Vivid Well being Group continued to battle with danger adjustment calculations for the second-straight quarter as the corporate noticed losses surge amid worse-than-expected medical prices and troubles with claims processing.
Following the discharge of fourth quarter earnings Wednesday, the well being insurer’s inventory worth plunged, closing down almost 20% for the day.
“We didn’t ship the monetary outcomes we had deliberate,” Vivid Well being Chief Monetary Officer Cathy Smith stated on a name with traders. “Let me be clear: We’re very upset in our monetary outcomes and are swiftly working to enhance and supply extra predictability to our outcomes.”
Vivid Well being struggled final yr to get knowledge on the well being standing of enrollees in its particular person medical insurance enterprise, the place individuals beneath age 65 purchase protection via government-run medical insurance exchanges.
The info drawback — which executives first disclosed within the firm’s third-quarter outcomes — received worse through the last three months of 2021 and was compounded by rising troubles with how the corporate processed claims for cost from well being care suppliers.
Vivid Well being grew extra rapidly than it had the capability to deal with in 2021, stated Mike Mikan, the corporate’s chief government.
“A once-in-a-century pandemic and our massive group of latest members with out danger scores — mixed with scaling up our organizational capabilities and rising applied sciences — impacted our leads to the fourth quarter extra considerably than anticipated,” Mikan stated.
Vivid Well being sells protection to people in addition to seniors shopping for Medicare Benefit well being plans.Final yr, it raised greater than $900 million via Minnesota’s largest-ever preliminary public providing of inventory, with shares closing on that first day of buying and selling in June at $16.47. On Wednesday, the inventory closed at $2.51.
Fourth-quarter outcomes confirmed a lack of $813.4 million on income of $962.3 million. On a per-share foundation, it got here to a lack of $1.29 when analysts surveyed by Refinitiv had been anticipating a lack of 45 cents per share.
General in 2021, adjusted earnings earlier than curiosity, taxes, depreciation and amortization got here in at a lack of $1.08 billion — considerably worse than the $550 million to $600 million vary that executives forecast throughout an investor convention in December.
By way of the fourth quarter and into January, the corporate realized the extent of issues with dealing with medical claims, Mikan stated. Vivid Well being tried to play catch-up, processing between 40% and 50% of its underlying claims for all of 2021 within the last three months of the yr alone.
“With that quantity of claims processing, we did not have the info or the insights to actually perceive how we had been capturing the danger codes and what different underlying medical developments had been we seeing,” he stated.
Understanding danger is essential to any medical insurance market, however it’s elevating a specific drawback for Vivid Well being when it comes to premium income.
Within the particular person medical insurance market, sufferers’ danger scores issue into a posh calculation whereby carriers with low-risk populations switch income to insurers that cowl higher-risk teams. Vivid Well being’s risk-adjustment calculations have been off considerably, so the insurer has been pressured to considerably improve estimates for funds the corporate should make to different carriers via risk-adjustment transfers.
“The numerous deterioration in our outcomes … was because of particular identifiable points together with COVID prices, catching up on claims funds and resolving resubmitted claims,” Smith stated.
To handle the monetary efficiency, Vivid Well being raised costs on medical insurance merchandise for 2022 and is doing extra to handle medical bills. The corporate is also implementing new and higher techniques for processing claims and calculating danger adjustment, Mikan stated.
Vivid Well being says it is lowering working prices and has made administration adjustments. Simeon Schindelman stepped down in February as CEO of the insurance coverage division, which is now led by interim chief government Jay Matushak.
Earlier this week, Vivid Well being introduced Matt Manders, a former government with medical insurance big Cigna Corp., had joined the corporate’s board as an unbiased director. In December, Cigna made a big strategic funding in Vivid Well being as a part of a $750 million fundraising package deal.
Regardless of the issues, executives proceed to tout the corporate’s progress prospects. In January, Vivid Well being stated it anticipated to exceed 1 million well being plan members this yr.
Financial institution of America downgraded its score on Vivid Well being shares to underperform based mostly on what analyst Kevin Fischbeck referred to as a “surprisingly dangerous quarter.”
“The magnitude of the miss was particularly stunning after given an replace at its December Investor Day,” Fischbeck wrote in a analysis notice on Wednesday. “We’re reducing our ahead progress estimates as BHG signaled strategic exits to preserve money, however we’re widening our losses on lack of price visibility.”