Troubled insurtech Bright Health must shell out about $380 million to the Centers for Medicare & Medicaid Services (CMS) over the next 18 months, according to a recent Securities and Exchange Commission filing.
Should Bright Health actually come up with that money—a daunting task for a company in such financial duress—CMS would then disperse the funds to health plans in states where Bright operated to reimburse insurers for risk-adjustment payments.
Bright Health said in a press release that “its insurance subsidiaries in Colorado, Florida, Illinois and Texas have entered into repayment agreements for a principal amount of $380 million with CMS with respect to the unpaid amount of the risk adjustment obligations.”
Bright said it has paid $1.5 billion to CMS already, which represents 80% of its final Affordable Care Act risk obligations. However, the company may just be trying to put a good spin on what remains a bad situation.
Ari Gottlieb, a principal at A2 Strategy Group, told Fierce Healthcare that “we now know the amount and the extent to which they defaulted on the federal government. I don’t think it’s ever good news when you default on the federal government.”
The repayments come with an interest rate of 11.5%, noted Gottlieb, who keeps a close eye on the insurtech industry.
“The clock is ticking,” Gottlieb said. “They’ve entered into a monthly repayment plan where they have to pay part of it off over the next 18 months, which is a little odd, because I don’t know what more money they’re going to have in a month from now, that they don’t have today.”
Some of Bright’s financial problems could be addressed if it sells its California plans to Molina Healthcare for $600 million, a possibility unveiled in June. Gottlieb at the time questioned whether the sale will actually go through for that much money. The tentative agreement allows a lot of wiggle room for Molina.
Molina said in a press release announcing the move that a lot hinges on “the solvency and continued operation as a going concern of Bright Health Group throughout the pre-closing period, and other closing conditions.”
Last month, Bright revealed that it secured the necessary credit facility to avoid bankruptcy as it continues to wind down its insurance business. It expects that $60 million facility from New Enterprise Associations to keep it afloat as it sells off its Medicare Advantage plans.
The insurtech said in its press release that the money from CMS “results in an estimated net risk adjustment obligation of $160 million, before interest costs, after applying estimated excess cash reserves and regulatory capital surplus against the outstanding principal amount under the repayment agreements.”
Which Gottlieb said means that when everything’s said and done, the regulated insurance entities will owe at least $160 million.
Gottlieb and other experts took Bright Health to task when officials at the insurtech gave themselves over $400 million in bonuses last year even as it became clear that the company financially became, in Gottlieb’s words, a “walking disaster.”
For his part, Gottlieb said he’ll need to do a deeper dive into the financial data Bright Health puts out rather than take the company’s analysis at face value.
“They continue to struggle with this concept called math,” Gottlieb said. “It may be the most telling explanation of what happened. They just can’t do math.”