Embattled insurtech Bright Health has found a buyer for its last remaining insurance business.
The insurer announced Friday that it intends to sell its California plans to Molina Healthcare for up to $600 million in cash, according to a filing with the Securities and Exchange Commission. The news comes at a critical time for Bright, which needed to raise significant capital by the end of this week to make it through the end of the year.
The deal depends on Bright staying solvent through the rest of this year and the first quarter of 2024, which means that the company will most likely need to obtain some sort of bridge loan. Molina indicated that it will not provide such a loan, Ari Gottlieb, principal at A2 Strategy Group, told Fierce Healthcare.
“Why didn’t Molina give them the bridge financing?” Gottlieb said. That’s just one way Molina seems to be minimizing its risk, he said.
“There are so many things that limit Molina’s downside risk, because Molina has genuine concerns that are well founded. Bright has to fund all the loses for the rest of the year. And if the membership declines, there’s a purchase price reduction. So, it’s a good deal for Molina," Gottlieb said.
Molina said in a company press release that the deal hangs on “the solvency and continued operation as a going concern of Bright Health Group throughout the pre-closing period, and other closing conditions.” Molina valued the deal at $510 million, according to the release, including a $90 million tax benefit.
Molina, which operates Medicaid and Medicare plans, said it intends to buy Bright with available funds and cash on hand, and state and federal regulatory approvals will need to be obtained. Molina expects that today’s announcement will add $1 per share, driving the share price up to $5.50 per share.
"These additions fit perfectly with our strategy of serving high-acuity, low-income members and represent a textbook execution of our growth playbook," Joe Zubretsky, Molina’s president and CEO, said in the press release. "We acquire viable assets at attractive valuations, then deploy our proven team of operators to deliver improved financial results. We are pleased to continue our meaningful growth in California as the latest realization of our national growth strategy.”
Molina will purchase 100% of the issued and outstanding capital stock of the Bright subsidiaries Bright New Day and Central Health Plan in California, which would push Bright totally out of the insurance business, though it still owns its provider arm, Bright HealthCare Provider Services.
"They think that just by changing ownership, this becomes a more profitable business, which is sort of an interesting claim to start with, right?" Gottlieb said. "They’re also getting $100 million tax benefit if this closes.”
Bright has approximately 125,000 members to whom it offers Medicare Advantage prescription drug plans, dual eligible special needs plans and chronic conditions special needs plans in 23 California counties. There’s a 60% overlap with the managed Medicaid plans that Molina offers, according to the press release. The deal accelerates the D-SNP option for Los Angles Country that Molina negotiated with the state, the insurer said in the release.
Bright announced in April that it planned to sell off its Medicare Advantage plans to stave off bankruptcy. Bright Health also came under fire when its top executives awarded themselves huge bonuses even as the insurtech floundered. Gottlieb said he expects those executives to cash in on the Molina deal, as well.
“I’m guessing they’ll probably get a bonus for successfully selling the business,” he said.