The Cost of Bright Health Group’s Major Cutbacks
Bright Health Group’s offices in Bloomington Bright Health

The Cost of Bright Health Group’s Major Cutbacks

Days before the application period opens for 2023 Medicare Advantage plans, the Bloomington-based health insurance startup announced it would cut down its offerings to only Florida and California.

A little over one year after clinching a massive IPO and only days before the application period for 2023 Medicare Advantage plans opens, Bright Health Group this week announced it will end its individual and family health insurance offerings and reduce its Medicare Advantage coverage to only California and Florida.

In 2023, the Bloomington-based company will exit Alabama, Arizona, Colorado, Florida, Georgia, Nebraska, North Carolina, Texas, and Tennessee, Bright Health Group announced in a Tuesday news release.  This is in addition to Bright Health’s previously announced exit from Illinois, New Mexico, Oklahoma, South Carolina, Utah, and Virginia. 

The company says it is now strictly focusing on its largest markets. It will continue to operate clinics in California, Texas, and Florida, which make up 26% of the nation’s aging population. 

This change follows a continued shift by the company away from health insurance and toward direct care clinic offerings. In a conference call following the announcement, president and CEO Mike Mikan said the change allows the company to reduce its need to raise additional capital, adjust operating expenses to reflect the size of the business, and recapture restricted capital in the future. 

“This is not a decision we made lightly,” he said, calling it a “strategic move” to accelerate the company to profitability.  

Bright Health did not respond to a request for further comment.

A secondary impact to the Tuesday announcement was seen in Colorado where Bright Health was involved in a major health reform initiative headed by the administration of Colorado’s Democrat Gov. Jared Polis, the Colorado Sun reported. Bright Health was supposed to be the provider offering plans for Peak Health Alliance, a group that planned to work with local communities to negotiate lower prices at hospitals. The CEO of Peak Health Alliance learned about Bright Health Group’s withdrawal from Colorado Tuesday when the news release came out. She told the Sun that there isn’t enough time to find a new provider, meaning the program can no longer be offered in 2023.

To Allan Baumgarten, a Minneapolis-based independent health care industry analyst, the scale of Bright Health Group’s announcement and its timing was surprising. 

Oct. 15 is the start date for Medicare Advantage open enrollment, “so presumably the Bloomington staff building was buzzing with lots of staff people gearing up to be aggressively marketing their Medicare Advantage products in those 15 states,” he said. The scale of advertising around Medicare Advantage is staggering, he noted. “And now they’re basically shutting that down,” he said. “Presumably, there are a lot of people who are going to be looking for their next job.”

In the health insurance business, it is important to have a certain amount of unrestricted capital available, Baumgarten said. The amount required varies by state, but essentially an insurance company must have a certain amount of this easily accessible capital on hand in case it’s needed to pay claims or make up for premiums that didn’t come in. This is the type of capital that isn’t wrapped up in stocks or bonds.

It’s challenging for startup health insurance companies to survive in general, Baumgarten said. He’s seen other companies make similar pivots, such as Oscar Health and Clover Health. 

“All of them did public offerings. All of them generated a lot of buzz saying they were sort of millennial-oriented health plans using a lot of technology,” Baumgarten said. “You could do a lot of things using an app on your phone that you couldn’t with traditional insurance plans. And each of them is struggling in the same way Bright Health is right now.”

In addition to announcing its withdrawal from states, Bright Health Group also announced Tuesday it has raised $175 million of committed capital, which is expected to close in the coming weeks. It netted $924 million in its initial public offering in June of 2021. At the time, shares were valued at $18 apiece. Shares have since plummeted to $0.91.

Despite many large funding raises, however, Bright Health still hasn’t turned a profit. In its second quarter of this year, the company reported a net loss of $432 million. But the company says it now expects to be profitable in 2023.

“There’s certain limits to how long you bleed your losses and continue to burn through your capital. They didn’t show that the insurance business was likely to become profitable,” Baumgarten said.