What happened

Shares of Health Insurance Innovations (NASDAQ:BFYT) fell by 12.4% Friday after the company provided an update on its business strategy and ongoing strategic review process. The cloud-based insurance platform company announced plans to boost investments in its Medicare business while attempting to maximize cash flows with its individual and family plan (IFP) business.

So what

Why did investors react so negatively to the news? Probably because CEO Gavin Southwell stated that the shift to more heavily prioritize Medicare "may result in certain IFP carrier and distributor relationships and books of business being run-off or replaced." 

Person holding a tablet with an online health insurance app

Image source: Getty Images.

That's not what shareholders liked to hear. Nearly half of the company's current policies in force are individual and family plans.

However, Health Insurance Innovations' strategy to focus more on Medicare could pay off over the long run since Medicare is a fast-growing part of the overall health insurance market. Southwell said that the company thinks "that further investment in our Medicare business is significantly value-enhancing."

Now what

Even though Health Insurance Innovations' Medicare shift is a smart move overall, it's likely to increase volatility for the stock in the near term. Next year already seemed likely to be a potentially tumultuous year for healthcare stocks in general, with the U.S. presidential elections creating uncertainty about what the future might hold for health insurers, pharmacy benefits managers, and drugmakers. Look for Health Insurance Innovations to have a bumpy ride for a while.

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.