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DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2023

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONSIn 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. The discontinued operations presentation has been retrospectively applied to all prior periods presented.

While we are no longer offering plans in the Commercial marketplace as of December 31, 2022, we will continue to have involvement 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, including making final payments of 2022 risk adjustment payable liabilities during the third quarter of 2023. We expect these activities to be substantially complete by the end of 2023.

The financial results of discontinued operations by major line item for the periods ended March 31 were as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Revenue:
Premium revenue	$	713	$	1,186,482
Service revenue	30		36
Investment income	20,892		788
Total revenue from discontinued operations	21,635		1,187,306
Operating expenses:
Medical costs	43,811		951,342
Operating costs	47,593		252,937
Restructuring charges	4,900		—
Depreciation and amortization	—		144
Total operating expenses from discontinued operations	96,304		1,204,423
Loss from discontinued operations before income taxes	(74,669)		(17,117)
Income tax benefit	—		(2)
Net loss from discontinued operations	$	(74,669)	$	(17,115)

The following table presents cash flows from operating and investing activities for discontinued operations for the three months ended March 31, 2023 (in thousands):


Cash used in operating activities - discontinued operations	$	(599,163)
Cash provided by investing activities - discontinued operations	684,848

Assets and liabilities of discontinued operations were as follows (in thousands):


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	1,619,744	$	1,465,965
Short-term investments	443,162		1,121,435
Accounts receivable, net of allowance of $230 and $906, respectively	1,398		11,082
Prepaids and other current assets	161,435		184,992
Current assets of discontinued operations	2,225,739		2,783,474
Total assets of discontinued operations	$	2,225,739	$	2,783,474
Liabilities
Current liabilities:
Medical costs payable	$	215,614	$	685,785
Accounts payable	42,024		122,425
Risk adjustment payable	1,948,043		1,943,890
Other current liabilities	20,058		31,374
Current liabilities of discontinued operations	2,225,739		2,783,474
Total liabilities of discontinued operations	$	2,225,739	$	2,783,474

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.

There were no restructuring charges for the three months ended March 31, 2022. Restructuring charges within our discontinued operations for the three months ended March 31, 2023 were as follows (in thousands):


Employee termination benefits	2,959
Long-lived asset impairments	100
Contract termination and other costs	1,841
Total discontinued operations restructuring charges	$	4,900

Restructuring accrual activity recorded by major type for the three months ended March 31, 2023 was as follows (in thousands):


	Employee Termination Benefits		Contract Termination Costs		Total
Balance at January 1, 2023	$	16,053	$	28,538	$	44,591
Charges	2,624		—		2,624
Cash payments	(8,231)		(51)		(8,282)
Balance at March 31, 2023	$	10,446	$	28,487	$	38,933

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 March 31, 2023 and December 31, 2022. Held-to-maturity securities are reported at amortized cost as of March 31, 2023 and December 31, 2022. The following is a summary of our investment securities (in thousands):


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Value
Cash equivalents	$	928,290	$	30	$	(60)	$	928,260
Available for sale:
U.S. government and agency obligations	277,194		142		(1,535)		275,801
Corporate obligations	124,158		942		(643)		124,457
State and municipal obligations	7,614		1		(57)		7,558
Certificates of deposit	1,837		—		—		1,837
Mortgage-backed securities	9,153		6		(213)		8,946
Asset backed securities	18,325		89		(46)		18,368
Other	388		—		(9)		379
Total available-for-sale securities	438,669		1,180		(2,503)		437,346
Held to maturity:
U.S. government and agency obligations	4,823		—		(110)		4,713
Total held-to-maturity securities	4,823		—		(110)		4,713
Total investments	$	1,371,782	$	1,210	$	(2,673)	$	1,370,319


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Carrying Value
Cash equivalents	$	622,267	$	24	$	—	$	622,291
Available for sale:
U.S. government and agency obligations	365,040		1		(2,956)		362,085
Corporate obligations	520,097		523		(623)		519,997
State and municipal obligations	9,653		—		(80)		9,573
Certificates of deposit	8,760		—		(2)		8,758
Mortgage-backed securities	154,864		46		(157)		154,753
Asset backed securities	59,557		—		—		59,557
Other	387		—		(14)		373
Total available-for-sale securities	1,118,358		570		(3,832)		1,115,096
Held to maturity:
U.S. government and agency obligations	5,974		—		(159)		5,815
Total held-to-maturity securities	5,974		—		(159)		5,815
Total investments	$	1,746,599	$	594	$	(3,991)	$	1,743,202

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: As of March 31, 2023, investments and cash equivalents within our discontinued operations were comprised of $1.2 billion and $206.2 million with fair value measurements of Level 1 and Level 2, respectively. As of December 31, 2022, the investments and cash equivalents within our discontinued operations were comprised of $940.5 million and $802.7 million with fair value measurements of Level 1 and Level 2, respectively. See Note 4, Fair Value Measurements for additional discussion of methods and assumptions used to determine the fair value hierarchy classification of each class of financial instrument.

Medical Costs Payable: The table below details the components making up the medical costs payable within current liabilities of discontinued operations (in thousands):


	March 31, 2023		December 31, 2022
Claims unpaid	$	61,398	$	60,477
Provider incentive payable	1,717		3,446
Claims adjustment expense liability	14,293		45,932
Incurred but not reported (IBNR)	138,206		575,930
Total medical costs payable of discontinued operations	$	215,614	$	685,785

Risk Adjustment: 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 HHS, which could result in future payments applicable to benefit years. Risk adjustment payable for our discontinued operations was estimated to be $1.9 billion at March 31, 2023 and December 31, 2022.

Accounts Payable: As of March 31, 2023, the Accounts payable balance for discontinued operations included $1.2 million of premium taxes payable, $0.2 million of broker commissions payable as well as the $28.5 million of contract termination costs related to restructuring. As of December 31, 2022, the Accounts payable balance for discontinued operations included $47.1 million of premium taxes payable, $21.1 million of broker commissions payable as well as the $28.5 million of contract termination costs related to restructuring.

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. We are out of compliance with the minimum levels for certain of our regulated insurance legal entities of our discontinued operations.