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Inside the stunning unraveling of Bright Health, a health-insurance upstart that rocketed to an $11.2 billion valuation and then cratered as it grew too fast

Photo Illustration of Mike Mikan of Bright Health.
Mike Mikan, the CEO of Bright Health. Bright Health; Vicky Leta/Insider

  • Bright Health went public in 2021. Now it's working to stave off a collapse.
  • It spent billions to expand into new states and business lines, including clinics.
  • But its pursuit of rapid growth contributed to its undoing, experts and company insiders say. 
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Bright Health Group grew fast. It is unraveling even faster.

The health-insurance upstart went public in June 2021 at a dizzying $11.2 billion valuation. By the time of its first investor day as a public company in December 2021, it had 700,000 members across 17 states.

Company leaders exuded confidence.

"We're just starting to realize the full potential of our differentiated model, and we're excited about the future of Bright Health Group," Bright CEO G. Mike Mikan told analysts at that investor event.

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Less than a year later, Bright has taken a hatchet to most of its business as it works to stave off a collapse. Next year, the company will sell health insurance in just a single state and operate dozens of medical clinics, leaving it far from the healthcare behemoth its founders and investors envisioned. Its stock price is hovering around $1, and its market value has tumbled to about $600 million.

"They've destroyed so much value it's unbelievable," Ari Gottlieb, a healthcare consultant who tracks the finances of insurance upstarts, said.

Insurance is a business that relies on economies of scale, but experts and company insiders blamed Bright's pursuit of rapid growth for its undoing. It priced its plans low to attract hundreds of thousands of new members each year in the Affordable Care Act's markets, but it couldn't handle the rush. Costs swelled because of inefficient processes and because of the insurer's rapid expansion. And though it has billed itself as a technology company, it struggled with fundamental tasks like collecting data on patients and paying doctors on time.

In one sign of how dire Bright's finances were, regulators in Colorado took the unusual step of forcing the insurer to stop selling coverage in the state's marketplace.

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A former Bright Health executive said the company's strategy of trying to win business in a lot of markets was flawed because it cost too much money. A better strategy would have been to focus on fewer markets to build better capabilities and relationships with hospitals and brokers, this person said. The executive spoke with Insider on condition of anonymity because they were not authorized to speak to the press.

"You spend more on infrastructure, you spend more on marketing, you spend more on distribution — meaning paying agents and brokers — and you have to put up more risk-based capital," the former executive said of the perils of expanding too quickly.

"It would have been less expensive in a number of ways to say, 'Look, I'm going to go to a couple of big cities.' Or it doesn't have to be big cities: 'I'm going to limit my geographic presence and go deeper,'" the former executive added.

Bright declined to comment for this article.

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health insurance startups 4x3
Bright Health is one of a handful of upstarts trying to take on the health-insurance industry. Clover Health; Bright Health; Oscar Health; Olivia Reaney/Business Insider

Breaking into the health-insurance industry is tough. Three other insurance startups — Alignment Healthcare, Clover Health, and Oscar Health — went public in 2021, and all have since struggled.

Here's the inside story of how high-flying Bright came crashing down because of unsustainable growth, irrational prices for coverage, and inadequate technology and other insurance capabilities, according to former employees, industry experts, earnings call transcripts, and state and federal filings.

Founders photo Bright Health
The Bright Health founders Bob Sheehy, Tom Valdivia, and Kyle Rolfing. Courtesy of Bright Health

Bright grew rapidly by selling the cheapest health plans

Bright was founded in 2015 by UnitedHealth Group veterans, including Bob Sheehy, a former CEO of UnitedHealthcare, the group's insurance unit. The idea at the time was to sell health plans with narrow networks built around a single large health system in each market so Bright could partner closely with those systems to manage patients and reduce costs.

The plan was to start in a single market and grow to be in three to five states within five years, Sheehy, then Bright's CEO, told Modern Healthcare in 2016. Fueled by cash from top VCs, Bright blew past that goal. By this year, it covered more than 1.1 million people in plans across 17 states, predominantly in individual ACA-marketplace plans.

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Mikan, who took over as CEO of Bright in April 2020, has said the fast expansion was a key ingredient to reaching the size Bright would need to hit to become profitable.

Employees at the company sensed that getting big was the priority. A second former Bright executive who was not authorized to speak to the press told Insider the more markets his team could enter, and the more deals the team could strike, the better.

"That was the objective," this person said. "It was never like, 'Oh, maybe we should scale back on how fast we were growing.'"

There were consequences to growing so rapidly. Medical and operating costs ballooned, outstripping the growth in revenues, company filings showed. In 2021, Bright spent about $1.01 on medical claims for every $1 it generated in insurance premiums, and recorded losses of nearly $1.2 billion.

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In part, that's because Bright grew by setting low prices for ACA-marketplace plans to attract more customers, David Anderson, a health-insurance researcher at Duke University's Margolis Center for Health Policy, said. 

His analysis of federal data found that Bright in 2020 and 2021 sold the cheapest or second-cheapest silver-level health plan in most of the counties it operated in. This year, while it offered the lowest-cost plan less often, it still was cheapest in about half of its biggest counties. Silver-level plans are the most popular ones on ACA marketplaces.

"They were aggressively trying to buy market share," Anderson said.

The massive membership gains overwhelmed Bright

In addition to Bright getting a lot of new members during the usual open-enrollment period, its low prices led to a tidal wave of new customers who enrolled during the COVID-19 special enrollment period. That allowed people to sign up for coverage outside the usual months.

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Bright wasn't ready. As new members signed up, the insurer failed to interact with them quickly enough to get them to a doctor who could treat their health conditions and collect data, Mikan said during an earnings call in March. 

Two former employees who weren't authorized to speak to the press said Bright generally didn't have enough resources to manage patient care.

"The missed opportunity was not looking into care-management resources and other types of boots-on-the-ground resources to support that growth on a clinical level," one of them, a former manager, told Insider, referring to Bright's growth over multiple years.

Mikan, Bright's CEO, has said that Bright had to process most medical claims manually, because it couldn't do so automatically. That led to a huge backlog that deprived Bright of insight into its members, he said. 

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"The sophistication with scalability of their operating systems was not nearly what they had represented to the Street when they initially became public," Gary Taylor, a managing director at Cowen, said.

Health insurers need data on their members to pinpoint the sickest enrollees so they can manage their care and costs, and so they can get paid appropriately under an ACA program that shuffles money from plans with healthier members to plans that enroll sicker members. Bright owed other insurers $1 billion under that program for 2021, up from $238.9 million in 2020, according to federal data.

Bright moves to cut expenses

As losses mounted in 2021, Bright scrambled to raise capital. It ended that year with $198 million in liquidity and landed a $750 million investment in January 2022 from NEA and the health-insurance giant Cigna. Liquidity is a key measure of financial strength for insurers, because most of their funds are tied up at units in individual states to pay for customers' medical care.

Following that fundraise, company executives told analysts and investors that Bright had enough capital to support the business through 2022.

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Bright was also moving to cut expenses. In March, it laid off about 5% of its 3,200-person workforce. In April, it said it would stop selling ACA-marketplace plans in six states, saving about $100 million. 

The tone darkened in August, when Mikan told analysts that Bright would need to raise money in the next year, contradicting reassurances the company provided publicly as recently as May. Bright had burned through most of its new funding, and it had just $138 million in liquidity as of June 30, the company said on August 10.

Days later, Bright disclosed in a regulatory filing that its ability to keep operating was dependent on raising more cash. Otherwise, it said, there was "substantial doubt" about the company's ability to keep operating.

In October, Bright announced it raised $175 million. But it pulled the plug entirely on selling ACA-marketplace plans, which made up almost two-thirds of its revenue.

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Bright's going through an 'evolution'

Mikan on November 9 characterized the drastic changes to Bright's business as "going through a significant evolution." It will focus on "aging and underserved populations" going forward, serving Medicare Advantage members in California and providing care to patients in medical clinics in Florida and Texas, he said. 

Mikan said he expected Bright to turn a profit for the first time in 2023, even though the company projected adjusted losses of up to $700 million for 2022. Cowen's Taylor is skeptical that Bright will pull this off.

The emergency fundraise in October, plus the end of operations in so many states, should give Bright enough capital to help sustain the company until it reaches profitability, Bright executives said in November.

Bright isn't out of the woods. The company said in a regulatory filing on November 14 that its cost-cutting measures "may not fully alleviate doubt" about its ability to continue operating.

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Taylor said that going forward, Bright would need to devise a strategy to grow the business so investors were willing to back it. The other option: another company acquires Bright's health-insurance business or its clinics. 

"You either get to a place where the story's better and investors again are willing to give you growth capital or, ultimately, someone else assigns a higher value to those businesses," Taylor said. "It's probably more likely than not, ultimately, that those two assets they have remaining are acquired."

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