Bright Health Group will go belly-up by the end of the year if it doesn’t raise additional capital, executives said during a call with investors Wednesday.
The health insurance company spent the $350 million available in its revolving credit facility, which violated the terms of an agreement with its lenders because Bright Health is required to maintain at least $200 million in this account, Chief Financial Officer Cathy Smith said. The company has until the end of April to make up the shortfall.
“We are working hard to obtain additional financing to alleviate the going concern qualification, and we are laser-focused on addressing these issues,” Smith said.
The insurer has to raise “about” $300 million, CEO Mike Mikan said. An unexpected $70 million decline in investment income and a more than $1 billion risk-adjustment settlement related to its discontinued health insurance exchange business led to a credit overdraft, he said.
Bright Health Group shares opened on the Nasdaq exchange at 78 cents Wednesday, down 10.3% from the previous day's closing price and down 76.8% from its 52-week high of $3.36 on March 1, 2022. The company's shares were valued at $17.25 when they debuted in June 2021. It closed at 50 cents a share Wednesday.
The insurtech, which operates 75 value-based primary care clinics and sells Medicare Advantage plans in California, has $150 million in immediate cash. Bright Health also has $2.8 million in reserve for its state-regulated insurance operations; the company must receive approval from states draw on those funds.
It’s net loss grew 15.4% to $1.35 billion in 2022, driven by the risk-adjustment payment and costs associated with ending its exchange operations, according to a news release. Bright Health generated $2.4 billion in revenue last year, up 59.4%.
Because the company significantly restructured its business in 2022, comparisons to the prior year aren't exact, Mikan said. The insurer continues to work with state regulators to pay claims generated by its former exchange members, and expects it will incur additional risk-adjustment costs, he said.
Bright Health spent more than $750 million last year to end all of its exchange and most of its Medicare Advantage insurance lines and to retool its operations. Its credit facility agreement will expire at year's end and the company is working to negotiate an updated contract, Mikan said.
“We’re working with our board and advisors to replace the credit facility with full access liquidity and put in a permanent capital structure that is more reflective of the credit risk profile of the business going forward," he said.
Despite the threat of insolvency, Mikan reiterated his prediction that the company will be profitable on an adjusted earnings basis this year. Bright Health reported it has 125,000 Medicare Advantage beneficiaries and 65,000 Accountable Care Organization REACH members.