening in this company's growth rate.

To be clear, that's not happening yet. Health Insurance Innovations' revenue grew 17% to $74 million, and that resulted in adjusted earnings per share of $0.61 in the third quarter.

It's certainly possible the company will wind up benefiting from increasing demand, because short-term health insurance remains a valuable stopgap for many people, but the company's got enough question marks to make me feel like it's best to focus on other healthcare stocks.