Startup Insurers Post Major Losses, With Bright Health in Liquidity Hot Water

by Peter Johnson

 

Three publicly traded startup insurers all posted losses for the full year 2022, and one firm — Bright Health Group, Inc. — may be on its last legs. A managed care insider tells AIS Health that while Oscar Health, Inc. may have righted the ship, Bright is in bad shape.   Bright faces liquidity crisis  Bright took in revenue of $551.4 million and posted a net loss of $188.2 million, or negative earnings before interest, taxes, depreciation and amortization (EBITDA) of $108.5 million over 2022, with a medical loss ratio (MLR) of 93.9%. The firm is in trouble. According to a Feb. 28 Securities and Exchange Commission (SEC) filing, Bright breached a liquidity covenant administered by JPMorgan Chase Co. as part of financing rounds disbursed in March 2021, November 2021 and November 2022. Barclays analyst Steve Valiquette wrote in a March 2 note that “management pointed to a change in revenue recognition principles for some value-based contracts as the reason behind the downward revision.”  Indeed, Bright CEO George Mikan III said during the company’s March 1 earnings call that “we have been prudent in the level of risk we are assuming and have limited the downside across our contracts to focus on achieving adjusted EBITDA profitability in our consumer care segment.” Ari Gottlieb, principal of A2 Strategy Group and a longtime critic of Bright’s management, tells AIS Health that he doesn’t buy Mikan’s story. “I cannot actually figure out” what happened to make the company lose so much money, Gottlieb says, adding later that the company is an “unmitigated disaster.”   “They lost a lot of money,” he says. “It looks like things did not go particularly well for them in the fourth quarter, but their earnings release is so confusing and limited in what they’re actually disclosing, it’s really hard to figure out what’s actually going on there.” That said, “there’s a lot of moving parts, and they disclose pieces of it. None of it is particularly good. Somehow, Bright is worse than I thought before.”  Oscar may reach modest profitability  Gottlieb is more sanguine about Oscar, which he has not spared in the past. The firm took in revenue of $3.96 billion against operating expenses of $4.55 billion, posting a net loss of more than $609 million during 2022, with an 85.3% MLR. “They actually might be” on the road to sustainable cash flow, Gottlieb says. He says that the firm has leveraged high interest rates to collect substantial amounts from federal risk adjustment payments related to future marketplace enrollment. In addition, Gottlieb says that, by becoming “materially smaller” than the year before, Oscar’s expenditures will become more manageable than they have been in the past.  “Are they going to be an industry leader? No,” he says. “But with interest rates staying high, they’ll do OK. You get to break even and then make 5% on your balance sheet. That’s not a terrible world.”

 

From Health Plan Weekly

 

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