Bright Health increases the urgency in seeking more capital

Bright Health Group told investors this month it needs to raise more capital over the next year, describing the move as a long-anticipated step for the fast-growing health insurer.

But in regulatory filings this month, Bright Health delivered the same core message with greater urgency, saying there's "substantial doubt" 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 second quarter financial results.

The losses, coupled with membership growth, mean the company had to set aside more reserve funds as required by insurance regulators, thereby reducing cash for running the business.

"Based on our projected cash flows and absent any other action, Bright Health Group will require additional liquidity to meet its obligation as they come due in the 12 months following the date the statutory basis financial statements are issued," the company said in the mid-August filing. "These conditions raise substantial doubt about the company's ability to continue as a going concern."

Asked about the commentary in 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 break even in 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 in 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 young health plan companies grew quickly and then either raised money and lopped off assets or were acquired by others when losses mounted, said Steve Parente, a health economist at the University of Minnesota.

It's tough for a young company to face those challenges right now, Parente said, because investors are getting very selective with what companies they fund given rising interest rates. And unlike the 1980s and 1990s, the managed care industry is now dominated by huge players.

"What they were trying to do was be a big disrupter in a very, undisruptable landscape," he said. The company "is not in a great position. At the same time, this is 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 need to take action.' "

Founded in 2015, Bright Health sells health insurance coverage to individuals under age 65 through government-run health exchanges. It also runs Medicare Advantage health plans for seniors who opt to receive their government insurance benefits through private managed care companies.

Beyond insurance, the company operates medical clinics and has touted how a partnership between its health plans and health care providers can deliver better quality for patients at a lower cost.

As of June, Bright Health had about 970,000 individual market enrollees and 120,000 people in Medicare Advantage plans.

An enrollment surge in 2021 complicated 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 revenue hit 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.

Fast growth in some state health insurance markets — particularly Florida — meant the company fell behind in loading data about health care providers into its claims payment system. As a result, Bright Health failed to pay claims on time, exacerbating its troubles with risk adjustment.

The company says it has made significant progress on resolving the problems with claims processing and risk adjustment over the past six months. In its statement to the Star Tribune, Bright Health said that "apart from our financing efforts, we have improved our financial performance and taken actions to reduce our incremental capital needs."

In June 2021, Bright Health raised $924 million in the largest-ever initial public offering by a Minnesota company. By December, the company was raising more money — $750 million including a large strategic investment from a subsidiary of Cigna Corp., one of the nation's largest health insurers.

In the regulatory filing this month, Bright Health Group reiterated that it has formed a special committee of the board and engaged a financial advisor in the hunt for financing.

"However, the company may not be able to obtain financing on acceptable terms, as any potential financing will be subject to market conditions that are not within the company's control," Bright Health Group said in the filing. "In the event the company is unable to obtain additional financing or take other management actions, among other potential consequences, we forecast we will be unable to satisfy our financial covenants under our credit agreement."

In Colorado, the insurance market where Bright Health Group first launched 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 point it becomes clear that Bright cannot meet its financial obligations," the Colorado Division of Insurance said in a statement to the Star Tribune.