Bright Health Group will end health insurance for individuals and families and reduce its Medicare Advantage coverage to just two states, moves that will halve its revenue.
The moves announced on Tuesday mark a dramatic pullback for the Bloomington-based company, which has built a national presence in just five years.
After Bright Health attracted billions of dollars in investment capital, Bright Health’s rapid growth has resulted in increased regulatory reserve requirements to be met. Coupled with pandemic-related payouts, the company reported huge financial losses. Executives said the restructuring would ease that pressure and bring stability.
“We would expect much greater predictability of our earnings and growth margins,” Mike Mikan, the company’s chief executive officer, told investors on a conference call Tuesday morning.
Bright Health currently sells insurance coverage on state exchanges in 15 states. But it said on Tuesday it will no longer offer cover in any of them from January, effectively mothballing that line of business.
Bright also announced it would withdraw Medicare Advantage plan offerings in four states, leaving only California and Florida.
The company will exit individual health insurance markets in Alabama, Arizona, Colorado, Florida, Georgia, Nebraska, North Carolina, Texas and Tennessee in January, extending previously announced exits from Illinois, New Mexico, Oklahoma, South Carolina, Utah and Virginia . In a footnote to the document, Bright said there was a possibility some individual plan coverage in California would continue.
It is unclear how the job cuts will affect the number of employees. The company did not respond to a request for comment.
Bright Health said it will now focus on its non-insurance business. The company operates medical clinics that will be part of its “fully aligned care model” that integrates data and analytics. This model aims to provide better value to elderly and underserved patients in the company’s largest markets — California, Florida and Texas — where 26% of the nation’s seniors live.
The company’s NeueHealth division, which operates more than 75 primary care clinics, is profitable.
For 2022, the company expects revenue at the low end of its previously guidance range of $6.8 billion to $7.1 billion. Mikan said executives expect sales of at least $3 billion in 2023 after the cut.
JP Morgan downgraded shares of Bright Health after the news.
“A complete reversal of BHG’s original strategy since going public about 15 months ago does not allay our concerns about execution and consistency,” wrote Lisa Gill, a senior analyst at JP Morgan, in a research note accompanying Bright’s announcement.
Gill also noted that the “big strategic pivot” was unexpected.
Bright Health also announced a new cash injection, raising $175 million in “convertible preferred equity.” Executives told investors in August there was “significant doubt” that the company could continue without raising further capital.
The company did not turn a profit and reported a net loss of $432 million for the first six months of 2022.
“That’s quite a significant pullback,” said Steve Parente, a health economist at the University of Minnesota. “It makes sense that they are holding on to the Medicare market in two very large states.”
Trying to break into a health insurance market dominated by a handful of large, national players is never easy, Parente said. “It was always a difficult task to do this,” he said.
Founded in 2015, Bright Health is one of many startups looking to break into the concentrated health insurance industry. The company began offering its first plans in Colorado in 2017. Co-founder and original CEO Bob Sheehy was previously the CEO of UnitedHealthcare, the nation’s largest health insurer and a division of the Minnetonka-based UnitedHealth Group.
As a startup, Bright Health has raised more than $1.5 billion in funding, a record among Minnesota companies. It then raised more than $900 million in a listing on the New York Stock Exchange in June 2021 — the largest-ever IPO by a Minnesota-based company.
But from an initial price of $18 a share, Bright Health’s stock plummeted for months, hitting a new low of 91 cents on Monday.
News of Bright’s restructuring sent the stock up more than 28% on Tuesday to close at $1.17 a share.
As of June, Bright Health had approximately 970,000 unique market participants and 120,000 people on Medicare Advantage plans. The company does not sell health plans in Minnesota.