Just over a year after landing a massive IPO and just days before the application period for the 2023 Medicaid Advantage plans opens, Bright Health Group announced this week that it would end its offerings. individual and family health insurance and would reduce its Medicare Advantage Coverage only in California and Florida.
In 2023, the Bloomington-based company will leave Alabama, Arizona, Colorado, Florida, Georgia, Nebraska, North Carolina, Texas and Tennessee, Bright Health Group announced in a press release Tuesday. This is in addition to Bright Health’s previously announced exit from Illinois, New Mexico, Oklahoma, South Carolina, Utah and Virginia.
The company says it is now strictly focused on its largest markets. It will continue to operate clinics in California, Texas and Florida, which account for 26% of the nation’s aging population.
This change follows the company’s continued shift away from health insurance and toward direct care clinic offerings. In a conference call after the announcement, President and CEO Mike Mikan said the change allow the business to reduce its need to raise additional capital, adjust operating expenses to reflect the size of the business, and recover restricted capital in the future.
“It’s not a decision we took lightly,” he said, calling it a “strategic move” to accelerate the company’s profitability.
Bright Health did not respond to a request for additional comment.
A secondary impact to Tuesday’s announcement was seen in Colorado, where Bright Health has been involved in a major healthcare reform initiative led by the administration of Democratic Colorado Gov. Jared Polis, the Colorado Sun reported. Bright Health was supposed to be the supplier with plans for Peak Health Alliance, a group that planned to work with local communities to negotiate lower prices at hospitals. The Peak Health Alliance CEO learned of Bright Health Group’s withdrawal from Colorado on Tuesday when the press release was issued. She told the Sun that there is not enough time to find a new provider, which means that the program can no longer be offered in 2023.
To Allan Baumgarten, an independent health care industry analyst based in Minneapolis, said the scale of Bright Health Group’s announcement and its timing were surprising.
October 15 is the start date for open enrollment in Medicaid Advantage, “So it’s likely that the Bloomington staff building was buzzing with many employees preparing to aggressively market their Medicaid Advantage products in those 15 states,” he said. The scale of publicity around Medicaid Advantage is staggering, he noted. “And now they’re basically shutting this down,” he said. “Presumably, there are a lot of people going for their next job.”
In the health insurance business, it’s important to have a certain amount of unrestricted capital, Baumgarten said. The amount required varies from state to state, but an insurance company essentially needs to have a certain amount of this capital readily available in case it is necessary to pay claims or offset premiums that do not have not been paid. It is the type of capital that is not wrapped up in stocks or bonds.
It’s hard for start-up health insurance companies to survive in general, Baumgarten said. He’s seen other companies make similar pivots, like Oscar Health and Clover Health.
“All have made public offers. All generated a lot of buzz saying they were sort of millennial-focused health plans using a lot of technology,” Baumgarten said. “You could do a lot of things using an app on your phone that you couldn’t do with traditional insurance plans. And each of them is struggling the same way Bright Health is right now.
In addition to announcing its withdrawal from the states, Bright Health Group also announced Tuesday that it has raised $175 million in committed capital, which is expected to close in the coming weeks. This net $924 million when it went public in June of 2021. At the time, the shares were valued at $18 each. The shares have since fallen to $0.91.
Despite numerous major fundraisers, Bright Health has yet to turn a profit. In the second quarter of this year, the company reported a net loss of $432 million. But the company says it now expects to be profitable in 2023.
“There are certain limits to how long you purge your losses and continue to burn your capital. They did not show that the insurance business was likely to become profitable,” Baumgarten said.