Bright Health Group’s financial picture continues to darken, new disclosures from the struggling health insurance company reveal.
The insurtech reported a $12.9 million shortfall across its state-regulated insurance divisions as of Dec. 31, according to an annual report filed to the Securities and Exchange Commission on Thursday.
Bright Health also said its top executives are getting more money. This month, CEO Mike Mikan received a $1.69 million cash bonus and Chief Financial Officer Cathy Smith got $585,000. The company also handed Mikan and Smith additional equity grants and restricted stock units. Their base salaries are unchanged.
As in previous reports, Bright Health included a disclosure that, absent its ability to raise additional capital, it could go under. Executives said last month the insurtech needs to raise about $300 million to stay afloat.
States require insurers to maintain minimum reserves to cover outstanding claims and Bright Health is out of compliance with the rule in multiple states, the company said in the filing. The company reported deficits in Florida, Texas and Illinois, specifically. Florida regulators placed Bright Health under supervision last year and more recently said it reserves the authority to place it under receivership.
The insurtech continues to struggle to pay claims from 2021 and concedes in its filing that this represents a “material weakness” in its ability to provide accurate financial information to shareholders. Two years ago, a third-party claims processor failed to properly pay providers in accordance with their contracts and fee schedules, and did not re-price the claims, Bright Health said in the filing. At the time, the insurer blamed a technology error that forced it to review all claims by hand and may have led to overpayments.
In response, Bright Health implemented a new claims processing system. But after announcing its exit from the health insurance exchange business, the company “decreased its focus on performing certain control activities” related to exchange revenue, membership, enrollment and eligibility, claims processing, reserves, risk adjustment, and broker commissions, the filing says. This may have caused additional overpayments, according to the company.
Bright Health’s financial difficulties could have negative downstream effects on other insurance companies. Under the Affordable Care Act’s risk-adjustment program, marketplace insurers with relatively healthy policyholders must transfer funds to those that with sicker members.
In June, the Centers for Medicare and Medicaid Services will finalize risk-adjustment payments for last year. Bright Health expects to owe $1.9 billion, a sum that will likely comprise a notable portion of the risk-adjustment dollars collected from insurers, which would be jeopardized if Bright Health can’t afford to pay it. In 2021, insurance companies owed $10 billion in risk-adjustment program payments.
Bright Health also disclosed it settled a shareholder class-action lawsuit during the fourth quarter of 2022. Plaintiffs alleged that the company’s agreement with Cigna and New Enterprise Associates breached its fiduciary duties. Cigna and New Enterprise invested $750 million in Bright Health in 2021. Bright Health has reserved $800,000 to resolve the case.