Bright Health Group told investors this month it needs to raise more capital over the next year, describing the move as a long-awaited step for the fast-growing health insurer.
But in regulatory filings this month, Bright Health delivered the same essential message with greater urgency, saying it has “substantial doubt” that the company can continue as a going concern without raising more capital.
The Bloomington-based insurer has a history of operating losses including a net loss of $432 million during the first six months of 2022, it said in a report to Florida regulators about its second-quarter financial results.
The losses, along with membership growth, meant the company had to set aside reserve funds as required by insurance regulators, reducing cash to run the business.
“Based on our forecasted cash flows and in the absence of any other action, Bright Health Group will require additional liquidity to meet its obligation as they expire in the 12 months following the date of publication of the statutory financial statements,” it said. the company in between. -August delivery. “These conditions raise substantial doubt about the company’s ability to continue as a going concern.”
Asked about comment on the regulatory filing, Bright Health Group reiterated in a statement to the Star Tribune that the need for more capital is not a surprise.
“As noted during our earnings call and in our public filings, Bright Health Group has always planned to seek additional capital as we continue to progress to reach 2024,” the company said. “We are actively working to satisfy our capital needs through 2023 and beyond.”
The statement added: “Bright Health’s business is now at a much more capital efficient stage and we continue to focus on balanced growth while driving improvements in profitability.”
Bright Health finds itself overextended in a way that was common 30 or 40 years ago with the advent of managed care, as new health plan companies grew quickly and then either raised cash and divested assets or were acquired by others when losses mounted, Steve said. Parente, a health economist at the University of Minnesota.
It’s hard for a new company to meet these challenges now, Parente said, because investors are becoming very selective about which companies they finance given rising interest rates. And unlike in the 1980s and 1990s, the managed care industry is now dominated by big players.
“What they were trying to do was be a major disruptor in a very discontinuous landscape,” he said. The company “isn’t in a good position. At the same time, it’s not, ‘The sky is falling—the asteroid will be here in an hour.'” It’s more like, ‘We’ve seen a near-Earth object and we need to we take action.’ “
Founded in 2015, Bright Health sells health insurance coverage to individuals under the age of 65 through government-run health exchanges. It also runs Medicare Advantage health plans for seniors who choose to get their government insurance benefits through private managed care companies.
Beyond insurance, the company operates medical clinics and has advocated how a partnership between its health plans and health care providers can provide better quality for patients at a lower cost.
As of June, Bright Health had about 970,000 individual enrollees in the marketplace and 120,000 people in Medicare Advantage plans.
An enrollment surge in 2021 compounded by COVID-19 issues made it difficult for the insurer to accurately calculate risk scores for enrollees. As a result, the company took a big hit to revenue due to unexpected risk adjustment payments, where funds are transferred to insurers in the individual market that cover more people at risk of needing costly medical services.
Rapid growth in some state health insurance markets — particularly Florida — meant the company fell behind in uploading data about health care providers into its claims payment system. As a result, Bright Health failed to pay claims on time, exacerbating its risk adjustment problems.
The company says it has made significant progress in resolving claims processing and risk adjustment issues over the past six months. In its statement to the Star Tribune, Bright Health said that “in addition to our financial efforts, we have improved our financial performance and taken actions to reduce our growing capital needs.”
In June 2021, Bright Health raised $924 million in the largest initial public offering ever by a Minnesota company. By December, the company was raising more money — $750 million, including a major strategic investment from a subsidiary of Cigna Corp., one of the nation’s largest health insurers.
In a regulatory filing this month, Bright Health Group reiterated that it has formed a special board committee and engaged a financial advisor in the financing search.
“However, the company may not be able to obtain financing on acceptable terms, as any potential financing will be subject to market conditions beyond the company’s control,” Bright Health Group said in the filing. “In the event that the company is unable to obtain additional financing or take other management actions, among other possible consequences, we anticipate that we will be unable to meet our financial covenants under our credit agreement.”
In Colorado, the insurance market where Bright Health Group first launched the products, regulators say they are staying in “constant communication” with Bright Health as they do with all insurers in the state.
“The division will take appropriate regulatory action if at any time it becomes apparent that Bright cannot meet its financial obligations,” the Colorado Division of Insurance said in a statement to the Star Tribune.