Bright Health-Molina $600M Medicare Advantage deal

Bright Health Group will sell its ultimate insurance assets to Molina Healthcare for up to $600 million in cash, the financially embattled insurtech announced Friday.

Bright Health needed to sign a proposed sale agreement for its California Medicare Advantage business by Friday to avoid bankruptcy after it overdrawn its $350 million revolving credit facility earlier this year. The company has extended its agreement with lenders and must raise an undisclosed amount of additional capital to get it through the year, Bright Health wrote in a Securities and Exchange Commission filing filed Friday.

If the sale goes ahead as planned, it would mark the end of Bright Health’s insurance ambitions. After making waves with a strong initial public offering in 2021, the company’s uncertain future rests entirely on its NeueHealth primary care clinics in Florida and Texas. Bright Health previously sold Medicare Advantage, health insurance exchange and employer-sponsored insurance policies in 15 states, but widespread financial problems drew regulatory scrutiny and ultimately forced the company to cancel its insurance operations.

The deal comes just in time for Bright Health, which needed to raise at least $300 million by Friday to satisfy its creditors. The company extended and modified its credit agreement through the end of August, it informed the SEC. Under the new terms, Bright Health must have at least $35 million in equity and is limited in the assets it can sell and the money it can borrow, and is subject to cash flow, cash balance and other requirements. from reports. In addition, Bright Health has until July 17 to notify creditors how it plans to raise additional equity or debt financing.

Molina Healthcare values ​​the purchase at $510 million, including a $90 million tax benefit, and will finance the acquisition with existing capital, according to a news release. The insurer expects the deal to increase its share price by $1. As part of the acquisition, Molina has agreed to direct its Medicaid and individual members to NeueHealth clinics beginning next year.

Bright Health was the least profitable health insurer during the first quarter, when it posted a net loss of $94.7 million on $756.3 million in revenue. The company completed a reverse stock split in May to raise its share price to the New York Stock Exchange’s low of $1 and avoid being delisted.

Bright Health shares opened at $12.34 on Friday, up 12.7% from the previous day’s close. Molina shares began trading at $296.94 on Friday, up 7.4% from 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 reimburse lenders and pay medical claims for former commercial insurance members, the company said in the news release. Bright Health and Molina Healthcare did not respond to interview requests.

Bright Health paid a combined $533.8 million in cash and stock to acquire Medicare insurers Brand New Day and Central Health Plan prior to its initial public offering. 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 star ratings of at least three out of five this year, according to the SEC filing. The sale also hinges on Bright Health’s ability to stay afloat. If Bright Health is unable to meet these conditions, it would pay Molina an $18 million termination fee, according to the SEC filing.

Central Health Plan and Brand New Day have 125,000 Medicare Advantage enrollees, most of whom are dual eligible for Medicare and Medicaid. If membership falls below 105,000 by the time the deal closes, Molina can reduce the purchase price proportionately to a minimum of $300 million, Bright Health told the SEC. Molina would pay less than $600 million if Bright Health fails to maintain the required reserves.

Medicare Advantage plans must seek Medicaid contracts and file them with California and federal regulators by Monday, Bright Health revealed to the SEC. California is in the process of shutting down “look-alike” Dual Eligible Special Needs Plans and will require Medicare Advantage special needs plan companies to participate in Medicaid, which is called Medi-Cal in the Golden State.