Bright Health Group will sell its final insurance assets to Molina Healthcare for up to $600 million in cash, the struggling insurer announced Friday.
Bright Health needs to sign a proposed sale agreement for its Medicare Advantage business in California by Friday to avoid bankruptcy after overspending on a $350 million revolving line of credit earlier in the year. now. The company renewed its agreement with lenders and had to raise an undisclosed amount of additional capital to survive the year, Bright Health wrote in a Securities and Exchange Commission filing filed. on Friday.
If the purchase goes as planned, it would mark the end of Bright Health’s insurance ambitions. After making a splash with a massive initial public offering in 2021, the company’s uncertain future rests entirely on the NeueHealth primary care clinics in Florida and Texas. Bright Health previously sold Medicare Advantage, health insurance exchanges, and employer-sponsored insurance policies in 15 states, but widespread financial problems have attracted scrutiny from the agency. regulators and eventually forced the company to cancel its insurance operations.
The new deal comes just as Bright Health needs to raise at least $300 million by Friday to satisfy its creditors. The company extended and revised its credit agreement through the end of August, it reported to the SEC. Under the new terms, Bright Health must hold at least $35 million in capital and is limited in the type of assets it can sell and the amount it can borrow. It is also subject to cash flow, cash balances and other reporting requirements. In addition, Bright Health has until July 17 to notify creditors of its plans to raise more equity or debt financing.
Molina Healthcare values the purchase at $510 million, including a $90 million tax subsidy, and will finance the acquisition with existing capital, according to a press release. The insurance company hopes the deal will increase its share price by $1. As part of the acquisition, Molina has agreed to direct its individual and Medicaid members to NeueHealth clinics starting next year.
Bright Health was the least profitable health insurer in the first quarter, recording a net loss of $94.7 million on revenue of $756.3 million. The company completed a reverse stock split in May to boost its share price to the New York Stock Exchange’s $1 minimum and avoid being delisted.
Bright Health stock opened at $12.34 on Friday, up 12.7% from the previous day’s closing price. Molina shares started trading at $296.94 on Friday, 7.4% higher than Thursday.
The parties anticipate the transaction to close in early 2024. Regulators must approve the deal, which is subject to a number of other conditions. Bright Health intends to use the proceeds to repay lenders and pay the medical claims of former commercial insurance members, the company said in the news release.
Bright Health and Molina Healthcare did not respond to requests for interviews.
Bright Health paid a total of $533.8 million in cash and stock to acquire insurers Medicare Brand New Day and Central Health Plan prior to the IPO. The plans reported a net loss of $60 million last year, according to state regulatory filings.
Molina will require Brand New Day and Central Health Plan to achieve a star rating of at least three out of five this year, according to SEC filings. Sales are also dependent on Bright Health’s ability to maintain operations. If Bright Health is unable to meet these conditions, it will pay Molina an $18 million termination fee, according to SEC filings.
Central Health Plan and Brand New Day have 125,000 Medicare Advantage enrollees, most of whom are eligible for Medicare and Medicaid. If the membership falls below 105,000 by the time the deal closes, Molina could reduce the purchase price proportionally to a minimum of $300 million, Bright Health reported to the SEC. Molina will pay $600 million less if Bright Health fails to maintain the required reserves.
Medicare Advantage plans must search for Medicaid contracts and submit them to federal and California regulators by Monday, Bright Health revealed to the SEC. California is in the process of shutting down “similar” Dual-Qualified Special Needs Plans and will require Medicare Advantage special needs plan providers to participate in Medicaid, known as Medi-Cal in the Golden State.
