- Bright Health, a Minneapolis-based health-insurance startup, just agreed to acquire a California-based health insurer to beef up its presence in the red-hot Medicare Advantage market.
- The acquisition comes on the heels of the insurer raising $635 million from investors in December. According to PitchBook, Bright is valued at $2.2 billion.
- The acquisition would substantially increase Bright Health’s Medicare Advantage business — from about 4,000 members to roughly 46,000.
- Bright offers insurance to individuals under the Affordable Care Act and coverage to seniors in Medicare Advantage. It partners with a health system in each market to help set up its insurance plan, and it plans to double its geographic footprint in 2020.
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Bright Health just took a bigger bite out of the red-hot Medicare Advantage market.
The $2.2 billion health insurer on Tuesday said it’s buying the privately-owned Medicare Advantage health plan provider Brand New Day. The terms of the deal were not disclosed.
The acquisition substantially expands Bright Health’s business in the Medicare Advantage market — the private arm of the federally funded Medicare program that provides health plans for seniors 65 and older — from about 4,000 members to roughly 46,000.
Based in California, Brand New Day was founded in 1983 by the Davis family. Executives Jeff and Jay Davis are staying on to lead operations in California, where the company has HMO plans in 12 counties, covering seniors and roughly 3,000 members who qualify for both Medicaid and Medicare. The company operates in Los Angeles County and Orange County, as well as in the state’s Central Valley region.
The companies expect the deal to close later in 2020. Combined, Bright Health estimates it’ll have 200,000 members across 13 states in 2020.
Read more: We just got a look at the latest financials for health startups like Bright and Oscar. They reveal the challenges facing the insurers as they keep growing their footprints.
The deal helps Bright Health enter California
The acquisition helps Bright get into California, a key market for the insurer, Mike Mikan, Bright Health’s president and vice chairman told Business Insider. The company had been exploring growing organically, but when the opportunity to acquire Brand New Day and its complementary model emerged, Bright went for it.
“We feel it accelerates our opportunity,” Mikan said.
The acquisition comes on the heels of the health-insurance company raising a massive $635 million funding round in December, on top of its plans to double its footprint in 2020, adding an additional state.
Read more: $950 million insurer Bright Health is plotting a massive expansion as startups look to reinvent how Americans get healthcare
Bright Health provides health plans for individuals under the Affordable Care Act and to seniors in Medicare Advantage. It was founded in 2016 and has now raised more than $1 billion. According to Pitchbook, it’s valued at $2.2 billion.
The deal came about as Brand New Day was looking to raise additional capital for its Medicare Advantage plans, Jeff Davis, CEO of Brand New Day, told Business Insider. A business partner who had been in touch with Bright and Brand New Day put them in touch.
“What we found is we liked their approach to healthcare,” Davis said.
The increasingly competitive Medicare Advantage space
Bright Health is part of a group of health-insurance startups that have raised large sums from investors to take new approaches to health insurance, especially for seniors through Medicare Advantage.
In August 2018, Oscar Health raised $375 million from Alphabet as part of plans to enter the Medicare Advantage market this year. Devoted Health in October 2018 raised $300 million ahead of launching its first Medicare Advantage plans in Florida in 2019. Clover Health in January raised $500 million. Altogether, the four venture-backed health insurance startups have raised $3.6 billion.
The Minneapolis-based Bright Health posted a net loss of $9.3 million for the first three quarters of 2019, a deeper net loss than the $4.2 million loss the company had over the same period in 2018. The company made $164.3 million in revenue and recorded $127.9 million in medical claims.
The startup covered 60,434 members as of September 30, mostly in ACA health plans for individuals and families. Bright through the third quarter of 2019 had 4,079 members enrolled in its Medicare Advantage plans.
Brand New Day for its part had more than 40,000 Medicare Advantage members as of the first nine months of 2019, according to regulatory filings.
Through the first nine months of 2019, the insurer brought in $127.4 million in revenue and spent $109.3 million on medical expenses. It posted a net gain of $3.6 million.
The substantial jump in Medicare Advantages members through the Brand New Day acquisition cements Bright Health’s status as a provider of Medicare Advantage plans among the venture- and private-equity backed startups looking to go up against health insurance giants like UnitedHealthcare and CVS Health.
Private-equity-backed Alignment Healthcare as of 2019 has roughly 61,000 Medicare Advantage members across its markets, while Clover had 42,087 Medicare Advantage members at the end of the third quarter. Devoted Health, in its first nine months offering plans, had signed on 3,947 members.
Bright’s plans for 2020
The acquisition is happening at a time when Bright is looking to expand its reach.
The company said in July 2019 that it would operate in parts of 12 states in 2020, roughly double its geographic footprint for 2019. The Brand New Day acquisition brings that count to 13.
That’ll include specific cities and counties in Florida, Illinois, North Carolina, Oklahoma, and South Carolina as well as the whole state of Nebraska. It builds on Bright’s presence in Alabama, Arizona, Colorado, Tennessee, Ohio, and New York.
Bright typically partners with one health system in each market to help set up its insurance plan. For instance, in New York, it’s working with Mount Sinai Health System, and in Colorado it partnered with Centura Health.
The idea is that by working directly with one health system in a region rather than contracting more broadly, Bright can make its members’ care better and less expensive.
For now, Mikan said, Bright plans to use the existing networks of doctors and hospitals Brand New Day has in place in California. But as the business looks to expand to other counties in California, Bright will work to find partners in those areas.