The following dialogue summarizes the numerous components affecting our working outcomes, monetary situation, liquidity, and money flows as of and for the durations introduced under. The following dialogue and evaluation must be learn along with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included elsewhere on this Annual Report. The statements on this dialogue concerning business outlook, our expectations concerning our future efficiency, liquidity, and capital sources, and all different non-historic statements on this dialogue are ahead-wanting statements and are primarily based on the beliefs of our administration, in addition to assumptions made by, and knowledge at present out there to, our administration. Actual outcomes may differ materially from these mentioned in or implied by ahead-wanting statements because of varied components, together with these mentioned under and elsewhere on this Annual Report, notably beneath "Forward-Looking Statements" and Item 1A - Risk Factors.
Business Overview
Bright Health Group was based in 2015 to rework healthcare. Our mission of Making Healthcare Right. Together. is constructed upon the assumption that by connecting and aligning the very best native sources in healthcare supply with the financing of care, we are able to drive a superior shopper expertise, scale back systemic waste, decrease prices, and optimize medical outcomes. We consider that for too lengthy,U.S. healthcare, primarily designed to cater to employers and enormous establishments, has failed the buyer by way of pointless complexity, a scarcity of transparency, and rising prices. We are making healthcare easy, private, and inexpensive. To execute on our mission, we now have developed a mannequin for healthcare transformation constructed upon the supply, financing, and optimization of care. By bringing these three core pillars collectively, we intention to construct the nationwide, built-in healthcare system of the longer term, designed to interrupt down historic obstacles and create an surroundings during which all stakeholders - from the shopper, to the supplier, to the payor - can win.
HealthCare
NeueHealth is crucial to our differentiated, aligned mannequin of care. WhileBright HealthCare is at present a bigger contributor to income, due partly to the numerous well being plan premium income contribution from our customers, we consider NeueHealth has a disproportional influence on our enterprise at present and anticipate it's going to change into more and more necessary to our enterprise, contributing an rising proportion of our general income within the lengthy-time period. We have introduced NeueHealth first within the following dialogue, in step with administration's view of our enterprise. NeueHealth. Our healthcare enablement and expertise enterprise, NeueHealth, is creating the following technology, built-in healthcare system. NeueHealth considerably reduces the friction and present lack of coordination between payors and suppliers to allow a very shopper-centric healthcare expertise. As ofDecember 2021 , NeueHealth works with over 260,000 care supplier companions and delivers excessive-high quality digital and in-individual medical care by way of its 52 owned main care clinics inside its built-in care supply system. Through these threat-bearing clinics, NeueHealth maintains over 200,000 distinctive affected person relationships as ofDecember 31, 2021 , over 175,000 of that are served by way of worth-primarily based preparations, throughout a number of payors. In addition to our instantly owned clinics, NeueHealth manages take care of an extra 128 clinics by way of its affiliated clinics.
NeueHealth engages in native, personalised care supply in a number of methods,
together with:
•Integrated Care Delivery - NeueHealth operates clinics offering complete care to all populations. •Bright Health Networks - A key part of our NeueHealth enterprise is our ecosystem ofCare Partners with whom we contract in service ofBright HealthCare at present. •Value Services Organization - NeueHealth empowers excessive-performing main care practices and care supply organizations to reach their evolution in direction of threat-bearing care supply. NeueHealth receives community rental charges fromBright HealthCare for the supply of NeueHealth's Care Partner and community providers. In addition, NeueHealth contracts instantly withBright HealthCare to offer care by way of its managed and affiliated clinics. Other NeueHealth clients embody exterior payors and third-celebration directors, affiliated suppliers and direct-to-authorities applications. 61
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Bright HealthCare . Our healthcare financing and distribution enterprise,Bright HealthCare , delivers easy, private, and inexpensive options to combine the shopper intoBright Health's alignment mannequin.Bright HealthCare at present aggregates and delivers healthcare advantages to over 727,000 customers by way of its varied choices, serving customers throughout a number of product traces in 14 states and 99 markets. We additionally take part in a lot of specialised plans and supply employer group plans.Bright HealthCare's clients embody business well being plans throughout 11 states, which serve roughly 611,000 people, in addition to MA merchandise in 11 states, which serve roughly 117,000 lives and usually give attention to larger threat, particular wants populations.
Key Factors Affecting Our Performance
We consider that the expansion and future success of our enterprise is determined by a variety of components described under. While every of those components presents vital alternatives for our enterprise, additionally they pose necessary challenges that we should efficiently handle to maintain our development and proceed to enhance outcomes of operations.
income development
Bright HealthCare merchandise are primarily bought for the next yr by way of an annual promoting season, which incorporates the open enrollment interval for IFP merchandise and annual enrollment interval for MA. Outside of an annual promoting season, IFP and MA merchandise sometimes can solely be bought throughout SEPs primarily based on the shopper's eligibility standing and sure life occasions. It is crucial to successfully interact each potential and present customers by way of our multi-channel distribution technique. For each IFP and MA merchandise, we intention to supply aggressive advantages at an inexpensive worth to satisfy the wants of our customers. Our IFP merchandise' membership sometimes peaks after the open enrollment interval and experiences modest ranges of attrition till yr-finish. We have traditionally elevated our MA shopper base throughout SEPs, given our customers' eligibility to enroll throughout these durations. Our MA enterprise is afforded extra in-yr development alternative because of its give attention to serving low-revenue seniors and particular wants people, who can enroll in and alter MA well being plans at any time. Therefore, fixed engagement with this inhabitants is crucial to successfully retain membership and drive in-yr development. MA merchandise are usually related to larger income and larger MCR as in comparison with IFP merchandise, notably with respect to particular wants plans.
knowledge impacts income
Portions of premium income from our IFP merchandise and MA plans are decided by the relevant CMS threat adjustment fashions, which compensate insurers primarily based on the underlying well being standing (acuity) of insured customers. CMS requires {that a} shopper's well being standing be documented yearly and precisely submitted to CMS to find out the suitable threat adjustment. Ensuring that full and correct well being circumstances of our customers are captured inside documentation submitted to CMS is crucial to recognizing correct threat adjustment, which is mirrored in our income yr-over-yr. See "Risk Factors - Risks Related to Our Business - Our well being plan merchandise are topic to threat adjustment applications, which if not managed correctly can lead to threat adjustment transfers that do not mirror our true threat profile, which may adversely influence our monetary outcomes and money flows."
reduces medical prices and MCR
Bright HealthCare makes use of our Bright Health Networks to offer healthcare providers primarily inside its unique supplier networks beneath capitated contracts and charge-for-service preparations. Certain supplier and payor contracts embody worth-primarily based incentive compensation primarily based on suppliers assembly contractually outlined high quality and monetary efficiency metrics. To successfully handle medical prices,Bright HealthCare should guarantee a shopper's healthcare wants are primarily delivered by way of itsCare Partners to acknowledge discounted contracted charges, which limits the quantity of out-of-community utilization that may have an adversarial monetary influence on medical prices and MCR. Out-of-community utilization is usually larger upon entry into new markets, which will increase medical prices during times of market growth. Our enterprise is mostly affected by the seasonal patterns of medical bills. With respect to IFP merchandise, medical prices are usually decrease early within the yr and enhance towards the tip of yr, pushed by excessive deductible plan designs and out- 62
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of-pocket maximums over the course of the coverage yr, which shift extra prices to us within the second half of the yr as we pay a better proportion of claims. With respect to MA plans, medical prices are impacted by the severity of the flu season, usually from December to March, and we sometimes expertise barely larger Part D medical prices early within the yr, which decline towards the tip of yr because of commonplace plan design.
NeueHealth’s capability to establish and align with excessive-performing care supply
companions drives efficiency
NeueHealth engages suppliers by way of quite a lot of alignment choices starting from having suppliers take part in our networks to having suppliers employed by us. As we enter new markets and develop our choices, we should construct an ecosystem of care supply belongings able to supporting each ourBright HealthCare enterprise in addition to third-celebration payors.
NeueHealth’s capability to ship and allow excessive-high quality, worth-primarily based care drives
income
NeueHealth helps and manages suppliers in charge-for-service and worth-primarily based contracts with payors. We assist organizations enter worth-primarily based preparations designed round their wants, whereas concurrently empowering them with the instruments and capabilities vital to maximise their success. In order to drive monetary efficiency, NeueHealth should successfully handle threat and proceed to develop and ship instruments and providers supporting each managed and affiliated suppliers.
profitably
Bright Health Group , together withBright HealthCare and NeueHealth, might want to proceed investing in working platforms, processes, individuals, and sources to allow our companies to scale profitably. We leverage centralized shared providers for operational, medical, technological, and administrative features to help the segments in a price-efficient and environment friendly method.
Components of Our Results of Operations
Revenue
We generate income from premiums, together with worth-primarily based supplier income, and charge-for-service supplier income acquired from customers and payors, in addition to revenue from our investments. Premium income Premium income is derived primarily from Bright HealthCare IFP and MA plans bought to customers, in addition to NeueHealth worth-primarily based capitation income from serving sufferers.
Bright HealthCare Commercial premium income
The sources of business premium income are primarily IFP merchandise that are comprised of APTC subsidies which can be primarily based on customers' revenue ranges and compensated instantly by the federal authorities, in addition to billed shopper premiums. IFP merchandise mirror changes associated to the ACA threat adjustment program, which adjusts premium income primarily based on the demographic components and well being standing of every shopper as derived from present-yr medical diagnoses.
Bright HealthCare MA premium income
The sources of MA premium income are Medicare Part C premiums associated to customers' medical profit protection and Part D premiums associated to customers' prescription drug profit protection. Medicare Part C premiums are comprised of CMS month-to-month capitation premiums which can be threat adjusted primarily based on CMS outlined formulation utilizing customers' demographics and prior-yr medical diagnoses. Medicare Part D premiums are comprised of CMS month-to-month capitation premiums that are threat adjusted, shopper billed premiums and CMS low-revenue premium subsidies for the Company's insurance coverage threat protection. Medicare Part D premiums are topic to threat sharing with CMS beneath the danger hall provisions primarily based on profitability of the Part D profit. As a proportion of our complete consolidated income, premium revenues from CMS have been 32%, 40% and 13% for the years endedDecember 31, 2021 , 2020 and 2019, respectively, that are included in ourBright HealthCare section. 63
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Table of Contents NeueHealth premium income NeueHealth premium income represents income beneath worth-primarily based preparations entered into by NeueHealth'sValue Services Organization and affiliated medical teams during which the accountability for management of an attributed affected person's medical care is transferred, partly or wholly, to such medical teams. Such income contains capitation funds, in addition to high quality incentive funds, and shared financial savings distributions payable upon achievement of sure monetary and high quality metrics. Value-based income shifts accountability for management over the medical care delivered to attributed sufferers to the Company and aligns incentives across the general properly-being of the payor's customers.
We count on that as our NeueHealth enterprise continues to develop, NeueHealth premium
income will change into an rising proportion of our general income.
Service income
Service income primarily represents income from charge-for-service funds
acquired by NeueHealth’s affiliated medical teams. These embody affected person
copayments and deductibles collected instantly from sufferers and funds from
personal and authorities payors primarily based upon contractual phrases that outline the
charge-for-service reimbursement for particular procedures carried out.
In addition, service income contains community service income generated by
NeueHealth’s Bright Health Networks.
buyer of Bright Health Networks.
Investment revenue
The sources of funding revenue are curiosity revenue and realized good points and losses derived from the Company's funding portfolio that's comprised of debt securities of theU.S. authorities and different authorities businesses, company funding grade, cash market funds and varied different securities, in addition to realized and unrealized good points and losses from fairness securities.
Operating Expenses
Medical prices
Medical prices encompass reimbursements to suppliers for medical providers, prices of pharmaceuticals, supplemental advantages, reinsurance and high quality incentive and shared financial savings compensation to suppliers. The Company contracts with hospitals, physicians and different suppliers of healthcare primarily inside its unique supplier networks beneath charge-for-service and worth-primarily based preparations. Emergency medical providers incurred out-of-community are a coated profit to customers and reimbursed to suppliers in response to the Company's cost insurance policies which can be primarily based on relevant rules. Prescription drug prices are decided primarily based on the contracts with our pharmacy advantages managers, which contains pharmacy rebates which can be acquired for sure drug utilization ranges or contracted minimums. Dental, imaginative and prescient, and different supplemental medical providers are supplied to customers beneath capitated preparations. Reinsurance preparations allow us to cede a specified % of our premiums and claims to our third-celebration reinsurers. Under such contracts, the reinsurer is paid to cowl claims-associated losses over a specified quantity, which mitigates catastrophic threat. We make high quality incentive and shared financial savings compensation funds to sure suppliers in accordance with the phrases of the contractual association upon the achievement of sure monetary and high quality metrics.
Operating Costs
Operating prices are comprised of the bills essential to execute the Company's enterprise operations. These embody worker compensation for salaries and associated profit prices, share-primarily based compensation, outsourced vendor contracted service and expertise charges, skilled providers, technological infrastructure and repair charges, services prices and different administrative bills. Operating prices additionally embody funds made byBright HealthCare to NeueHealth for the provision of Bright Health Networks providers; promoting and advertising bills from exterior dealer commissions and promoting, primarily associated to shopper acquisition; and premium taxes, trade charges and different regulatory prices, which are based on premium income. Additionally, the premium deficiency reserve expense for anticipated future losses 64
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in sure markets is included in working prices. We count on working prices to
enhance in absolute quantities as our enterprise grows, however to lower as a
proportion of our income within the lengthy-time period.
Depreciation and Amortization
Depreciation and amortization encompass depreciation of property, gear and
capitalized software program, in addition to amortization of particular-lived intangible
belongings acquired in enterprise combos, together with buyer relationships,
commerce names, reacquired contracts and developed expertise.
Other Income and Expenses
Interest Expense
Interest expense consists of curiosity funds on credit score services, in addition to
amortization of debt issuance prices.
Income Tax (Benefit) Expense
Income tax (profit) expense consists primarily of adjustments to our present and
deferred federal tax belongings and liabilities web of relevant valuation
allowances.
Initial Public Offering
OnJune 23, 2021 , the Company's Registration Statement on Form S-1 for the preliminary public providing of shares of frequent inventory was declared efficient by theU.S. Securities & Exchange Commission . The Company's frequent inventory started buying and selling on the NYSE beneath the ticker image "BHG" onJune 24, 2021 . The IPO closed onJune 28, 2021 and the Company bought 51,350,000 shares of frequent inventory at a worth of$18.00 per share. In combination, the shares issued within the providing generated$887.3 million in web proceeds, the quantity of which is web of$37.0 million in underwriters' reductions and commissions. Immediately efficient upon the closing of our IPO, all 167,731,830 shares of our then excellent most well-liked inventory have been transformed into 427,897,381 shares of frequent inventory, inflicting the Company to reclassify$1.8 billion from redeemable most well-liked inventory inside momentary fairness to frequent inventory and extra paid-in capital on our consolidated stability sheet. We utilized a portion of the online proceeds to repay the$200.0 million principal stability of indebtedness excellent beneath our revolving credit score settlement initially entered into onMarch 1, 2021 and the related curiosity and different prices of$3.2 million . Additionally, we used a portion of the proceeds to fund the acquisition ofCentrum Medical Holdings, LLC ("Centrum") as described in Note 3 of the Notes to Consolidated Financial Statements. The the rest of the web proceeds have been used for basic company functions.
See additional dialogue associated to the IPO as described in Note 1 of the Notes to
Consolidated Financial Statements.
COVID-19 Impact
The ongoing COVID-19 pandemic, together with its impact on the macroeconomic surroundings, and the response of native, state, and federal governments to include and handle the virus, continues to influence our enterprise. The emergence of COVID-19 variants inthe United States and overseas continues to delay the danger of extra surges of the virus. In addition, some people have delayed or aren't looking for routine medical care to keep away from COVID-19 publicity. These and different responses to the COVID-19 pandemic have meant that our MCR could also be topic to extra uncertainty as sure segments of the financial system and workforce come again on line, members resume care that will have been foregone, and the broader inhabitants turns into vaccinated. We have skilled impacts to our enterprise from COVID-19, which have various as the pandemic progressed. Initially, because of the suspension of elective surgical procedures and deferral of medical care, we skilled decreased medical utilization, notably within the second quarter of 2020. Since then, medical utilization has returned to extra regular ranges and adversarial monetary impacts from inpatient admissions emerged primarily because of elevated common size of stays. In 2021, our outcomes have been extra considerably impacted by COVID-19 than in 2020. We skilled elevated COVID-19 associated prices all through 2021, with a extra vital enhance within the second half of 2021, notably because of adverse 65
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developments within theSoutheast United States , which incorporates two of our largest markets -Florida andNorth Carolina . For the years endedDecember 31, 2021 and 2020, the influence of COVID-19 elevated our MCR by 530 foundation factors and 400 foundation factors, respectively, reflecting a rise in medical prices of$208.0 million and$46.6 million , respectively. Overall measures to include the COVID-19 outbreak could stay in place for a vital time frame, as sure geographic areas have skilled a resurgence of COVID-19 infections and new strains of COVID-19 that look like extra transmissible and should doubtlessly evade vaccines have emerged. Although the quantity of people that have been vaccinated has been rising, the length and severity of this pandemic is unknown and the extent of the enterprise disruption and monetary influence is determined by components past our data and management.
Business Update
Our mission - Making Healthcare Right. Together. - is constructed on the assumption that by connecting and aligning the very best native sources in healthcare supply with the financing of care, we are able to ship higher outcomes, at a decrease price, for all customers.Bright Health Group is constructing a very distinctive mannequin that we consider will remodel how healthcare is delivered. We consider when healthcare is delivered in a Fully Aligned and Integrated Care mannequin, we are able to bend the fee curve and, most significantly, improve worth for each customers and suppliers. We achieved substantial development in 2021, reaching over$4.0 billion in income, and we're keen about our positioning for 2022. As we executed on our technique to shortly achieve scale within the enterprise, we anticipated some variability in our outcomes, and we noticed that play out as we closed 2021. The significant income development we delivered in 2021, which was pushed to a mixture of upper than anticipated development to start out the yr and extra development from the Special Enrollment Period, outpaced our operational and system capabilities. Unique components in 2021, together with the COVID-19 pandemic and our massive group of new members with out threat scores, mixed with scaling up our organizational capabilities and enterprise applied sciences, impacted our outcomes into the fourth quarter extra considerably than anticipated. These components impacted our capability to interact with our members as a way to precisely seize their underlying well being circumstances and impacted prior interval medical prices as we caught up on claims processing. Despite the challenges we confronted 2021, we consider our bigger base of enterprise together with continued development into 2022, offers a stable platform to proceed executing on our technique. We anticipate that by way of our Fully Aligned Care mannequin we are able to drive differentiated outcomes and we're taking particular actions to focus the Company, enhance our techniques and processes, and drive towards worthwhile development. We are persevering with to spend money on constructing our NeueHealth enterprise and have efficiently expanded NeueHealth owned clinics outdoors of theFlorida market, whereas additionally persevering with to construct our affiliated Care Partner community throughout the nation. Many of the challenges we encountered this previous yr might be attributed to particular areas that have been already on our record for enchancment, however the development we skilled exacerbated the gaps in efficiency. We made vital progress correcting these points in our operational capabilities in 2021, which we count on will assist drive improved 2022 efficiency together with alternatives we see for additional enchancment over the course of 2022.
We have taken the next particular actions towards a number of areas that we
consider will influence close to-time period efficiency, which embody:
1.Net Pricing Action in Core Markets: We took pricing motion in extra of our expectation for underlying medical price developments for almost all of our membership in legacy IFP markets, whereas nonetheless having the ability to display significant development. In addition, we priced in potential COVID associated prices to mirror the danger of future COVID associated bills. We are also specializing in pricing as an necessary lever in 2023, as we proceed our path to profitability. 2.Unit Cost and Medical Management Reduction Initiatives: In 2021, we recognized a number of unit price and medical administration alternatives throughout our IFP and MA companies that we have been unable to capitalize on in 2021, that are anticipated to drive worth in 2022. These medical price efforts are along with the online pricing actions we now have taken. As we gained scale and optimized our processes, we have been capable of renegotiate ancillary and pharmacy contracts, scale back out of community charges, optimize present contract constructions, extra carefully handle excessive-price instances, and enhance our specialty supplier community. We count on that optimizing the care community might be an 66
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ongoing course of that requires knowledge on our members and quantity, each of which we
now have considerably extra of, in addition to higher techniques to offer visibility.
3.Risk Adjustment Actions: Accurate threat adjustment was a problem because of a number of structural points in 2021; nonetheless, these challenges drove us to make vital funding in our capabilities. We are engaged on quicker attribution of our members to a bigger community of owned and affiliated physicians which have higher capability to interact with their members earlier within the yr. We have additionally made expertise and operational investments in suspecting analytics, outreach and engagement groups, and our finish-to-finish threat adjustment course of as a way to precisely capturing the danger of the inhabitants we handle. We are additionally working to assist members higher handle and navigate their care, which we count on will drive higher in-community developments. 4.Claims and Clinical Platform Stabilization: Our development considerably challenged the capability of our totally aligned supplier networks, in addition to the capability of our administrative, operational, and medical techniques. This development occurred whereas we have been constructing BiOS and transitioning from quite a few vendor options to BiOS, our finish state working platform. In 2022, we transitioned to new finance and other people techniques. In addition, 70% of our membership is on our proprietary medical system, Panorama, and all of our new market membership is on our new claims administration platform with the rest of our IFP membership anticipated emigrate inJanuary 2023 . BiOS offers us larger visibility and effectivity, the advantages of which embody quicker claims processing instances, extra correct funds, business commonplace denial charges, and extra well timed and full shopper knowledge. 5.We are Addressing Talent and Cost Structure: A excessive performing group is crucial to our capability to enhance efficiency and drive sustainable outcomes. We proceed to evolve our group, including experience as wanted, and have taken particular actions to scale back the fee construction, remove redundancies, and drive efficiencies throughout the group.
We additionally consider the next Company and business components will have an effect
of our efficiency in 2022:
1.Scale and Diversification: We achieved development within the 2022 Annual and Open Enrollment Periods, which offers improved scale, at greater than 1 million well being plan members, and 400,000 lives beneath threat-primarily based contracts. This scale not solely permits us to higher handle inhabitants threat and scale back volatility, however our density in particular markets akin toCalifornia ,Texas ,Florida , andNorth Carolina , permits us to higher interact with suppliers and be a extra significant portion of their general enterprise. 2.Higher Retained Membership: Inclusive of the influence of the 2021 SEP, roughly 85% of our IFP membership was new in 2021. To start 2022, together with new markets, roughly 55% of our enrollment is new. We additionally profit from robust renewal charges, with a retention charge of 79% in our mature markets - these present for greater than two years. This has a number of advantages, together with extra knowledge and knowledge on our members to assist us higher handle the inhabitants and precisely seize member threat. 3.Normalized Special Enrollment Period: The 2021 SEP, whereas offering us with continued development over the course of the yr, got here with distinctive challenges with regards to efficiency. The shorter member length and better acute care prices for these members, all towards the backdrop of COVID, made it very tough to interact with this inhabitants and precisely seize their threat. We count on a a lot extra normalized SEP this yr. 4.Reduced Operational Backlog: The operational challenges pushed by our 2021 development induced us to spend vital effort and time working by way of an operational backlog. We have made vital investments within the group and techniques and we consider we're much better ready for the expansion we count on in 2022. This will enable us to higher interact and reply to points and extra successfully handle efficiency inside our inhabitants. 5.Endemic COVID: We consider COVID will proceed in some capability for the foreseeable future; nonetheless, don't count on it to be practically as acute because it was in 2021. With the rise in vaccination charges, whereas instances of COVID could proceed, we count on direct COVID prices might be extra manageable.
We consider the close to-time period steps that we’re taking to enhance our efficiency
will optimize the enterprise for lengthy-time period success.
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Key Metrics and Non-GAAP Financial Measures
In addition to our GAAP monetary data, we overview a lot of working
and monetary metrics, together with the next key metrics, to judge our
enterprise, measure our efficiency, establish developments affecting our enterprise,
formulate our marketing strategy and make strategic selections.
Year Ended December
31,
2021 2020
2019
Bright HealthCare Consumers Served Commercial (1) 611,078 145,459 54,782 Medicare Advantage 116,621 61,663 4,146 NeueHealth Patients Value-Based Care Patient Lives 175,587 21,126 -
(1) Commercial contains IFP and employer plans. Prior to 2021, our Commercial
enterprise was solely comprised of IFP merchandise.
Key Metrics
Bright HealthCare Consumers Served
Consumers served embodyBright HealthCare particular person lives served by way of well being insurance coverage insurance policies throughout a number of traces of enterprise, primarily attributable to IFP merchandise and MA plans in markets throughout the nation. We consider development in the variety of customers is a key indicator of the efficiency of ourBright HealthCare enterprise. It additionally informs our administration of the operational, medical, technological and administrative useful space wants that may require additional funding to help anticipated future shopper development.
Value-Based Care
Value-based care sufferers are sufferers attributed to suppliers contracted beneath various worth-primarily based care supply fashions during which the accountability for management of an attributed affected person's medical care is transferred, partly or wholly, to our NeueHealth managed medical teams. We consider development within the variety of worth-primarily based care sufferers is a key indicator of the efficiency of our NeueHealth enterprise. It additionally informs our administration of the operational, medical, technological and administrative useful space wants that may require additional funding to help anticipated future affected person development. Over time, we count on our price-primarily based care sufferers will enhance as we convert charge-for-service preparations into worth-primarily based care monetary preparations. Year Ended December 31, ($ in 1000's) 2021 2020 2019 Net Loss $ (1,178,365) (248,442) (125,337) Adjusted EBITDA(1) $ (1,080,906) (238,912) (121,091)
(1)See “Non-GAAP Financial Measures” under for reconciliations to probably the most
instantly comparable monetary measures calculated in accordance with GAAP and
associated disclosures.
Non-GAAP Financial Measures
Adjusted EBITDA
We outline Adjusted EBITDA as web loss excluding curiosity expense, revenue taxes, depreciation and amortization, adjusted for the influence of acquisition and financing-associated transaction prices, share-primarily based compensation, adjustments within the truthful worth of contingent consideration and contract termination prices. Adjusted EBITDA has been introduced on this Annual Report as a supplemental measure of monetary efficiency that isn't required by, or introduced in accordance with, GAAP, as a result of we consider it assists administration and buyers in evaluating our working efficiency throughout reporting durations on a 68
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constant foundation by excluding gadgets that we don't consider are indicative of our core working efficiency. Management believes Adjusted EBITDA is helpful to buyers in highlighting developments in our working efficiency, whereas different measures can differ considerably relying on lengthy-time period strategic selections concerning capital construction, the tax jurisdictions during which we function and capital investments. Management makes use of Adjusted EBITDA to complement GAAP measures of efficiency within the analysis of the effectiveness of our enterprise methods, to make budgeting selections, to determine discretionary annual incentive compensation and to match our efficiency towards that of different peer corporations utilizing comparable measures. Management dietary supplements GAAP outcomes with non-GAAP monetary measures to offer a extra full understanding of the components and developments affecting the enterprise than GAAP outcomes alone. Adjusted EBITDA just isn't a acknowledged time period beneath GAAP and shouldn't be thought-about as a substitute for web revenue (loss) as a measure of monetary efficiency or money supplied by working actions as a measure of liquidity, or some other efficiency measure derived in accordance with GAAP. Additionally, this measure just isn't supposed to be a measure of free money movement out there for administration's discretionary use as we don't think about sure money necessities akin to curiosity funds, tax funds and debt service necessities. The presentation of this measure has limitations as an analytical instrument and shouldn't be thought-about in isolation, or as an alternative choice to evaluation of our outcomes as reported beneath GAAP. Because not all corporations use an identical calculations, the presentation of this measure will not be similar to different equally titled measures of different corporations and may differ considerably from firm to firm. The following desk offers a reconciliation of web loss to Adjusted EBITDA for the durations introduced: Year Ended December 31, (in 1000's) 2021 2020 2019 Net loss$ (1,178,365) $ (248,442) $ (125,337) Interest expense 7,956 - - Income tax (profit) expense (26,521) (9,161) - Depreciation and amortization 35,484 8,289 1,134 Transaction prices (a) 6,338 4,950 1,248 Share-based compensation expense (b) 68,423 5,452 1,864
Change in truthful worth of contingent consideration (c) (4,221)
- - Contract termination prices (d) 10,000 - - Adjusted EBITDA$ (1,080,906) $ (238,912) $ (121,091) (a)Transaction prices embody accounting, tax, valuation, consulting, authorized and funding banking charges instantly regarding enterprise combos and sure prices related to our IPO. These prices can differ from interval to interval and influence comparability, and we don't consider such transaction prices mirror the ongoing efficiency of our enterprise. (b)Represents non-money compensation expense associated to inventory choice, restricted inventory unit, and efficiency-primarily based restricted inventory unit grants, which might differ from interval to interval primarily based on a lot of components, together with the timing, amount and grant date truthful worth of the awards. (c)Represents non-money change within the truthful worth of contingent consideration from enterprise combos, which is remeasured at truthful worth every reporting interval. There was no materials exercise for durations previous to the primary quarter of 2021.
(d)Represents quantity paid for early termination of an present vendor contract.
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Table of Contents Acquisitions EffectiveDecember 31, 2019 , we acquired considerably the entire belongings of Associates in Family Practice ofBroward, L.L.C. , aFlorida restricted legal responsibility company, renaming it toAssociatesMD Medical Group, Inc. ("AMD"). This NeueHealth acquisition was accomplished to reinforce our medical capabilities to higher serve enrollees as a part of our deliberateFlorida market entrance in 2020. EffectiveApril 30, 2020 , we acquiredUniversal Care, Inc. (d.b.a. Brand New Day) ("BND"), which is concentrated on serving primarily MA particular wants customers. ThisBright HealthCare acquisition was accomplished to bolster our MA platform and present entry intoCalifornia . EffectiveDecember 31, 2020 , we acquired a 62% controlling curiosity inPremier Medical Associates of Florida, LLC ("PMA"). This NeueHealth acquisition was accomplished to reinforce our medical capabilities to higher serve enrollees as half of ourFlorida market growth in 2021.
Effective
by way of the business marketplace for particular person on- and off-trade and
employer-sponsored well being protection. This
accomplished to enter into a brand new state of strategic curiosity and to leverage THNM’s
robust native medical mannequin of care.
EffectiveMarch 31, 2021 , we acquiredZipnosis, Inc. ("Zipnosis"), which is a telehealth platform that provides digital care to well being techniques across theU.S. This NeueHealth acquisition was accomplished to reinforce our proprietary expertise platform, DocSquad, and our shopper and supplier connectivity with Zipnosis' digital care capabilities. EffectiveApril 1, 2021 , we acquiredCentral Health Plan of California, Inc. ("CHP"), an insurance coverage supplier of MA well being upkeep group ("HMO") providers. ThisBright HealthCare acquisition was accomplished to realize synergies from leveraging CHP's medical mannequin andCalifornia shopper experience to proceed to develop our MA enterprise within theCalifornia market. EffectiveJuly 1, 2021 , we acquired Centrum, a price-primarily based main care targeted, multi-specialty medical group, serving Commercial, Medicare, and Medicaid customers throughout a number of payors. This NeueHealth acquisition was accomplished for the incremental monetary advantages achievable by way of our built-in care supply mannequin, wherebyBright HealthCare members are cared for beneath worth-primarily based preparations with Centrum. This mannequin brings collectively the financing, distribution, and supply of excessive-high quality healthcare and offers the alternative to reinforce our general margin potential.
See Note 3 within the Notes to Consolidated Financial Statements for extra
data concerning our enterprise combos.
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Table of Contents Results of Operations
The following desk summarizes our audited consolidated statements of revenue
(loss) knowledge for the years ended
(in 1000's) Year Ended December 31, Consolidated Statements of Income (loss) and 2021 2020 2019 working knowledge: Revenue: Premium income$ 3,902,714 $ 1,180,338 $ 272,323 Service income 42,701 18,514 - Investment revenue 83,974 8,468 8,350 Total income 4,029,389 1,207,320 280,673 Operating prices Medical prices 3,953,674 1,047,300 224,387 Operating prices 1,238,387 409,334 180,489 Depreciation and amortization 35,484 8,289 1,134 Total working prices 5,227,545 1,464,923 406,010 Operating loss (1,198,156) (257,603) (125,337) Interest expense 7,956 - - Other revenue (1,226) - - Loss earlier than revenue taxes (1,204,886) (257,603) (125,337) Income tax (profit) expense (26,521) (9,161) - Net loss (1,178,365) (248,442) (125,337) Net earnings attributable to non-controlling (6,497) - -
curiosity
Net loss attributable to Bright Health$ (1,184,862) $ (248,442) $ (125,337) Group, Inc. frequent shareholders Adjusted EBITDA$ (1,080,906) $ (238,912) $ (121,091) Medical Cost Ratio (MCR) (1) 101.3 % 88.7 % 82.4 % Operating Cost Ratio (2) 30.7 % 33.9 % 64.3 % _______________________
(1)Medical Cost Ratio is outlined as medical prices divided by premium income.
(2)Operating Cost Ratio is outlined as working prices divided by complete income.
2021 Compared to 2020
Total income elevated by$2.8 billion , or 233.7%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance was largely pushed by a rise inBright HealthCare customers of roughly 520,000 shopper lives, or 251.3%, primarily from natural development in IFP inside our Commercial enterprise, together with the 2021 Special Enrollment Period, in addition to natural and inorganic contributions from the MA enterprise. Increases in our threat adjustment legal responsibility partially offset the entire income will increase. The yr endedDecember 31, 2021 additionally included$906.1 million from the acquisitions of PMA, THNM, Zipnosis, CHP and Centrum and a full yr of Brand New Day, which was acquired onApril 30, 2020 . These acquisitions have been the first driver of the rise in service income contributing$23.8 million for the yr endedDecember 31, 2021 . In addition, funding revenue elevated because of unrealized good points from investments in fairness securities of$80.2 million . Medical prices elevated by$2.9 billion , or 277.5%, for the yr endedDecember 31, 2021 , as in comparison with the identical interval in 2020. The enhance in medical prices was pushed by a rise in customers by way of each natural development in our Commercial and MA companies and inorganic development attributable to the acquisitions of PMA, THNM, CHP and Centrum, in addition to a full yr of Brand New Day. We additionally skilled a rise in medical prices from COVID-19 in the course of the yr endedDecember 31, 2021 . 71
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Our MCR of 101.3% for the yr endedDecember 31, 2021 , elevated 1,260 foundation factors as in comparison with the identical interval in 2020. The 2021 Special Enrollment Period and our general development created challenges for capturing underlying threat, and we have been extra considerably impacted by COVID-19 associated prices, notably given the numerous portion of our customers inFlorida . Our MCR for the yr endedDecember 31, 2021 included a 530 foundation level unfavorable influence from COVID-19 prices, and a 90 foundation level unfavorable influence from non-COVID prior interval growth ("PPD"). Operating prices elevated by$829.1 million , or 202.5%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance in working prices was primarily because of will increase in working prices from new market entry, elevated advertising and promoting bills associated to the 2021 particular enrollment interval in our Commercial enterprise and elevated compensation and profit prices pushed by a rise in staff and a rise in share-primarily based compensation prices. In addition, the yr endedDecember 31, 2021 additionally contains$102.8 million of premium deficiency reserve expense because of anticipated future losses in sure markets in 2022 in ourBright HealthCare section. Our working price ratio of 30.7% for the yr endedDecember 31, 2021 improved 320 foundation factors as in comparison with the identical interval in 2020. The lower was primarily because of working prices rising at a slower charge than the elevated premium revenues earned because of shopper development, as we proceed to realize leverage on our working prices as we develop, partially offset by a rise in dealer fee prices related to new membership development. Depreciation and amortization elevated by$27.2 million , or 328.1%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance was primarily because of a$25.5 million enhance in amortization expense ensuing from intangible belongings acquired within the PMA, THNM, Zipnosis, CHP, and Centrum acquisitions, for which there have been no comparable quantities in 2020. Interest expense was$8.0 million for the yr endedDecember 31, 2021 , which was because of curiosity on the Credit Agreement we entered into inMarch 2021 , as properly as amortization of debt issuance prices. We didn't have any curiosity expense for the years endedDecember 31, 2020 and 2019. Income tax profit was$26.5 million for the yr endedDecember 31, 2021 . The general tax profit acknowledged in the course of the yr is primarily as a result of launch of valuation allowance in reference to new deferred tax liabilities recorded on identifiable intangibles as a part of enterprise mixture accounting for the Zipnosis, THNM, and CHP inventory acquisitions, in addition to a measurement interval adjustment associated to the BND acquisition.
2020 Compared to 2019
Total income elevated by$926.6 million , or 330.2%, to$1.2 billion for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. The enhance in income was pushed by a rise inBright HealthCare customers of 251% from natural development and inorganic contributions from the Brand New Day Acquisition, in addition to the creation of the NeueHealth section with the acquisition of AMD. Medical prices elevated by$822.9 million , or 366.7%, to$1.0 billion for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily because of a rise in customers by way of each natural and inorganic development, elevated MA product combine at a better MCR primarily as a result of Brand New Day Acquisition and the adversarial monetary impacts of the COVID-19 pandemic on MA and IFP inpatient admissions. In sure new IFP markets, we skilled elevated medical prices because of larger out-of-community utilization in 2020. Medical Cost Ratio of 88.7% for yr endedDecember 31, 2020 elevated 630 foundation factors as in comparison with the identical interval in 2019. This was primarily as a result of elevated medical prices from COVID-19, elevated MA product combine as the results of the Brand New Day Acquisition and a rise in out-of-community utilization in sure new IFP markets. Operating prices elevated by$228.8 million , or 126.8%, to$409.3 million for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily because of elevated compensation and profit prices from extra staff, outsourced vendor charges, dealer commissions, advertising, premium taxes and charges in help of shopper development, acquisitions and enterprise section growth. 72
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Operating price ratio of 33.9% for the yr endedDecember 31, 2020 improved 3,040 foundation factors as in comparison with the identical interval in 2019. This was primarily because of working prices rising at a slower charge than income will increase because the Company grows. Depreciation and amortization elevated by$7.2 million , or 631.0%, to$8.3 million for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily because of$5.4 million of amortization expense ensuing from intangibles belongings acquired in our acquisition of AMD and the Brand New Day Acquisition. There was no amortization expense in 2019. Income tax profit was$9.2 million for the yr endedDecember 31, 2020 . The general tax profit acknowledged in the course of the yr was primarily as a result of tax influence of goodwill and intangible belongings acquired as a part of the Brand New Day Acquisition in 2020. We didn't have any revenue tax (profit) expense in 2019.Bright HealthCare (in 1000's) Year Ended December 31, Statements of revenue (loss) and working knowledge: 2021 2020 2019 Bright HealthCare: Revenue: Commercial premium income$ 2,512,624 $ 692,433 $ 236,290 Medicare Advantage premium income 1,297,273 480,112 36,033 Investment revenue 3,739 8,468 8,350 Total income 3,813,636 1,181,013 280,673 Operating bills: Medical prices 3,766,897 1,047,300 224,387 Operating prices 1,140,842 376,215 180,489 Depreciation and amortization 17,068 6,394 1,134 Total working bills 4,924,807 1,429,909 406,010 Operating loss$ (1,111,171) $ (248,896) $ (125,337) Medical Cost Ratio (MCR) 98.9 % 89.3 % 82.4 % 2021 Compared to 2020 Commercial income elevated by$1.8 billion , or 262.9%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance in income was pushed by a rise in shopper lives of roughly 520,000 due to natural development and inorganic development from the acquisition of THNM, in addition to larger web premium charges in sure markets and plan combine, which have been partially offset by a rise in threat adjustment payables. MA income elevated by$817.2 million , or 170.2%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The yr endedDecember 31, 2021 included$679.1 million of income from our acquisition of CHP onApril 1, 2021 , and the influence of a full yr of income from Brand New Day, which was acquired onApril 30, 2020 . We additionally skilled quantity will increase because of natural development. Medical prices elevated by$2.7 billion , or 259.7%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. For the years endedDecember 31, 2021 and 2020, the influence of COVID-19 elevated our medical prices by$208.0 million and$46.6 million , respectively. The enhance in 2021 can also be because of an enhance in customers pushed by natural development, unfavorable medical price charges and inorganic development because of acquisitions. Our MCR of 98.9% for the yr endedDecember 31, 2021 elevated 960 foundation factors as in comparison with the identical interval in 2020. Our MCR for the yr endedDecember 31, 2021 included a 530 foundation level unfavorable influence from COVID-19 associated prices and a 90 foundation level unfavorable influence from non-COVID PPD. Our MCR for the yr endedDecember 31, 2020 included a 400 foundation level unfavorable influence from COVID-19 prices, a 110 foundation level favorable influence from non-COVID PPD and a 110 foundation level favorable influence from deferred utilization. Our MCR for the yr endedDecember 31 , 73
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2021, was additionally impacted by a rise in threat adjustment payable and medical prices from MA product combine because of a full yr of exercise from Brand New Day and the acquisition of CHP. Operating prices elevated by$764.6 million , or 203.2%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance was primarily because of will increase in working prices from new market entry, elevated advertising and promoting bills associated to the 2021 SEP in our Commercial enterprise and elevated compensation and profit prices pushed by a rise in staff and a rise in share-primarily based compensation prices. In addition, the yr endedDecember 31, 2021 additionally contains$102.8 million of premium deficiency reserve expense because of anticipated future losses in sure markets in 2022, as properly as elevated working prices from the acquisitions of THNM and CHP, which do not need a comparable prior yr influence. Depreciation and amortization elevated by$10.7 million , or 166.9%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance was primarily because of amortization expense of$9.6 million ensuing primarily from intangible belongings acquired in 2021 for which there have been no comparable quantities within the 2020 interval.
2020 Compared to 2019
Commercial income elevated by$456.1 million , or 193.0%, to$692.4 million for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily pushed by a 166% enhance in customers, with the rest primarily attributable to larger premium charges in sure new markets. MA income elevated by$444.1 million to$480.1 million for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily pushed by the Brand New Day acquisition, which contributed$426.3 million of the income enhance, and different natural development, which collectively helped drive shopper development of 1,387%. Medical prices elevated by$822.9 million , or 366.7%, to$1.0 billion for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily because of elevated customers, impacts from the COVID-19 pandemic and the Brand New Day Acquisition driving elevated MA product combine. In addition, sure new IFP markets skilled elevated ranges of out-of-community utilization in 2020. MCR elevated from 82.4% for the yr endedDecember 31, 2019 to 89.3% for the yr endedDecember 31, 2020 , representing a 690 foundation factors enhance. This was primarily as a result of elevated medical prices from COVID-19, elevated MA product combine because of the Brand New Day Acquisition and a rise in out-of-community medical claims utilization in sure new IFP markets. Operating prices elevated by$195.7 million , or 108.4%, to$376.2 million for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily because of a rise in worker headcount resulting in elevated compensation and profit prices, in addition to a rise in outsourced vendor charges, dealer commissions, advertising, premium taxes and charges in help of shopper development and the Brand New Day acquisition. Depreciation and amortization elevated by$5.3 million , or 463.8%, to$6.4 million for the yr endedDecember 31, 2020 as in comparison with the identical interval in 2019. This was primarily because of$3.2 million of amortization expense ensuing from intangibles belongings acquired in our Brand New Day Acquisition, in addition to depreciation expense from the acquired property, gear and capitalized software program. There was no amortization expense in 2019. 74
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Table of Contents NeueHealth ($ in 1000's) Year Ended December 31, Statements of revenue (loss) knowledge: 2021 2020 2019 NeueHealth: Revenue: Premium income $ 338,254$ 7,793 $ - Service income 74,690 29,354 - Investment revenue 80,235 - - Total income 493,179 37,147 - Operating bills: Medical prices 432,318 - - Operating prices 129,430 43,959 - Depreciation and amortization 18,416 1,895 - Total working bills 580,164 45,854 - Operating loss $ (86,985)$ (8,707) $ - Medical Cost Ratio (MCR) 127.8 % - % - %
No exercise mirrored in 2019 because of institution of section in 2020.
2021 Compared to 2020
Premium income elevated by$330.5 million for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance in premium income for the yr endedDecember 31, 2021 contains$262.4 million from the acquisitions of PMA and Centrum, in addition to an natural enhance in affected person lives. Service income elevated by$45.3 million , or 154.4%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance in service income is primarily pushed by elevated intercompany community contract service income with ourBright HealthCare section, which is charged on a per shopper monthly foundation and has elevated because of market growth and an enhance in shopper lives. The acquisitions of PMA, Zipnosis and Centrum additionally contributed$23.7 million to the yr-over-yr enhance in service income. Investment revenue was$80.2 million for the yr endedDecember 31, 2021 because of unrealized good points on fairness securities acquired in 2021. NeueHealth didn't maintain any investments in the course of the yr endedDecember 31, 2020 . Medical prices have been$432.3 million for the yr endedDecember 31, 2021 , which have been primarily pushed by a rise in affected person lives because of the PMA and Centrum acquisitions, in addition to natural development in our price-primarily based preparations. MCR was 127.8% for the yr endedDecember 31, 2021 . There have been no medical prices within the yr endedDecember 31, 2020 . Operating prices elevated by$85.5 million , or 194.4%, for the yr endedDecember 31, 2021 as in comparison with the identical interval in 2020. The enhance was primarily because of elevated compensation and profit prices from extra staff, and outsourced vendor charges in help of shopper development, in addition to prices from the PMA, Zipnosis and Centrum acquisitions.
Depreciation and amortization elevated by
primarily because of amortization expense of
belongings acquired for which there have been no comparable quantities in 2020.
2020 Compared to 2019
Our NeueHealth section was created in 2020 by way of the acquisition of AMD and the institution of our Bright Health Network service. Service income displays charge-for-service income attributable to AMD service sufferers and inside income generated by Bright Health Networks for community contract providers withBright HealthCare . Premium income displays 75
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AMD income associated to capitation funds and different worth-primarily based income from
third-celebration payors. There was no comparable exercise in 2019.
Liquidity and Capital Resources
We assess our liquidity by way of our capability to generate sufficient quantities of money to satisfy present and future wants. Our anticipated main makes use of on a brief-time period and lengthy-time period foundation are for geographic and repair providing growth, acquisitions, and different basic company functions. We have traditionally funded our operations and acquisitions primarily by way of the sale of most well-liked inventory, and extra just lately, by way of gross sales of our frequent inventory, which generated money proceeds of$887.3 million upon closing of our IPO onJune 28, 2021 . We count on to proceed to incur working losses and generate adverse money flows from operations for the foreseeable future as a result of investments we intend to proceed to make in increasing our operations and because of extra basic and administrative prices we count on to incur in reference to working as a public firm. We consider that present money available, investments and quantities out there beneath our Credit Agreement described under might be ample to fulfill our anticipated money necessities for the following twelve months for gadgets akin to threat adjustment payable, medical prices payable, accounts payable and different present liabilities. However, we could search extra capital to help our future development plans and different strategic alternatives that will come up, as properly as anticipated money necessities past that interval for lengthy-time period obligations akin to working leases and redeemable noncontrolling curiosity. As ofDecember 31, 2021 , we had$1.1 billion in money and money equivalents,$193.8 million briefly-time period investments and$675.2 million lengthy-time period investments on the Consolidated Balance Sheet. As ofDecember 31, 2020 , we had$488.4 million in money and money equivalents,$499.9 million briefly-time period investments and$175.2 million lengthy-time period investments. Our money and investments are held at non-regulated entities and controlled insurance coverage entities. As ofDecember 31, 2021 , we had non-regulated money and money equivalents of$76.3 million and brief-time period investments of$121.5 million . As ofDecember 31, 2020 , we had non-regulated money and money equivalents of$133.3 million , brief-time period investments of$385.6 million of which$1.1 million was restricted, and lengthy-time period investments of$5.6 million .
As of
equivalents of
lengthy-time period investments of
regulated insurance coverage entity money and money equivalents of
brief-time period investments of
million
Cash and funding balances held at regulated insurance coverage entities are topic to regulatory restrictions and may solely be accessed by way of dividends declared to the non-regulated mother or father firm or by way of reimbursements from administrative providers agreements with the mother or father firm. The Company declared two dividends from the regulated insurance coverage entities to the mother or father firm in the course of the yr endedDecember 31, 2021 , and declared no dividends throughout 2020. The regulated authorized entities are required to carry sure minimal ranges of threat-primarily based capital and surplus to satisfy regulatory necessities. As ofDecember 31, 2021 and 2020,$398.5 million and$235.8 million , respectively, was held in threat-primarily based capital and surplus at regulated insurance coverage authorized entities, which was in extra of the minimal necessities in annually.
Indebtedness
OnMarch 1, 2021 , we entered right into a$350.0 million revolving credit score settlement with a syndicate of banks (the "Credit Agreement"). OnAugust 2, 2021 , the Credit Agreement was amended to alter the definition of "Qualified IPO" by decreasing the online proceeds required to be acquired by the Company from$1.0 billion to$850.0 million (the "Amendment"). In addition, previous to such modification, the Credit Agreement contained a covenant that required the Company to keep up a complete debt to capitalization ratio of (a) 0.25 to 1.00 previous to a Qualified IPO, and (b) 0.30 to 1.00 after a Qualified IPO. The Amendment modified this covenant by eradicating the rise within the ratio after a Qualified IPO such that the Company is now required to keep up a complete debt to capitalization ratio of 0.25 to 1.00. OnAugust 4, 2021 , we elected to increase the maturity date of the Credit Agreement fromFebruary 28, 2022 toFebruary 28, 2024 . As ofDecember 31, 2021 , we had$155.0 million borrowed on the Credit Agreement at an efficient annual rate of interest of seven.25%. The Credit Agreement additionally incorporates a covenant that requires us to keep up a minimal liquidity of$150.0 million . 76
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The obligations beneath the Credit Agreement are secured by considerably all of the belongings of the Company and its wholly owned subsidiaries which can be designated as guarantors, together with a pledge of the fairness of every of its subsidiaries. Borrowings beneath the Credit Agreement accrue curiosity on the Company's election both at a charge of: the (i) the sum of (a) the best of (1) the Prime Rate (as outlined within the Credit Agreement), (2) the speed of theFederal Reserve Bank of New York in impact plus 1/2 of 1.0% each year, and (3)London interbank supplied charge ("LIBOR"), plus 1% each year, and (b) a margin of 4.0%; or (ii) the sum of (a) the LIBOR multiplied by a statutory reserve charge and (b) a margin of 5.0%. In addition, the dedication charge is 0.75% of the unused quantity of the Credit Agreement. Furthermore, the Credit Agreement incorporates covenants that, amongst different issues, prohibit the flexibility of the Company and its subsidiaries to make dividends or different distributions, incur extra debt, interact in sure asset gross sales, mergers, acquisitions or comparable transactions, create liens on belongings, interact in sure transactions with associates, change its enterprise or make investments. In addition, the Credit Agreement incorporates different customary covenants, representations and occasions of default.
Preferred Stock Financing
On
Convertible Perpetual Preferred Stock, par worth
combination buy worth of
repay in full our
Agreement on
Cash Flows
The following desk presents a abstract of our money flows for the durations proven: Year Ended December 31, (in 1000's) 2021 2020 2019
Net money supplied by (utilized in) working actions
Net money utilized in investing actions
(552,892) (689,742) (94,643) Net money supplied by financing actions 1,043,641 712,441 424,060
Net enhance (lower) in money and money equivalents
Cash and money equivalents at starting of yr
488,371 522,910 201,701 Cash and money equivalents at finish of yr$ 1,061,179 $ 488,371 $ 522,910 Operating Activities During the yr endedDecember 31, 2021 , money supplied by working actions elevated by$139.3 million as in comparison with the identical interval in 2020. This was primarily pushed by the rise in shopper development driving the elevated medical prices and threat adjustment payables, in addition to accounts payables and different liabilities, and elevated medical prices within the MA enterprise pushed by a full yr of exercise from Brand New Day and the acquisition of CHP. These will increase have been partially offset by a rise in our web loss. During the yr endedDecember 31, 2020 , web money utilized in working actions elevated by$49.0 million as in comparison with the identical interval in 2019. This was primarily pushed by the yr-over-yr enhance in our web loss, which was partially offset by shopper development driving the elevated medical prices and threat adjustment payables. Investing Activities During the yr endedDecember 31, 2021 , web money utilized in investing actions decreased by$136.9 million as in comparison with the identical interval in 2020. The lower was primarily attributable to a lower in purchases of investments, web of proceeds from gross sales, paydowns and maturities of investments of$362.2 million , which was partially offset by a$201.5 million enhance in money used for acquisitions. During the yr endedDecember 31, 2020 , web money utilized in investing actions elevated by$595.1 million as in comparison with the identical interval in 2019. The enhance was primarily attributable to development of our funding portfolio, as purchases extra 77
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than offset gross sales and maturities of funding in 2020. In addition, we used
Financing Activities
During the yr endedDecember 31, 2021 , web money supplied by financing actions elevated by$331.2 million as in comparison with the identical interval in 2020. The enhance was because of$887.3 million of proceeds from our IPO inJune 2021 , offset by$6.7 million of money paid for IPO providing prices, and a$155.0 million enhance in web proceeds from brief-time period borrowings. These will increase have been partially offset by a$711.2 million lower in proceeds from most well-liked inventory financings in 2020, for which there have been no comparable choices in 2021.
Our web money supplied by financing actions was primarily associated to money
acquired from our most well-liked inventory financings in 2020 and 2019. See Note 10 in
the Notes to Consolidated Financial Statements for added element on our
most well-liked inventory.
Critical Accounting Policies and Estimates Our administration's dialogue and evaluation of our monetary situation and outcomes of operations are primarily based on our consolidated monetary statements, which have been ready in accordance with GAAP. The preparation of those consolidated monetary statements requires us to make judgments and estimates that have an effect on the reported quantities of belongings, liabilities, income, and bills and the disclosure of contingent belongings and liabilities in our consolidated monetary statements. We base our estimates on historic expertise, recognized developments and occasions, and varied different components that we consider to be affordable beneath the circumstances, the outcomes of which kind the premise for making judgments about the carrying values of belongings and liabilities that aren't readily obvious from different sources. Actual outcomes could differ from these estimates beneath completely different assumptions or circumstances. On an ongoing foundation, we consider our judgments and estimates in gentle of adjustments in circumstances, information, and expertise. The results of fabric revisions in estimates, if any, are mirrored within the consolidated monetary statements prospectively from the date of change in estimates.
While our vital accounting insurance policies are described in additional element within the
notes to the consolidated monetary statements showing elsewhere on this
Annual Report, we consider the next accounting insurance policies used within the
preparation of our consolidated monetary statements require probably the most
vital judgments and estimates.
Medical Costs Payable
Medical prices payable contains estimates for the prices of healthcare providers customers have acquired however for which claims haven't but been acquired or processed. Depending on the healthcare skilled and kind of service, the typical billing lag for providers might be as much as 90 days from the date of service. Approximately 80% of claims associated to medical care providers are recognized and settled inside 90 days from the date of service and considerably all inside twelve months. In every reporting interval, our working outcomes embody the consequences of extra utterly developed medical prices payable estimates related to beforehand reported durations. If the revised estimate of prior interval medical prices is much less than the earlier estimate, we'll lower reported medical prices within the present interval (favorable growth). If the revised estimate of prior interval medical prices is greater than the earlier estimate, we'll enhance reported medical prices within the present interval (unfavorable growth). Medical prices in 2021 included unfavorable medical price growth associated to prior years of$9.5 million . In 2020 and 2019 medical prices included favorable growth associated to prior years of$8.6 million and$7.4 million , respectively. In creating our medical prices payable estimates, we apply completely different estimation strategies relying on the month for which incurred claims are being estimated. For instance, for the latest months, we estimate declare prices incurred by making use of noticed medical price development components to the typical per shopper per month ("PMPM") medical prices incurred in prior months for which extra full declare knowledge is on the market, supplemented by a overview of close to-time period completion components. Completion Factors: A completion issue is an actuarial estimate, primarily based upon historic expertise and evaluation of present developments, of the proportion of incurred claims in a given interval adjudicated by us on the date of estimation. Completion components are probably the most vital assumptions we use in creating our estimate of medical prices payable. For durations previous to the three most up-to-date months, completion components embody judgments associated to say submissions such because the time from date of service to say receipt, declare ranges, and processing cycles, in addition to different components. If precise claims submission 78
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charges from suppliers (which might be influenced by a lot of components, together with supplier combine and digital versus handbook submissions) or our declare processing patterns are completely different than estimated, our reserve estimates could also be considerably impacted. For the latest three months, the completion components are knowledgeable primarily from forecasted PMPM claims projections developed from our historic expertise and adjusted by rising expertise knowledge within the previous months which can embody changes for recognized adjustments in estimates of current hospital and drug utilization knowledge, supplier contracting adjustments, adjustments in profit ranges, adjustments in shopper price sharing, adjustments in medical administration processes, product combine, and workday seasonality.
The following desk illustrates the sensitivity of the completion components and
the estimated potential influence on our medical prices payable estimates as of
Completion Factors (Decrease) Increase in Factors Increase (Decrease) in Medical Costs Payable (in 1000's) (3.00)% $ 89,100 (2.00)% 58,794 (1.00)% 29,100 1.00% (28,524) 2.00% (56,488) 3.00% (83,910) The completion components evaluation above contains a variety of attainable outcomes primarily based on the early stage of growth, mixed with robust development, that will drive extra volatility. Management believes the quantity of medical prices payable is cheap and sufficient to cowl our legal responsibility for unpaid claims as ofDecember 31, 2021 ; nonetheless, precise declare funds could differ from established estimates as mentioned above. Assuming a hypothetical 1% distinction between ourDecember 31, 2021 estimates of medical prices payable and precise medical prices payable web earnings would have elevated or decreased by roughly$8.2 million .
See Note 2 and Note 8 within the Notes to Consolidated Financial Statements for
extra element on our medical prices payable.
Risk Adjustment
The threat adjustment applications within the IFP and MA traces of enterprise are designed to mitigate the potential influence of adversarial choice and supply stability for well being insurers. Under the person and small group threat adjustment program, every plan is assigned a threat rating primarily based upon demographic and present yr medical encounters data that's submitted to CMS for its customers and calculated primarily based on the CMS threat adjustment methodology. Plans with a plan stage threat rating that's decrease than the State common threat scores will usually pay into the pool, whereas plans with a plan stage threat rating larger than State common threat scores will usually obtain distributions. In the MA threat adjustment program, every shopper is assigned a threat rating primarily based on their demographic and prior yr medical encounters data submitted to CMS that displays the buyer's predicted well being prices primarily based on the CMS threat adjustment methodology. Plans obtain larger funds for customers with larger threat scores than customers with decrease threat scores.
For each IFP and MA, we make the most of exterior sources to assist decide market threat
scores, and we estimate the quantity of threat adjustment payable or receivable
primarily based upon the processed claims and medical prognosis knowledge submitted and
anticipated to be submitted to CMS. We refine our estimate as new data
turns into out there.
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Table of Contents Premium Deficiency Reserves Premium deficiency reserve ("PDR") liabilities are established when it's possible that anticipated future claims and upkeep bills will exceed future premium and reinsurance recoveries on present medical insurance coverage contracts, together with consideration of funding revenue. We assess if a PDR legal responsibility is wanted by way of overview of present outcomes and forecasts. For functions of figuring out premium deficiency losses, contracts are grouped in step with our methodology of buying, servicing, and measuring the profitability of such contracts.
We check goodwill for impairment yearly originally of the fourth quarter or every time occasions or circumstances point out the carrying worth will not be recoverable. We check for goodwill impairment on the reporting unit stage. When testing goodwill for impairment, we could first assess qualitative components to decide whether it is extra doubtless than not that the carrying worth of a reporting unit exceeds its estimated truthful worth. During a qualitative evaluation, we think about the influence of adjustments, if any, to the next components: macroeconomic developments, business and market components, price components, adjustments in general monetary efficiency, and some other related occasions and uncertainties impacting a reporting unit. If our qualitative evaluation signifies that goodwill impairment is extra doubtless than not, we carry out extra quantitative analyses. We could additionally elect to skip the qualitative testing and proceed on to the quantitative testing. For reporting models the place a quantitative evaluation is carried out, we carry out a check measuring the truthful values of the reporting models and evaluating them to their combination carrying values, together with goodwill. If the truthful worth of the reporting unit is larger than its carrying worth, no goodwill impairment is acknowledged. If the carrying worth of the reporting unit is lower than its calculated truthful worth, we acknowledge an impairment equal to the distinction between the carrying worth of the reporting unit and its calculated truthful worth. We estimate the truthful values of our reporting models utilizing a mixture of discounted money flows and comparable market multiples, which embody assumptions about all kinds of inside and exterior components. Significant assumptions used within the impairment evaluation embody monetary projections of free money movement (together with vital assumptions about income development charges, working margins, capital necessities and revenue taxes), lengthy-time period development charges for figuring out terminal worth past the discretely forecasted durations and low cost charges. Underperformance to the monetary projections used within the impairment evaluation may negatively influence the truthful worth of our reporting models. Additionally, the passage of time and the supply of extra data concerning areas of uncertainty with respect to the reporting models' operations may trigger these assumptions to alter sooner or later. As ofOctober 1, 2021 , we accomplished our annual impairment checks for goodwill with all of our reporting models having truthful values considerably in extra of their carrying values. Recently Adopted and Issued Accounting Standards
See Note 2 within the Notes to Consolidated Financial Statements for a dialogue of
accounting pronouncements just lately adopted and just lately issued accounting
pronouncements not but adopted and their potential influence to our monetary
statements.