| DECONSOLIDATION OF BRIGHT HEALTHCARE INSURANCE COMPANY OF TEXAS | DECONSOLIDATION OF BRIGHT HEALTHCARE INSURANCE COMPANY OF TEXAS On November 29, 2023, BHIC-Texas (the “Deconsolidated Entity”) was placed into liquidation and the Texas Department of Insurance was appointed as receiver. The Deconsolidated Entity’s financial results are included in the Company’s consolidated results through November 28, 2023, the day prior to the date of the receivership. However, under ASC 810, consolidation of a majority-owned subsidiary is precluded where control of the subsidiary does not rest with the majority owners. Once the Texas Department of Insurance was appointed as receiver of BHIC-Texas we concluded the Company no longer controlled the subsidiary, and we deconsolidated BHIC-Texas as of that date. The deconsolidation of BHIC-Texas resulted in certain related party balances that had previously been eliminated upon consolidation to become liabilities of the Company. In 2022, BHIC-Texas entered into a risk share contract with a different NeueHealth affiliate, whereby losses incurred at BHIC-Texas over a specified medical loss ratio target were transferred from BHIC-Texas to the affiliated entity. On November 29, 2023 the accrued loss of BHIC-Texas related to the risk share contract was $124.0 million. Upon deconsolidation of BHIC-Texas, this liability is required to be recorded as risk share payable to deconsolidated entity on the Consolidated Balance Sheet. The corresponding receivable on BHIC-Texas was included in our carrying value evaluation described below. The table below presents the balance sheet of BHIC-Texas on November 29, 2023, the date the Deconsolidated Entity was placed into receivership. Cash and cash equivalents $ 60,560 Prepaids and other current assets 1,522 Risk Share Receivable 123,981 Total Assets $ 186,063 Accounts payable $ 135 Medical costs payable 3,283 Other current liabilities 1,523 Risk adjustment payable 89,638 Total Liabilities 94,579 Additional paid-in capital 204,753 Accumulated deficit (113,269) Total Equity 91,484 Total Liabilities and Equity $ 186,063 Under ASC 810, Consolidatio n , this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value. Upon deconsolidation, the Company valued its investment in BHIC-Texas to be $91.5 million , which is equivalent to the Deconsolidated Entity's carrying value. Upon valuing the investment in BHIC-Texas we assessed the current expected credit loss associated with the underlying receivables; as a result of our analysis we recorded a full valuation allowance on the investment due to uncertainties related to the collection of the risk share receivable. During the quarter ended June 30, 2024, we committed to a plan to sell AMD, which met the criteria to be classified as held-for-sale as outlined in ASC 360-10, Property, Plant, and Equipment . The sale is expected to be completed within the next twelve months. As of June 30, 2024, the major classes of assets and liabilities of AMD are presented separately in the Condensed Consolidated Balance Sheets as follows (in thousands) : Accounts receivable $ 8,034 Prepaids and other current assets 124 Current assets of held-for-sale operations 8,158 Accounts payable 216 Other current liabilities 3,765 Current liabilities of held-for-sale operations $ 3,981 The results of operations for AMD’s operations are reported within the results of our continuing operations in the condensed consolidated statements of income (loss). AMD’s operations are reported within our NeueCare segment. The operations classified as held-for-sale are as follows (in thousands) : Three Months Ended Six Months Ended Revenue: Capitated revenue $ 2,849 $ 5,730 Service revenue 2,202 5,384 Unaffiliated revenue 5,051 11,114 Affiliated revenue 449 1,023 Total revenue of held-for-sale operations 5,500 12,137 Operating expenses: Medical costs 2,022 3,974 Operating costs 8,244 14,057 Impairment of intangible assets 11,411 11,411 Depreciation and amortization 494 989 Total operating expenses from held-for-sale operations 22,171 30,431 Operating loss from held-for-sale operations $ (16,671) $ (18,294) In April 2023, we announced that we were exploring strategic alternatives for our California Medicare Advantage business, the Bright HealthCare reporting segment, with the focus on a potential sale. At that time, we met the criteria for “held for sale,” in accordance with ASC 205-20. This represents a strategic shift that will have a material impact on our business and financial results. As such, we have reflected amounts relating to Bright HealthCare as a disposal group as part of discontinued operations. On June 30, 2023, the Company entered into the Molina Purchase Agreement to sell its California Medicare Advantage business, which consisted of BND and CHP. On December 13, 2023, the Company, Molina, Bright Health Company of California, Inc. (“BHCC”), CHP, and BND amended the Molina Purchase Agreement, pursuant to which , the parties agreed to amend the total purchase consideration to $500.0 million subject to certain contingencies and TNE adjustments. The transaction was consummated on January 1, 2024. In October 2022, we announced that we will no longer offer commercial plans through our Bright HealthCare - Commercial segment in 2023. As a result, we exited the Commercial marketplace effective December 31, 2022. We determined this exit represented a strategic shift that will have a material impact on our business and financial results that requires presentation as discontinued operations. While we are no longer offering plans in the Commercial marketplace as of December 31, 2022, we will continue to be involved in the states where we formerly operated in, as we support run out activities of medical claims incurred in the 2022 plan year and perform other activities necessary to wind down our operations in each state. We are substantially complete with medical claim payments as of the end of 2023, and we will continue to make remaining medical claim payments and payments towards the remaining risk adjustment obligations through 2024 and early 2025. Our discontinued operations are also inclusive of our DocSquad business that was sold in March 2023; this is presented within the column labeled Other in the tables below. The discontinued operations presentation has been retrospectively applied to all prior periods presented. The financial results of discontinued operations by major line item for the periods ended June 30 were as follows (in thousands) : Three Months Ended June 30, 2024 Total Revenue: Premium revenue $ (11,124) Investment income 1,226 Total revenue from discontinued operations (9,898) Operating expenses: Medical costs 50 Operating costs 1,800 Restructuring charges 475 Total operating expenses from discontinued operations 2,325 Operating loss from discontinued operations (12,223) Interest expense 7,308 Gain on sale of Docsquad business (991) Loss from discontinued operations before income taxes (18,540) Income tax expense (benefit) (101) Net loss from discontinued operations $ (18,439) Three Months Ended June 30, 2023 Bright HealthCare - Commercial Bright HealthCare Other Total Revenue: Premium revenue $ (15,354) 443,532 $ — $ 428,178 Service revenue — — — — Investment income 21,120 400 — 21,520 Total revenue from discontinued operations 5,766 443,932 — 449,698 Operating expenses: Medical costs 14,588 400,114 — 414,702 Operating costs 34,204 54,284 317 88,805 Restructuring charges 1,655 5 1 1,661 Depreciation and amortization — 1,465 — 1,465 Total operating expenses from discontinued operations 50,447 455,868 318 506,633 Operating loss from discontinued operations (44,681) (11,936) (318) (56,935) Interest expense — — — — Loss from discontinued operations before income taxes (44,681) (11,936) (318) (56,935) Income tax expense (benefit) — — — — Net loss from discontinued operations $ (44,681) $ (11,936) $ (318) $ (56,935) Six Months Ended June 30, 2024 Total Revenue: Premium revenue $ (11,339) Investment income 2,794 Total revenue from discontinued operations (8,545) Operating expenses: Medical costs (3,709) Operating costs 8,385 Restructuring charges 96 Total operating expenses from discontinued operations 4,772 Operating loss from discontinued operations (13,317) Interest expense 16,073 Gain on sale of Docsquad business (991) Loss from discontinued operations before income taxes (28,399) Income tax expense (benefit) (95) Net loss from discontinued operations $ (28,304) Six Months Ended June 30, 2023 Bright HealthCare - Commercial Bright HealthCare Other Total Revenue: Premium revenue $ (14,588) 896,849 $ — $ 882,261 Service revenue 30 — 2,383 2,413 Investment income 42,011 438 — 42,449 Total revenue from discontinued operations 27,453 897,287 2,383 927,123 Operating expenses: Medical costs 60,602 828,839 — 889,441 Operating costs 81,682 110,623 2,366 194,671 Restructuring charges 9,611 5 1 9,617 Depreciation and amortization — 5,872 — 5,872 Total operating expenses from discontinued operations 151,895 945,339 2,367 1,099,601 Operating loss from discontinued operations (124,442) (48,052) 16 (172,478) Interest expense — — — — Loss from discontinued operations before income taxes (124,442) (48,052) 16 (172,478) Income tax expense (benefit) — — — — Net loss from discontinued operations $ (124,442) $ (48,052) $ 16 $ (172,478) The following table presents cash flows from operating and investing activities for discontinued operations for the six months ended June 30, 2024 and 2023 (in thousands) : Six Months Ended June 30, 2024 2023 Cash used in operating activities - discontinued operations $ (59,514) $ (667,237) Cash provided by investing activities - discontinued operations 199,702 157,048 Assets and liabilities of discontinued operations were as follows (in thousands) : June 30, 2024 Bright HealthCare - Commercial Assets Current assets: Cash and cash equivalents $ 128,033 Short-term investments 7,590 Accounts receivable, net of allowance 1,427 Prepaids and other current assets 5,325 Current assets of discontinued operations 142,375 Total assets of discontinued operations $ 142,375 Liabilities Current liabilities: Medical costs payable $ 13,603 Accounts payable 8,682 Risk adjustment payable 286,991 Other current liabilities 34,709 Current liabilities of discontinued operations 343,985 Total liabilities of discontinued operations $ 343,985 December 31, 2023 Bright HealthCare - Commercial Bright HealthCare Total Assets Current assets: Cash and cash equivalents $ 159,769 $ 128,212 $ 287,981 Short-term investments 9,163 20,218 29,381 Accounts receivable, net of allowance 1,430 51,929 53,359 Prepaids and other current assets 7,838 114,532 122,370 Property, equipment and capitalized software, net — 17,954 17,954 Intangible assets, net — 138,982 138,982 Goodwill — 172,543 172,543 Current assets of discontinued operations 178,200 644,370 822,570 Total assets of discontinued operations $ 178,200 $ 644,370 $ 822,570 Liabilities Current liabilities: Medical costs payable $ 31,881 $ 272,138 $ 304,019 Accounts payable 25,648 7,719 33,367 Risk adjustment payable 291,146 — 291,146 Other current liabilities 28,045 43,181 71,226 Current liabilities of discontinued operations 376,720 323,038 699,758 Total liabilities of discontinued operations $ 376,720 $ 323,038 $ 699,758 California Medicare Advantage Sale: On June 30, 2023, the Company entered into a definitive agreement with Molina to sell its California Medicare Advantage business, which consisted of BND and CHP, for total purchase consideration of $600.0 million, subject to regulatory approval and other closing conditions. Subsequently, o n December 13, 2023 we announced that we entered an amendment (the “Amendment”) with Molina which reduced the purchase price of our California Medicare Advantage business from $600.0 million to $500.0 million. The $500.0 million purchase price includes $167.3 million of purchase price adjustments subject to contingencies and adjustments relating to TNE (in thousands) : Consolidation and Adjustment Escrow Amount (1) $ 100,000 TNE deficit at closing (2) 57,326 Indemnity Escrow Amount (3) 10,000 Total consideration subject to contingencies $ 167,326 (1) Contingent upon either (i) Molina obtaining regulatory approval of the consolidation of BND into CHP or (ii) receipt by BND of a Part D Summary Rating for its Part D operations for contract year 2025 of at least 3 Stars from CMS. If this contingency is successful, it is payable in November 2024 net of any TNE deficit deterioration and subject to certain other purchase price adjustments as described further in the Amendment. (2) Amount by which minimum required TNE exceeds estimated TNE as of December 31, 2023. To the extent the TNE deficit improves on a restated basis by the cutoff date of June 30, 2024, Molina will owe the Company for that difference, payable in November 2024. To the extent the TNE deficit worsens on a restated basis by the time of the cutoff date, such difference will be deducted from Consolidation and Adjustment Escrow Amount. If the conditions around the Consolidation and Adjustment Escrow Amount are not satisfied, Molina would retain the Consolidation and Adjustment Escrow Amount in satisfaction of any TNE deficit deterioration. (3) For 18 months post-closing date, the Company will indemnify Molina against and are liable to Molina for any and all losses incurred by Molina resulting from breach or inaccuracy of warranties and representations made, breach or failure to perform any covenant of the Molina Purchase Agreement, among others. As the Indemnity Escrow Amount is subject to these conditions for 18 months post close, the Company will only recognize this amount in the fair value of consideration received at the point those 18 months have passed, on July 1, 2025. The amount recognized will be that equal to the $10.0 million Indemnity Escrow amount less any agreed upon or finally adjudicated losses as of July 1, 2025 As the conditions surrounding collection of total consideration and contingencies are largely outside of the Company’s control, we have not recorded any contingent consideration receivable as of June 30, 2024. At the time of the sale, our investment in the California MA business was calculated as follows (in thousands) : Total assets (1) $ 647,254 Total liabilities (323,038) Investment in California MA Business $ 324,216 (1) Total assets of the California MA business at the time of the sale are inclusive of $2.9 million unsettled intercompany receivable that was eliminated at consolidation. NeueHealth has recorded the corresponding payable within other current liabilities of our continuing operations as of June 30, 2024 . The company recorded no gain or loss associated with the sale of the California Medicare Advantage business (in thousands) : Sale price of California MA Business $ 500,000 Less: Portion of sale price subject to contingencies (167,326) Less: Investment in California MA Business (324,216) Less: Transactions costs contingent on closing of sale (8,458) Gain or loss on sale of California MA Business $ — Upon the close of the sale, we ceased having a controlling financial interest over BND and CHP and have not retained any investments in the former subsidiaries. Molina is not a related party and subsequent to the close of the sale BND and CHP are no longer considered related parties to the Company. In connection with the sale, Molina and the Company are each providing customary transition services during 2024. Revenue Recognition: We record adjustments for changes to the risk adjustment balances for individual policies in premium revenue. The risk adjustment program adjusts premiums based on the demographic factors and health status of each consumer as derived from current-year medical diagnoses as reported throughout the year. Under the risk adjustment program, a risk score is assigned to each covered consumer to determine an average risk score at the individual and small-group level by legal entity in a particular market in a state. Additionally, an average risk score is determined for the entire subject population for each market in each state. Settlements are determined on a net basis by legal entity and state and are made in the middle of the year following the end of the contract year. Each health insurance issuer’s average risk score is compared to the state’s average risk score. Risk adjustment is subject to audit by the U.S. Department of Health and Human Services (“HHS”), which could result in future payments applicable to benefit years. Restructuring Charges: As a result of the strategic changes, we announced and have taken actions to restructure the Company’s workforce and reduce expenses based on our updated business model. Restructuring charges within our discontinued operations for the three and six months ended June 30, 2024 and 2023 were as follows (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Employee termination benefits $ 73 $ 213 $ 202 $ 3,177 Long-lived asset impairments — 2,489 — 7,429 Contract termination and other costs 402 (1,041) (106) (989) Total discontinued operations restructuring charges $ 475 $ 1,661 $ 96 $ 9,617 Restructuring accrual activity recorded by major type for the six months ended June 30, 2024 was as follows (in thousands) : Employee Termination Benefits Contract Termination Costs Total Balance at January 1, 2024 $ 2,867 $ 22,492 $ 25,359 Net charges 202 (106) 96 Cash payments (1,920) (17,386) (19,306) Balance at June 30, 2024 $ 1,149 $ 5,000 $ 6,149 Employee termination benefits are recorded within Other current liabilities of discontinued operations while contract termination costs are recorded within Accounts payable of discontinued operations. Fixed Maturity Securities: Available-for-sale securities within our discontinued operations are reported at fair value as of June 30, 2024 and December 31, 2023. Held-to-maturity securities are reported at amortized cost as of June 30, 2024 and December 31, 2023. The following is a summary of our investment securities (in thousands) : June 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Carrying Value Cash equivalents $ 102,093 $ — $ (1) $ 102,092 Held to maturity: U.S. government and agency obligations 7,479 — — 7,479 Corporate obligations 111 — — 111 Total held-to-maturity securities 7,590 — — 7,590 Total investments $ 109,683 $ — $ (1) $ 109,682 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Carrying Value Cash equivalents $ 150,939 $ — $ — $ 150,939 Available for sale: U.S. government and agency obligations 1,557 — (100) 1,457 Corporate obligations 615 — (11) 604 Certificates of deposit 19,653 — — 19,653 Mortgage-backed securities 951 — (63) 888 Total available-for-sale securities 22,776 — (174) 22,602 Held to maturity: U.S. government and agency obligations 6,503 1 (59) 6,445 Certificates of deposit 334 — — 334 Total held-to-maturity securities 6,837 1 (59) 6,779 Total investments $ 180,552 $ 1 $ (233) $ 180,320 We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. At each reporting period, we evaluate securities for impairment when the fair value of the investment is less than its amortized cost. We evaluated the underlying credit quality and credit ratings of the issuers, noting no significant deterioration since purchase. Fair Value Measurements: Certain assets and liabilities are measured at fair value in the condensed consolidated financial statements or have fair values disclosed in the notes to the condensed consolidated financial statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP. Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2: Quoted prices for similar assets or liabilities in active markets or quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument see Note 19 to the audited consolidated financial statements included in our 2023 Form 10-K. As of June 30, 2024, investments and cash equivalents within our discontinued operations were comprised of $107.9 million and $1.8 million with fair value measurements of Level 1 and Level 2, respectively. As of December 31, 2023, the investments and cash equivalents within our discontinued operations were comprised of $157.8 million and $22.6 million with fair value measurements of Level 1 and Level 2, respectively. Medical Costs Payable: The table below details the components making up the medical costs payable within current liabilities of discontinued operations (in thousands) : Bright HealthCare - Commercial June 30, 2024 December 31, 2023 Claims unpaid $ 8,966 $ 14,500 Claims adjustment expense liability 227 2,382 Incurred but not reported (IBNR) 4,410 14,999 Total medical costs payable of discontinued operations $ 13,603 $ 31,881 Risk Adjustment: In September 2023, our insurance subsidiaries in Colorado, Florida, Illinois and Texas entered into repayment agreements with CMS with respect to the unpaid amount of their risk adjustment obligations for an aggregate amount of $380.2 million (the "Repayment Agreements"). The amount owed under the Repayment Agreements is due March 15, 2025 and bears interest at a rate of 11.5% per annum. Additionally, in May 2024, CMS communicated the results of its “Summary Report of 2022 Benefit Year Risk Adjustment Validation (HHS-RADV) Adjustments to Risk Adjustment State Transfers” which indicated the Company has an additional risk adjustment obligation of $10.6 million. Combined with the remaining amount due relating to the risk adjustment Repayment Agreements, our risk adjustment payable liability was $287.0 million and $291.1 million as of June 30, 2024 and December 31, 2023, respectively. Restricted Capital and Surplus: Our regulated insurance legal entities are required by statute to meet and maintain a minimum level of capital as stated in applicable state regulations, such as risk-based capital requirements. These balances are monitored regularly to ensure compliance with these regulations. For the period ended June 30, 2024 , we are out of compliance with the minimum levels for certain of our regulated insurance legal entities. |
