Bright Health Group’s financial headaches are worse than previously known, as Florida regulators revealed the company has been under supervision for six months and unable to spend money without clearance from the Sunshine State.
Florida placed Bright Health under supervision in September—which requires the company to obtain permission for transactions exceeding $10,000—but first publicized the action on March 1 while extending the order until May 1 and adding restrictions related to executive pay.
Through the new order, Florida also reserved the right to place the company in receivership. The insurer’s subsidiary in the state faced a $130 million funding shortfall at the end of 2022, according to financial information submitted to Florida officials.
“This agreement does not prohibit Bright Health from entering into discussions with persons regarding potential financial or business proposals,” the Florida Office of Insurance Regulation’s March 1 order says. “However, Bright Health and any person acting on Bright Health’s behalf must obtain written consent from the deputy supervisor or the office prior to entering into such an agreement.”
Bright Health must pay local regulators to hire an independent supervisor to oversee its operations, allow the supervisor to maintain a physical presence at its offices and provide access to any documents requested. The order bars the insurtech from increasing executive compensation and says that executives cannot perform tasks beyond their day-to-day functions without approval.
Bright Health will continue to work closely with regulators as it exits health insurance exchange and Medicare Advantage markets outside of California, a company spokesperson wrote in an email.
The Florida Office of Insurance Regulation did not respond to interview requests.
Other states have likely placed the company under administrative supervision because of financial troubles outside Florida, said Ari Gottlieb, an independent healthcare consultant at A2 Strategy Group. “Regulators acted, but they may not have acted fast enough,” Gottlieb said. “Bright’s financial situation is going to get worse as they realize investment losses and the cost of winding down these entities.”
If Florida were to deem Bright Health insolvent in the state, regulators would seize the subsidiary and sell its assets, Gottlieb said. These assets do not include its NeueHealth primary care clinics, which are incorporated under a separate subsidiary.
Bright Health operates insurance subsidiaries in each of the 13 states where it previously sold exchange, employer and Medicare Advantage plans. States require insurers to maintain minimum reserves to ensure they can pay claims. Bright Health violated these policies in Florida, Texas and Illinois, where it reported shortfalls of $130 million, $33 million and $646,200, respectively, according to its filings with state agencies.
The Texas Department of Insurance declined to comment and the Illinois Department of Insurance did not respond to an interview request.
Bright Health reported holding $2.8 billion in its state subsidiaries at the end of last year.
“So much of their cash is going to be locked up in their different insurance subsidiaries,” said Wesley Sanders, a health insurance expert at EvenSun Consulting and former chief financial officer of Alliant Health Plans. “They have very little flexibility.”
States would have to grant Bright Health approval to draw from these funds and are unlikely to do so, which poses a problem for the cash-strapped company, Sanders said.
The insurtech recently overdrew its credit facility and reported holding $150 million in unregulated funds. During an earnings call last month, executives said Bright Health must raise approximately $300 million to stay afloat.
Bright Health’s dire capital position will likely force it into bankruptcy, which could have implications for other insurance companies operating in its former markets, Sanders said. If Bright were unable to satisfy its financial obligations after bankruptcy, regulators would have to prioritize either paying Bright Health’s risk-adjustment settlements or its claims, he said.
The insurtech estimated it will owe rival carriers more than $1 billion through the Affordable Care Act’s risk-adjustment program for 2022. The Centers for Medicare and Medicaid Services will finalize the amount at the end of June and payment will be due in August. CMS will likely push for Bright Health’s assets to be used to pay this sum while states likely would prioritize claims, Sanders said.
The Georgia Office of Insurance is monitoring Bright Health’s local subsidiary and its overall position closely, a spokesperson wrote in an email. The company is adequately capitalized and not under supervision in the Peach State, the spokesperson wrote.
The California Department of Insurance and the California Department of Managed Health Care both asserted they do not have regulatory authority over Bright Health and referred Modern Healthcare to each other. Regulatory agencies in Alabama, Arizona, Colorado, New York, North Carolina, Ohio, South Carolina and Tennessee did not respond to interview requests.