'They pulled a Silicon Valley Bank': Regulatory questions swirl in health insurance

Two states have now publicly said they are in direct control of Bright Health's financial operations, prompting questions around whether insurance regulators are prepared to protect consumers from startup health plans with uncertain futures.

"Our insurance regulatory environment is not set up for these companies that can come into a new market and lose a quarter billion dollars in their first year or two," Ari Gottlieb told Becker's. 

Mr. Gottlieb is a consultant and principal at A2 Strategy Corp., and previously was director of payer strategy at Strategy&, a part of PwC. He also follows the insurtech industry closely.

In March, insurance regulators in Florida and Tennessee revealed they have been supervising Bright Health's finances since last fall. The orders severely limit Bright's financial autonomy, including a ban on spending more than $10,000 on anything without state approval and allowing for regulators to act on the company's behalf.

The state crackdowns come after a period of extreme operational challenges for Bright over the last year. In 2022, the Minneapolis-based company reported a net loss of $1.4 billion and ended its insurance business within the ACA market entirely and Medicare Advantage outside of California.  

In its fourth quarter earnings call in early March, the company said it needs to raise around $300 million to stay afloat after the business overdrafted its credit. The company ended 2022 with 1 million commercial members, 125,000 Medicare Advantage members and 530,000 consumers under value-based arrangements.

"It poses a longer term question — What is the right level of regulatory oversight to protect the marketplace and consumers?" Mr. Gottlieb said. "We're not there yet."

He says the supervision now taking place around Bright has "a number of parallels" to the collapse of some regional banks recently, though it doesn't pose the same systemwide risk. 

"Regulators did act, but it's fallen apart so fast that they may not have had visibility," he said.

While two states have published supervision orders, Bright operates in an additional 11 markets. State insurance departments will coordinate on multistate issues with one another, though it's more uncommon for them to publicly comment on actions taken against individual companies.

According to Mr. Gottlieb, the situation may become even worse because Bright "pulled a Silicon Valley Bank" and purchased a large amount of long-term debt while interest rates were low, which will become a major problem if state regulators act to close subsidiaries.

"The result is that Bright cannot fully fund risk adjustment payables to other health plans and/or their liabilities, necessitating either another bailout or leaving competitors on the hook, likely raising premiums for consumers in the medium-term," he wrote on LinkedIn March 17.

Another startup health plan that has drawn the attention of state regulators is Friday Health Plans, which was asked by Texas' insurance department to leave the state's ACA marketplace for 2023 following operational challenges.

"Under-capitalized health plans with unclear paths to additional funding may end up leaving a massive hole in the market for others to fill, which should prompt new regulatory approaches," Mr. Gottlieb said. "There will be changes and those will take time. In the meantime, this is a mess."

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