Texas court orders Bright Health into liquidation, blocks claims enforcement

A judge in Travis County, Texas has given permission to the Texas Department of Insurance to seize Bright Health Group’s Texas subsidiary, putting the entity in receivership and liquidation.

The court order blocks all enforcement of risk-adjusted transfer payments in Texas that Bright Health has since defaulted on. Previously, a repayment agreement with Centers for Medicare & Medicaid Services in Texas totaled $89.6 million, a fraction of the $380 million it owes to health plans across four states. Bright Health has said they paid CMS for 80%, or $1.5 billion, of all other risk adjustment payments.

Bright Health was supposed to pay risk adjustment transfer payments by August 2023, but was unable to in Texas, Colorado, Florida and Illinois, affecting nine states in total, prompting Bright Health to enter the $380 million repayment agreement. CMS negotiated the 18-month repayment agreements with monthly, interest-only payments. Approximately $290 million is still owed to the other three states, $199.3 million of which is attributed to Bright Health Florida’s entity.

“Nobody can actually try and collect from the Bright Texas entity anymore,” healthcare strategist and A2 Strategy Corp. principal Ari Gottlieb told Fierce Healthcare in an interview. “This is now going to go through a process which will take potentially years to shake out.”

Providers and members with unpaid claims outstanding from Bright Health in Texas will have to file a claim with a special deputy receiver once an individual is appointed. Colorado and Florida, two other states owed claims from Bright Health in the $380 million agreement, appear to have not chosen to take similar action.

The petition was filed Nov. 15 by the Texas Department of Insurance and was consented by Bright Health on Oct. 30. Gottlieb said Bright Health defaulted on the payments in Texas at some point between Oct. 30 and Nov. 29, but it’s not clear exactly when it happened. In addition, it’s possible the insurer will continue to accrue interest on the 11.5% rate it owes CMS that the agency was expected to pocket from repayments.

“It isn’t clear why Texas decided to do this,” said Gottlieb. “I think that the big question is, what do they see that caused them to do this and to take this action?”

A Bright Health spokesperson shared the following statement with Fierce Healthcare on Dec. 1: “The development in Texas does not impact Bright Health Group’s capital position or operations outside of Texas. The company remains focused on the long-term sustainable growth of its continuing business, Consumer Care. Bright Health continues to work toward the approval of the sale of the company’s California Medicare Advantage business, and the company expects to close the transaction by the first quarter of 2024.”

Bright Health did not return a request for comment Monday on whether the company’s workforce will be affected.

Gottlieb speculated, while stressing that he is unsure of the Texas Department of Insurance’s motivations, that the state may not have liked the interest-only repayment agreement and viewed this a way to end it.

In the case of Friday Health Plans, another troubled insurtech, Nevada state insurance officials ordered liquidation of the company in the state by Sept. 1 because of “inconsistent figures and failure to meet [financial] reporting deadlines required by Nevada law” and concerns over a lack of capital, said Liz Martins, the public information officer at the Nevada Division of Insurance.  It’s possible Texas officials found similar proof of shadiness within Bright Health’s financial statements and chose to cut ties altogether, though no evidence yet exists that Texas officials hold this viewpoint.

Nebraska officials found more than 20,000 violations of state law and administrative code by Bright Health, a state the company had exited by the end of 2022, according to the Omaha World-Herald.

The Texas Department of Insurance did not return Fierce Healthcare’s request for comment regarding the status of Bright Health in Texas.

“The problem here is the Texas Department of Insurance is not talking,” said Gottlieb. “And I think they need to. I think they owe the market an explanation.”

Bright Health has become one of the most embattled health insurers in the space, having once raised nearly $1 billion when it went public in 2021 to now being forced to exit their insurance businesses and selling at less than $7 a share on the stock market. Forced to pay significant risk adjustment transfer payments and juggle outstanding liabilities — including a $60 million credit facility with New Enterprise Associates and a $1 million fine by Nebraska regulators — the insurer sold its California assets to Molina Healthcare in a $600 million deal.

President and CEO Mike Mikan offered words of encouragement to investors during a recent third quarter earnings call, by saying that its shift away from insurance markets toward value-based care models puts Bright Health on the right track.

Gottlieb said the company’s obstacles have only grown, as Bright Health will be required to pay a penalty after transferring the debt to the federal Department of Treasury and Department of Justice, assuming CMS follows rules already in place. It’s also unlikely they collect all $600 million from the Molina deal because they’re below capital requirements, he noted. Moreover, the order requires Bright Health to pay for the process’s cost by covering legal fees and hiring a special deputy receiver.

“They keep accumulating expenses,” said Gottlieb. “I don’t see how they get through this. I just don’t. They continue to be optimistic but they’re delusional, I think.”

“The situation at Bright is not bright these days,” he added.