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Struggling health insurer
Bright Health Group Inc. raised eyebrows with its recent announcement that
CEO George Mikan III and other top executives earned more than $3.7 million
in performance bonuses — despite posting a net loss of more than $600 million
last year. The troubled startup insurer is under supervision by at least two
state regulators, and one persistent critic of the firm’s executives tells
AIS Health that the bonuses are “outrageous.”
State regulators tighten
screws
- Reporters on
March 22 discovered that the Tennessee Department of Commerce and
Insurance in November placed Bright under administrative
supervision. That news follows a March 1 move by Florida’s Office of
Insurance Regulation to place Bright under public
administrative supervision. Both regulators’ orders prohibit
Bright from spending, lending or investing funds in excess of $10,000
“other than for the payment of claims or for payroll.”
- In addition,
Bright’s liquidity is in doubt. According to a Feb. 28 Securities and
Exchange Commission (SEC) filing, the firm
breached a liquidity covenant administered by JPMorgan Chase Co. The
bank extended and adjusted the agreement to make Bright “subject to a
minimum liquidity covenant of not less than $75 million until March 3,
2023, and not less than $85 million thereafter until the end of the
Waiver Period,” which extends through April 30.
- At least one
financial institution might think that Bright is reaching the end of the
road. Citi on March 19 told investors that it is discontinuing coverage
of Bright.
- “After rapid
membership expansion in the [exchange] market throughout 2021-2022,
higher cost trend and difficultly managing members resulted in
significant losses and cash burn for [Bright],” Citi analyst Jason
Cassorla wrote.
Some view bonuses as
‘outrageous’
- Bright’s 2022 Form 10-K, an annual
filing all publicly traded companies are required to submit to the SEC,
revealed that Mikan received $1.69 million, with other notable officers
of the company receiving between $190,115 and $765,000 in bonuses. Each
of the executives who were awarded a bonus received the full amount they
could have received based on performance incentives.
- Given all
that’s going wrong for Bright, “people say, ‘this is outrageous,’” Ari
Gottlieb, principal of A2 Strategies, tells AIS Health. “That a
company’s management team could take a stock from $18 to [around 25]
cents, that you could lose $600 million in a year, that you could breach
your credit facility…and then for the board to turn around and say, ‘you
deserved your target bonus.’”
- According to
Bright’s full-year 2022
earnings disclosure, gross premium revenue increased
from $1.39 billion in 2021 to $1.76 billion in 2022, roughly a 26% rise.
Total revenue, which includes investment and direct contracting revenue,
increased by roughly 60%, from about $1.5 billion in 2021 to over $2.4
billion in 2022. But both figures seem certain to drop dramatically in
the coming year as Bright withdraws
from most of the markets it served in 2022. Medical cost
ratio did improve, but remained quite high: The ratio was 97.3% in 2021
and dropped to 93.9% in 2022. The firm’s operating loss came close to
doubling, increasing from $343 million in 2021 to $622 million in 2022.
- By those
metrics, the executives’ performance was bad or mixed, and Gottlieb
calls gross revenue, the lone bright spot, “a ridiculous metric” to
assess executive performance.
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