Bright Health raised $924 million on a valuation of approximately $12 billion during its initial public offering on Thursday, with the Minneapolis-based insurtech booking the largest IPO among the health insurance startups that went public this year.
The company's shares failed to reach their estimated price of $18 during the IPO, meaning its valuation fell about $2 billion short of what investors expected. Bright Health is the last of the insurtechs expected to make an IPO this year, with Alignment Healthcare, Oscar Health and Clover Health all going public earlier in 2021.
Bright Health is the largest of these new-age insurance companies and its valuation reflects the size of its membership, said Blake Madden, a healthcare analyst at VMG Health. "Despite the maybe a little bit of mixed reviews on the IPO, I think it was like the most valuable digital health IPO in history," he said.
As of April, Bright Health served 623,000 individual, group and Medicare Advantage customers, according to an S-1 filed with the U.S. Securities and Exchange Commission in May. Oscar Health reported 542,220 customers across the same business lines at the end of the quarter that closed March 31. Clover Health had 130,000 total members and Alignment Healthcare covered 83,100 Medicare Advantage enrollees during the same period, according to financial filings.
"Bright Health is considerably larger than the other new-era health plans that have IPO'd recently, and they are doing something very different from those organizations, in that they are acquiring their way to growth," said Tom Cassels, president of Rock Health digital consultancy.
Bright Health launched in 2017 as a startup health plan aimed at disrupting the health insurance exchanges, and was co-founded by former UnitedHealth Group CEO Bob Sheehy. Unlike Oscar Health and Clover Health, which have attempted to build insurtech businesses from the ground-up, Bright Health has evolved primarily through acquisition, Cassels said. Bright Health recently purchased two Medicare Advantage plans in California for a combined $600 million. The company also owns and manages approximately 40 risk-bearing primary care clinics and it partners with local providers to manage care for patients. In April, Bright Health paid an undisclosed sum to buy Zipnosis, a telehealth platform that provides virtual care software to nearly 60 health systems nationwide.
The startup's aim of controlling price by merging health plan, provider and provider-enablement platforms is reminiscent of UnitedHealth Group's strategy, Cassels said.
Bright Health's physician-enablement business is analogous to OptumInsight, a subsidiary of UnitedHealth Group that operates provider clinics and aims to transform clinicians to value-based contractors through a variety of digital tools, he said. The startup's aim of using technology to drive risk-based contracts also bears a striking similarity to agilon health and Privia Health, physician-enablement tools that both of which went public through outsized IPOs earlier this year.
Cassels expects Bright Health to continue to grow by acquiring locally owned Medicare Advantage plans that have strong ties with regional medical groups. The company's continued expansion will make open enrollment even more competitive this coming year, he said. Unlike its national competitors, though, Bright Health's market cap will be based on its ability to attract individual enrollees rather than employers covering workers, he said.
"Probably the biggest unknown is: Are consumers in Medicare Advantage and the exchange markets going to see what they want in these new health plans versus these strong legacy brands?" Cassels said.
While Bright Health's $12 billion valuation can be justified compared with other recent IPOs by similar companies, the central question is whether these startups present an appropriate benchmark, said Ari Gottlieb, a healthcare consultant at A2 Strategy Corp.
Molina Healthcare has a $15 billion market cap and 3.8 million members, for instance, more than six times as many policyholders as Bright Health has, which is valued at around $12 billion. Clover Health, meanwhile, is worth about $5.3 billion thanks to its meme-stock investors, but has about one-sixth as many policyholders as Bright Health.
"You could argue that these insuretech businesses, their valuations are quite out of line with historical norms," Gottlieb said. "They reflect investors that don't fully understand the nuances of the business model."
As evidence, Gottlieb noted that Bright Health nearly doubled its year-over-year losses to $249 million at the end of 2020, a year when most health insurers performed well thanks to consumers deferring care during the COVID-19 pandemic. The company's challenges reflect the struggles faced across the insurtech industry, with Oscar Health and Clover Health likewise are struggling to reach profitability by focusing on specific geographic areas, he said.
Like Bright Health, both of these companies had disappointing public offerings and their share prices have fallen in the months since. At this point, Gottlieb said, individual markets represent a commoditized business where consumers mainly rely on price as a differentiator.
"You have to ask the question, 'Where's the 10x factor?'" Gottlieb said. "To me, that's the bigger question on Bright on the Medicare side. On the individual side, the market's challenged overall. So how do they do it?"