Ramstad: Bright Health is on the verge of becoming one of Minnesota's biggest business failures

The Securities and Exchange Commission 22 years ago changed the expression of stock prices from fractions to decimals that go out to hundredths of a cent.

Such minutiae, unfortunately, recently turned out to be helpful for investors in Bright Health Group, the Bloomington-based health insurance company. With its shares now trading around 20 cents, some days are measured in those decimals.

In June 2021, Bright Health undertook the biggest IPO in Minnesota history, raising nearly $1 billion on the premise that its technology gave it a price advantage in the market for individual health insurance, commonly sold through state-run exchanges.

Its shares were priced at $18, fell that first day and kept falling. The company missed its sales expectations in its first full quarter as a public company, then struggled for another year. By spring 2022, it exited the individual market in six states. And in October, the company abandoned the business entirely.

It may soon become one of the biggest failures in Minnesota business history.

The company is under investigation by insurance regulators in Colorado, Florida and Texas. The New York Stock Exchange has threatened delisting.

And most pressingly, Bright Health recently overdrew its credit facility and must show that it has $200 million in liquidity by April 30 or risk bankruptcy.

There are no signs of fraud, unlike the Tom Petters scandal a decade ago. And the company wasn't overtaken by new technology, the way Control Data was in the 1980s.

Instead, the story of Bright Health revolves around something much simpler and all too common. Something that happens again and again in sports and entertainment and in many human endeavors.

It was the belief that people who have done great work before can do it again.

Star power, in other words, was going to overcome all the market forces that were lined up against Bright Health. Pedigree would be more important than the fact that what Bright Health offered was a commoditized product in a market with few barriers to entry and fewer ways to retain customers.

Former Star Tribune business columnist Lee Schafer pointed this out in the days after Bright Health's IPO. "The opportunity here for Bright Health is really one of out-managing and out-hustling the competition," he wrote.

Then he added that investors were betting Bright Health had the team to do it.

Mike Mikan, the company's CEO, was a former top executive at UnitedHealth and was briefly interim CEO at Best Buy. He has been around the spotlight his entire life as a member of the famed Mikan basketball family.

Cathy Smith, its CFO, spent nearly four years in the same job at Target. The company's board includes Jeffrey Immelt, the former General Electric CEO, and Andy Slavitt, who worked in the Obama White House on the Affordable Care Act and the Biden White House on the COVID-19 response.

"They were the ones who were supposed to be the adults who knew what they were doing," said Ari Gottlieb, a Chicago-based health care strategist who in recent months has built a following on LinkedIn with his reporting on Bright Health and its competitors.

Two other health insurers that rose in the 2010s, Friday Health Plans and Oscar Health, have also stumbled recently. Like Bright Health, Oscar went public in 2021. Its shares are down 81% from their peak. The company last week tapped an Aetna executive as its new CEO.

All of these companies emerged in the years after the Affordable Care Act remade the American health care system, at a time when the cost of money was conveniently low. Indeed, so much capital was available that Bright Health raised $1.6 billion from private investors in the five years before it went public.

Since going public, Bright Health's revenue has continued to climb. So have its losses. The company's exit from the individual insurance market left it with principally a Medicare Advantage business in California. It started the year with 120,000 customers.

Last month, Smith told investors that Bright Health's survival "is predicated on the company's ability to obtain additional capital to fund our ongoing operations."

"We recognize that at this stage we have much to prove and that is exactly what we intend to do," Mikan added. "We have taken actions to focus and simplify our business going forward."

Executives, through a spokesman, recently declined my request for interview.

The company has already cut hundreds of jobs. Its stock losses have hurt untold thousands of investors.

With its share price so depressed, no executive is anywhere near being able to benefit from stock-based compensation incentives. But Bright Health's board nonetheless rewarded Mikan and Smith with cash bonuses.

Wholly unwarranted, they were another sign of the star power system at work.