Bright Health's financial woes continue, but there are lessons the industry and policymakers can take from the company's experiences.
Experts who spoke to Fierce Healthcare argued that the healthcare and financial industries need to examine just why the insurtech finds itself in its current position and make systemic changes that might prevent another, similar meltdown.
For one, state health insurance regulators need to make sure that if Bright Health goes bankrupt, health plans in states where the insurtech once operated won’t be saddled with claims that Bright won’t be able to pay, Ari Gottlieb, principal at A2 Strategy Group, told Fierce Healthcare.
“If Bright sells any assets, who gets the proceeds?” Gottlieb said. “Do they go to JPMorgan and venture funds or to state entities that are currently in a deficit position? That would shift liabilities to other health plans.”
This may already be in the works at state agencies, Gottlieb said.
Bright offered plans in 17 states in 2021 and is now shopping for a buyer for its last remaining state, California, to stave off bankruptcy. It must sell off its Medicare Advantage (MA) plans in the state by the end of May to secure an extension with its creditors.
Bright Health revealed March 1 that it had overdrawn its credit and would need to secure $300 million by the end of April to stay afloat.
Bright Health's stock was trading at 15 cents per share late Tuesday, and Gottlieb noted the company's market cap is below $100 million. This, after it raised $924 million when it went public in 2021, setting a new bar for health insurance IPOs. Bright Health executives drew ire earlier this year after it was revealed they banked $4 million in bonuses last year even as the company floundered.
Bright was among a group of insurtechs that all went public in the same year, alongside Clover Health, Oscar Health and Alignment Healthcare.
Paul Ginsburg, Ph.D., a senior fellow at the USC Schaeffer Center, told Fierce Healthcare in an email that due diligence might have uncovered a flaw in Bright’s business plan.
“I thought their initial idea—partnering with prominent health systems to offer an MA product built around the system—was promising, although the interest was tempered by my also noticing that Aetna was doing something similar,” Ginsburg said.
The Bright lesson might be simply that it’s difficult to break into the insurance industry, Ginsburg said. “If an established company can do what you are planning to do, then why take on all the problems of starting a new company?” he said.
It also came down to “too much VC money chasing too few good ideas,” Ginsburg said.
Duane Fitch, the national healthcare management consulting leader at Plante Moran, echoed the sentiment.
He told Fierce Healthcare that there was “a kind of suspension of applying traditional due diligence and underwriting for providing capital to these companies who, many of them, don’t have positive cash flow, don’t have market share. They aren’t creating the kind of value that they need to in order to attract that kind of infusion in a traditional setting.”
On the other hand, the insurance industry does offer insurtechs an opportunity to carve out a viable niche, said Fitch.
“Many of these organizations are looking to create value in the insurance space,” Fitch said. “Whether it’s improving the client experience, enhancing underwriting and client rating functions, streamlining adjudication, using advanced analytics to create value. I do think that there is a value proposition and that there is cause for certain optimism in the space.”
However, insurtechs also need to follow traditional business metrics.
“Part of the lesson here is getting back to the fundamentals and accelerating the pathway to viability, as evidenced by operating earnings and positive cash flow and other important foundational metrics,” Fitch said.
With the recent turmoil in the banking industry, insurtechs will need to struggle even more, said Fitch. “Especially now that some of the lifelines with the lines of credit, with the venture debt, with the equity rounds are more difficult to secure.”
Gottlieb had been a harsh critic of state insurance regulators, but he said he's changed his tune somewhat after talking to some of those professionals and getting a better understanding of what they can and cannot do.
“It is a relatively time-consuming process to get an insurance company to do something that they do not want to do,” said Gottlieb.
When a bank flounders, regulators can step in immediately and take over. That’s not the case with an insurance company, Gottlieb said.
“Even if state insurance regulators wanted to take over and seize an insurance company, they can’t just issue an order doing it,” Gottlieb said. “They might need to get a judge to approve it and that can take months. If you compare insurance companies to banks, there’s less of an urgency to act.”
The National Association of Insurance Commissioners did not respond to a request for comment.