After Bright Health Group announced last week that it plans to sell its California Medicare Advantage business — essentially ending its insurance business altogether — industry experts are saying it is likely because the insurtech ran out of options after a series of financial troubles.

“They were about to go bankrupt,” said Ari Gottlieb, principal at A2 Strategy Corp. “It’s a pretty easy answer, they desperately need capital. … The most viable way for them to get capital is by selling the one actual asset they have. So it’s a fire sale.”

The news comes after the company exited its Medicare Advantage business outside of California in November and after it decided to stop offering individual and family plans in October. It also has a value-based consumer care business called NeueHealth, which offers care through its owned and affiliated health clinics. According to Gottlieb, the company is struggling financially because of poor management and a business model that was “never going to work” due to unsustainable pricing in its individual insurance market.

Bright Health Group said last week that it is “exploring strategic alternatives” for two Medicare Advantage plans in California: Brand New Day and Central Health Plan, which the insurtech purchased several years ago for $500 million. By leaving the insurance business, Bright Health plans to shift its focus to NeueHealth, it said in a news release.

The fact that the two California MA plans were purchased by Bright is important to note, Gottlieb said.

“They didn’t build them. They acquired them in the past three years. So literally everything this company has built, they shut down,” he said. “And now they’re selling off the stuff that they bought.”

Another industry expert echoed Gottlieb’s comments.

“Bright no longer has easy access to capital,” said Blake Madden, founder of industry newsletter Hospitalogy. “The company is a penny stock down 99% since IPO, and any investor putting money into it at this point would quite simply be setting cash ablaze. To that end, I see this as a fire sale type situation where Bright received some inbound interest on the MA plan assets. The sale would sustain its operations, pay off some debt, and fund operations/litigation assuming that some sort of turnaround happens on the much leaner, services-oriented operation.”

Madden added that it will likely be difficult for Bright to sell the MA plans for what it bought them for at $500 million given the “much tighter environment and notable MA headwinds.”

Though even if the company sells the two MA plans at $500 million, Bright likely still won’t be in the clear and could still go bankrupt, Gottlieb said. The company owes about $1.2 billion, including $500 million to Cigna (who invested in Bright) and $300 million on its credit facility, Gottlieb said. It received an extension to its credit facility until June 30, according to the news release.

“The math doesn’t work,” Gottlieb said.

Despite the company’s financial struggles, its executive team took home $3.77 million in bonuses last year, according to the StarTribune.

“When you play stupid games you win stupid prizes,” Madden said. “Bright pursued a tech-oriented growth-at-all costs mindset in perhaps the worst market to do so – health insurance – and the firm was burned badly. Add on to that exorbitant executive compensation packages and bad operational decision making and you have a recipe for disaster. Nobody should feel bad for the management team at Bright Health and I hope that this result doesn’t stop the progress being made by both other insurtechs and health tech in general.”

What does a potential sale mean for Bright’s 125,000 MA members? Selling the plans likely won’t have a major effect, Gottlieb predicted.

“Somebody will buy this business,” he said “It could take months to close. I think the member impact is pretty limited.”

Ash Shehata, KPMG U.S. national sector leader of healthcare and life sciences, agreed that the implications for members are low.

“This is a highly competitive market with plan options. Consumers will have plenty of places to go,” Shehata said, though he was unable to speak about Bright Health Group specifically.

Madden added that there are protections for members in the case of a sale.

“Hopefully member and patient care is un-interrupted,” he said. “I know there was some disruption when insurtechs exited the individual plan market but there is supposed to be some level of safeguarding in place to protect the member in these situations. In the event of a sale, I would wager that a larger MA player (speculating Cigna) will scoop up these assets and there would be minimal disruption.”

Bright Health Group declined to comment further on its plan to sell the two California MA businesses.

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