Bright Health Group will sell its final insurance assets to Molina Healthcare for up to $600 million in cash, the financially embattled insurtech announced Friday.
Bright Health needed to ink a proposed sale agreement for its Medicare Advantage business in California by Friday to avoid bankruptcy after it overdrew its $350 million revolving credit facility earlier this year. The company has extended its agreement with lenders and must raise an undisclosed amount of additional capital to make it through the year, Bright Health wrote in a Securities and Exchange Commission filing submitted Friday.
If the sale goes through as planned, it would mark the end of Bright Health's insurance ambitions. After making a splash with a hefty initial public offering in 2021, the company's uncertain future rests entirely on its NeueHealth primary care clinics in Florida and Texas. Bright Health formerly sold Medicare Advantage, health insurance exchange and employer-sponsored insurance policies in 15 states, but widespread financial problems attracted regulatory scrutiny and ultimately forced the company to scrap its insurance operations.
The new deal comes just in time for Bright Health, which needed to raise at least $300 million by Friday to satisfy its creditors. The company extended and amended its credit arrangement through the end of August, it reported to the SEC. Under the new terms, Bright Health must hold at least $35 million in capital and is limited in what assets it may sell and what money it may borrow. It also is subject to cash flow, cash balance and other reporting requirements. Moreover, Bright Health has until July 17 to notify creditors how it plans to raise additional equity or debt financing.
Molina Healthcare values the purchase at $510 million, including a $90 million tax benefit, and will finance the acquisition with existing capital, according to a news release. The insurer expects the deal to increase its share price by $1. As part of the acquisition, Molina has agreed to direct its individual and Medicaid members to NeueHealth clinics starting next year.
Bright Health was the least profitable health insurer during the first quarter, when it recorded a $94.7 million net loss on $756.3 million in revenue. The company completed a reverse stock split in May to raise its share prices to the New York Stock Exchange's $1 minimum and avoid being delisted.
Bright Health stock opened at $12.34 on Friday, up 12.7% from the prior day’s close. Molina shares began trading at $296.94 on Friday, 7.4% higher than Thursday.
The parties anticipate the transaction will close in early 2024. Regulators must approve the deal, which is subject to a number of other conditions. Bright Health intends to use the proceeds to reimburse lenders and pay former commercial insurance members' medical claims, the company said in the news release.
Bright Health and Molina Healthcare did not respond to interview requests.
Bright Health paid a combined $533.8 million in cash and stock to acquire the Medicare insurers Brand New Day and Central Health Plan prior to its IPO. The plans reported a $60 million net loss last year, according to state regulatory filings.
Molina will require Brand New Day and Central Health Plan to achieve star ratings of at least three out of five this year, according to the SEC filing. The sale also depends on Bright Health’s ability to stay afloat. If Bright Health is unable to satisfy these conditions, it would pay Molina an $18 million termination fee, according to the SEC filing.
Central Health Plan and Brand New Day have 125,000 Medicare Advantage enrollees, most of whom are dually eligible for Medicare and Medicaid. If membership falls below 105,000 by the time the deal closes, Molina can reduce the purchase price proportionally to a minimum of $300 million, Bright Health reported to the SEC. Molina would pay less than $600 million if Bright Health fails to maintain required reserves.
The Medicare Advantage plans must seek Medicaid contracts and file them with federal and California regulators by Monday, Bright Health disclosed to the SEC. California is in the process of shutting down "lookalike" Dual Eligible Special Needs Plans and will require Medicare Advantage special needs plan carriers to participate in Medicaid, which is called Medi-Cal in the Golden State.