Bright Health Group, Inc. (BHG) Q4 2021 Earnings Call Transcript

Bright Health Group, Inc. (BHG 5.04%)
Q4 2021 Earnings Call
Mar 02, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to today's Bright Group's fourth quarter 2021 earnings conference call. My name is Elliot, and I'll be coordinating your call today [Operator instructions] I would now like to hand over to our host, Stephen Hagan, director of Investor Relations. Please go ahead.

Stephen Hagan -- Director of Investor Relations

Good morning, and welcome to Bright Health Group's fourth quarter 2021 earnings conference call. A question-and-answer session will follow Bright Health Group's prepared remarks. As a reminder, this call is being recorded. We, in the call today are; Bright Health Group's president and CEO Mike Mikan; and CFO and chief administrative officer Cathy Smith.

Before we begin, we want to remind you that this call may contain forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we filed with the Securities and Exchange Commission, including the risk factors in our current and periodic reports we file with the SEC.

Except as required by law, we undertake no obligation to revise or update any forward-looking statements or information. This call will also reference non-GAAP amounts and measures, a reconciliation of the non-GAAP to GAAP measures that are available in the company's fourth quarter press release, available on the company's investor relations page, investors.brighthealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated March 2, 2022, which may be accessed from the investor relations page of the company's website. Before we start the call, I'd like to note that Bright Health Group will be participating in two upcoming investor conferences.

Management will be presenting at the Cowen Health Care Conference on Monday, March 7th, and host the investor meetings at the Barclays Healthcare Conference the following week. With that, I'll now turn the conference over to Bright Health Group's chief executive officer, Mike Mikan.

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Thank you, Stephen. Good morning, everyone, and thank you for joining Bright Health Group's fourth quarter earnings call. I'll provide some brief introductory comments and then turn the call over to Cathy Smith to discuss our fourth quarter and full year 2021 results. I'll then conclude our prepared remarks by going over the specific actions we are taking to improve near-term performance, and best positioned Bright Health Group to drive sustainable, profitability, and long-term success.

We always start with our mission, which is central to what we do at Bright Health Group, "Making healthcare right. Together.", is built on the belief that by connecting and aligning the best local resources in healthcare delivery with the financing of care, we can deliver better outcomes at a lower cost for all consumers. Bright Health Group is building a truly unique model that we believe will transform how healthcare is delivered. We believe when healthcare is delivered in a fully aligned and integrated care model, we can bend the cost curve and most importantly, enhance value for both consumers and providers.

Bright Health Group achieved substantial growth in 2021, reaching over $4 billion in revenue, and we are enthusiastic about our positioning for 2022. Having reached the milestone of over 1 million health plan members, we now expect enterprise revenue for 2022 of $6.8 billion to $7.1 billion, due to the strength of our member growth in OEP and AEP, as well as external payor growth at new health. We have always expected some variability in our results. As we executed on our strategy to quickly gain scale in the business and as we closed out 2021, we saw that play out.

The meaningful growth we delivered in 2021, which was a combination of higher than anticipated growth to start the year and additional growth from the special enrollment period,  outpaced our operational, and system capabilities. In addition, unique factors in 2021 that we have previously highlighted, including a once in a century pandemic in our large group of new members without risk scores, combined with scaling up our organizational capabilities, and emerging technologies, impacted our results into the fourth quarter more significantly than anticipated. As Cathy will discuss in more detail, these factors impacted our ability to engage with our members in order to accurately capture their underlying health conditions and impacted prior period medical costs as we caught up on claims processing. Despite a challenging 2021, our larger base of business, along with continued growth in 2022, affords us a tremendous platform to continue executing on our strategy, and driving long-term shareholder value.

We have conviction on the differentiator results that we can drive through a fully aligned care model and are taking specific actions to focus the company, improve our systems and processes, and drive profitable growth. We are continuing to invest in building out our new health business and have successfully expanded new health own clinics outside of the Florida market, while also continuing to build our affiliated care partner network across the country. All of the challenges we encountered this past year can be attributed to specific areas that were already on our list for improvement, but the growth we experienced exasperated the GAAPs in performance. We made significant progress correcting these issues in our operational capabilities in 2021, which will help drive improved 2022 performance.

And we see opportunities for substantial further improvement over the course of 2022. Bright Health Group's differentiated model continues to attract members and drive strong growth. We remain on the path we outlined at our investor day in December, and our core strategy hasn't changed, as we look to serve consumers with a fully aligned care model that drives better care in lower medical costs. Within this strategy, we are refining our model, and we are taking actions to drive better performance in 2022 and beyond, as we continue to target breakeven adjusted EBITDA in 2024.

Our 2022 guidance reflects the pricing actions and medical cost initiatives we took and the improvements that we've made to our business balance with the work that is still outstanding for this year. While, we appreciate the team that got us here, as we move to the next phase in our growth and strategy. We need different talent and skills and have taken action accordingly. Consistent with this evolution, we were pleased to announce yesterday that Matt Manders joined our board as an independent director.

Matt recently retired from Cigna as the president of their government and solutions segment, and is an experienced healthcare operator. We expect Bright Health will benefit from his experience in the consumer directed healthcare space and in healthcare solutions, given his deep expertise in both areas. And now Cathy Smith, our CFO and chief administrative officer, will take us through our results and then I'll provide some additional comments on the actions we have taken to drive improved results in 2022, and position us for long-term success. Cathy?

Cathy Smith -- Chief Administrative and Financial Officer

Thank you, Mike, and good morning, everyone. I'll begin by going over our fourth quarter and year-to-date results, and will then provide updated guidance for our 2022 full year outlook. In many aspects, we accomplished a lot in 2021, however, we did not deliver the financial results we had planned. Let me be clear, we are very disappointed in our financial results and our swiftly working to improve and provide more predictability into our results.

Our fourth quarter top line results continue to reflect the strength of our 2021 number and revenue growth. Bright Health Group consolidated revenue increased 157% year-over-year to $962.3 million in Q4. Bright healthcare segment revenue for Q4 grew 169% year-over-year to $949.8 million, and NeueHealth fourth quarter segment revenue of $107.5 million, compared to just under $10 million in the prior year. Our fourth quarter gross margin was a loss of $351.2 million and our adjusted EBITDA was a loss of $790.1 million, with both items impacted by our increased risk adjustment and IBNR estimates, continued COVID costs, and a non-cash $103 million 2022 premium deficiency reserve.

The significant deterioration in our results since our guidance was due to specific identifiable issues, including COVID costs, catching up on claims payments, and resolving resubmitted claims. This was compounded by our lack of visibility into lagging medical claims on our legacy operational systems, which require manual processing. We have improved our claims processing operations and procedures, and as we started 2022, we were operationally in a significantly stronger position. A key driver of improvement is the move to our new claims management administrative platform for our new market, and improved processes and workflows for all of our markets.

The increases in medical costs due to COVID and the top line headwinds associated with risk adjustment are reflected in our medical cost ratio in the quarter. On a reported basis, our fourth quarter 2021 NPR at the enterprise level was 134.1%, up from 105.4% in the fourth quarter of 2020. COVID had a negative impact on our MCR in the fourth quarter of a 860 basis points, compared to 650 basis points in Q4 of 2020. The fourth quarter 2021 COVID impact to our MCR included $56.5 million of COVID costs related to prior quarters, which contributed 580 basis points of the MCR impact recognized in the quarter.

Our risk adjustment performance in the fourth quarter also reflected the claims processing issues where our challenges in capturing the risk of the population was in part due to the lack of timely insight into data which drove the insufficient engagement in care management. We increased our risk adjustment payable estimate by $148 million, reducing fourth quarter revenue, of which $111 million relates to prior quarters. We also recognized $139 million in prior period medical costs in Q4. The combined impact of the prior period risk adjustment estimate changes and the prior period medical costs were 26.4 percentage points to our medical cost ratio in Q4.

Our expense ratios were also impacted by the non-cash GAAP premium deficiency reserve of $103 million, we booked in anticipation of future lost contracts in certain markets in 2022. Turning to our full year 2021 results, compared to the full year 2020, our revenue increase of 234%  reflects strong membership growth, including the contribution from SEP. Full year 2021 Bright Health Group revenue was over $4 billion. Our membership grows throughout the year, the inability to capture the rest of the population we serve and direct COVID costs drove substantial MCR deterioration in 2021.

Our full year adjusted EBITDA declined to a loss of  $1.08 billion, including the $103 million PDR booked in the fourth quarter versus an adjusted EBITDA loss of $239 million in 2020. As I laid out at our investor day, we expect to drive improvement in our operating cost ratio each year. We made significant progress on our operating cash ratio in 2021, with a full year ratio of 30.7%, reflecting a 320 basis points improvement compared to 2020. But it was above our target for our operating cost ratio due to higher expenses, including the PDR, and the pressure on revenue from risk adjustment.

We continue to view 2021 as the peak of inefficiency as we consolidate our systems and processes. And as Mike will discuss, we are taking actions to drive our operating cost ratio and meaningfully lower in 2022. The 2021 MCR performance in both of our businesses was impacted by the confluence of COVID, unprecedented growth, and the extended 2021 special enrollment period. With a 2021 MCR of 101.3%, compared to the 88.7% in 2020.

COVID costs in 2021 impacted our MCR by 530 basis points, compared to 400 basis point in 2020. I want to spend a minute unpacking the 2021 medical cost ratio in a bit more detail, given the magnitude of the variance to our previous guidance. While, we are overall pleased with our book of business, we are disappointed in the operating results, and can point to specific areas that drove the variant, most of which we believe are one-time in nature and won't reflect the run rate MCR of our business. I will speak to our forward expectations for these items and the implications for our 2022 adjusted EBITDA in a minute.

For 2021, the challenges we had in risk coding accuracy drove 650 basis points of MCR pressure compared to 2020. This was related to our delays in attributing numbers, in part due to our rapid growth in 2021, as well as the impact of the unique 2021 special enrollment period. Operational inefficiencies contributed 310 basis points to the year-over-year MCR increase. Through higher than expected medical costs and other medical cost management issues.

Medical costs related to the SEP population and other mix changes contributed at 180 basis points to the increase. Finally, there was an incremental 130 basis points of year-over-year COVID cost in our GAAP MCR, resulting in a total COVID contribution to 2021 MCR up by 530 basis points. COVID cost in total were a major headwind to our 2021 results, with full year COVID costs of $208 million, while COVID costs for care delivered in the fourth quarter were better than our expectations, the $56.5 million of COVID costs in the fourth quarter of 2021 for care delivered in prior quarters is an example of the catch up on the backlog in claims I mentioned earlier. [Inaudible] how we manage our business, it is worth noting if you excluded COVID and other likely one-time impacts on performance such as elevated risk adjustment, 2021 would have been closer to a 90% medical cost ratio, consistent with our expected MCR, given the growth and diversification of our book of business.

Looking at our NeueHealth business, we served over a 175,000 patients under value-based arrangements at the end of Q4, reflecting strong organic growth and the closing of the Centrum acquisition at the start of Q3 2021. NeueHealth is well-positioned for 2022 through the expansion of our owned clinics, growth of affiliate care partners, and new external revenue streams. 2021 revenue for our NeueHealth business was $493.2 million, reflecting strong organic growth. Two quarters of contribution from the Central Medical Holdings acquisition and the contribution from investment income.

The year-to-date revenue represents growth of over 1200% compared to the prior year. Our NeueHealth business in the fourth quarter experienced a headwind from investment income of approximately $29 million, resulting in full year investment income of $80 million. Excluding the contribution from investment income, the 2021 revenue growth rate for NeueHealth was over 1000%. We will continue to grow and expand our new health footprint in 2022, as well as drive growth through multiple external revenue channels.

Turning to our balance sheet, as of December 31, 2021, we had approximately $198 million in non-regulated liquidity, including $78 million in highly liquid cash and investment, and $120 million in a passive equity investments classified as short-term. In January, we closed the sale of [Inaudible] a preferred stock, which contributed $750 million in proceeds. The non-regulated liquidity figure does not include $1.7 billion of additional cash and equivalents held by our regulated insurance subsidiaries. Based on our 2022 plans, we believe we have sufficient liquidity to meet our near-term liquidity needs and support the continued growth of the business.

We are updating our full year 2022 outlook, and we now expect enterprise revenue to be in the range of $6.8 billion to $7.1 billion, above our prior guidance range on external pair growth at NeueHealth, and the strong Bright healthcare membership growth in AEP and OEP, partially offset by a more conservative view on our estimated risk adjustment payable. We expect our enterprise medical cost ratio to be above our prior guidance and our forecasting a reported MCR range of 90% to 94%. This upward revision reflects the higher medical cost trends in 2021, offset by the efforts we are taking to improve performance. We are also updating our forecasted guidance on adjusted EBITDA for full year 2022 to a range of a loss of $500 million to $800 million.

Included in 2022 guidance or cost savings actions we have already taken this year and combined with our higher revenue expectation, we expect to outperform the 22% to 23% operating cost ratio outlined at Investor day. We have widened the guidance range for medical cost ratio and adjusted EBITDA to reflect various scenarios for the remainder of the year. On a segment basis, our revenue forecast reflects an estimate of approximately 1 million end of year members for Bright healthcare. Consistent with a positive enrollment update we provided in January.

We are also forecasting full year 2022 NeueHealth revenue of $2.3 billion, with the increase to our NeueHealth forecast reflecting a modestly higher expected Bright healthcare contribution, strong external payor growth, and greater visibility on the direct contracting program. We now expect approximately 40% of the NeueHealth revenue will be generated from external sources. We are growing the pipeline of opportunities for NeueHealth external revenue, including bringing in new payors and expanding our existing payor relationships. CMS recently announced the 2022 participants for the direct contracting program, with NeueHealth named as a participant through our Physicians Plus organization participating in six states.

We expect to have approximately 50,000 lives under management in the DCE model, and a total revenue contribution of approximately $700 million. We see the direct contracting program and the newly announced ACO reach model as a great long-term opportunity for addressing the Medicare fee for service population and believe NeueHealth is well-positioned for success in our program. For 2022, we expect to drive a significant improvement in our adjusted EBITDA. We have provided a bridge in the slides posted to our Investor Relations page today to help show the impact of the actions we have taken and key tailwinds that we expect will support our 2022 EBITDA improvement.

And Mike will provide further details on each. But first, I'll lay out the financial impacts. We expect the benefit of increased IFP volume, net of the changes to PMPM revenue expectations to drive $200 million in incremental gross margin and EBITDA benefit year-over-year. We expect the significant progress we have made in our efforts to better manage medical costs, combined with our expectations for COVID expenses relative to what we have included in our plan pricing to contribute $325 million in gross margin and EBITDA benefit.

We expect our risk adjustment efforts and the business tailwinds for 2022 to drive a $175 million benefit to EBITDA. We have also taken targeted actions around operating expenses, combined with the 2021 impact of $103 million non-cash PDR to drive an approximately $200 million EBITDA benefit. Operating expenses to support the continued growth of the business and other smaller items are expected to be negative to the 2022 adjusted EBITDA bridge by $470 million. The combined approximately $430 million impact of the items I detailed, results in a bridge to the $650 billion loss at the midpoint of our 2022 adjusted EBITDA guidance range.

Before I turn the call back to Mike, I want to appreciate our amazing Bright Health team across the country working together, we are changing healthcare. Additionally, I want to thank our shareholders for your continued support as we build a national integrated system of care. Now, here's Mike for additional insight on the strategic efforts we are making to drive better operating performance and improve profitability.

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Thank you. As you heard from Cathy, 2021 was a year of both challenges and opportunities for Bright Health Group, and we expect results to be meaningfully better in 2022. Our strategy has always been focused on driving the business to scale, which we reached an important milestone on this year. This level of growth, however, created challenges for the business, compounded by the unique circumstances of an extended SEP and COVID.

While important to reflect on those challenges, I wanted to spend a few minutes speaking to the specific actions we have taken, as well as the tailwinds for the business that I believe will position us well for 2022 and beyond. We have taken specific actions against several areas that will impact near-term performance. One, net pricing action in core markets. We took pricing action in excess of our expectation for underlying medical cost trends for the majority of our membership in legacy IFP markets, while still being able to demonstrate meaningful growth.

In addition, we priced in COVID at 2% across our book for 2022 to reflect the risk of future COVID related expenses. We also are focusing on pricing as an important lever in 2023 as we continue our path to profitability. Two, unit cost and medical management reduction initiatives. We identified several unit cost and medical management opportunities in 2021 across both our IFP and Medicare Advantage businesses that candidly we were unable to capitalize on in 2021.

However, those efforts are demonstrating significant value in 2022. These medical costs efforts are in addition to the net pricing actions we have taken. As we gain scale and optimized our processes, we were able to renegotiate ancillary and pharmacy contracts, reduce out-of-network rates, optimize existing contract structures, more closely manage high cost cases, and improve our specialty provider network. Optimizing the care network is an ongoing process that requires data on our members and volume, which we now have significantly more of each and better systems to provide visibility.

Three, risk adjustment actions. Accurate risk adjustment was a challenge due to several structural issues in 2021, as I have discussed. However, those challenges drove us to make significant investments in our risk adjustment capabilities. It starts with faster attribution of our members to a larger network of owned and affiliate physicians that have better ability to engage with their members earlier in the year.

Equally important are the tech and operational investments we have made in suspecting analytics, outreach and engagement teams, in our end-to-end risk adjustment process to ensure we are accurately capturing the risk of the population we manage. We are also working to help members better manage and navigate their care, which we expect will drive better in network trends. Four, claims and clinical platform stabilization. As I mentioned in 2021, our growth caused us to kick our coverage not only in the capacity of our fully align provider networks, but on our administrative, operational and clinical systems as well.

This growth was taking place while we were building or transitioning from numerous vending solutions to BIOS our end state operating platform. As we go into 2022, we have successfully transition to our new finance and people systems, 70% of our membership is on our proprietary clinical system panorama, and all of our new market membership is on our new claims administration platform with the remainder of our IFP membership to migrate on 1/1/2023. Having our business on BIOS, provides us greater visibility and efficiency. The benefits of which we are already seeing today with faster claims, processing times, more accurate payments, industry, standard denial rates, and more timely and complete consumer data, just to name a few.

And five, we are addressing talent and cost structure. A high performing team is critical to our ability to improve performance and drive sustainable results. We continue to evolve our team, adding expertise as needed, and have taken specific actions to reduce the cost structure, eliminate redundancies, and drive efficiencies across the organization. While we appreciate the team that got us here, we have made some specific management changes to position us for the next chapter of profitable growth and performance.

Shifting to the company and industry tailwinds, I wanted to highlight five specific items that alongside the actions we took, we believe we'll have a demonstrable impact on 2022 performance. One, scale and diversification. We achieved solid growth in this year's annual and open enrollment periods. Starting 2022 with significant scale, at more than 1 million health plan members and 400,000 lives under risk based contracts.

This scale not only allows us to better manage population risk and reduce volatility, but our density and specific markets such as California, Texas, Florida and North Carolina allows us to better engage with providers and be a more meaningful portion of their overall business. Two, hire retained membership. Inclusive of the impact of SEP, approximately 85% of our IFP membership was new to us in 2021. While, new members to start 2022, including new markets, account for approximately 55% of our enrollment.

We also benefit from strong renewal rates with a retention rate of approximately 79% in our mature existing markets. This has numerous benefits to performance, including more data and information on our members to help us better manage the population and accurately capture member risk. Three, normalize special enrollment period. The 2021 special enrollment period, while providing us with continued growth over the course of the year came with it unique challenges with regards to performance.

The shorter member duration and higher acute care costs for those members. All against the backdrop of COVID made it very difficult to engage with this population and accurately capture the risk. We expect a much more normalized SEP this year. Four, reduced operational backlog.

The operational challenges we saw because of our 2021 growth caused us to spend significant time and effort last year working through an operational backlog. Like our challenges with risk adjustment, we made significant investments in the team, and systems I mentioned, and we're far better prepared for the growth we saw this year. This will allow us to better engage and respond to issues and more effectively manage performance within our population. In last five, endemic COVID.

Finally, while I believe COVID will be with us in some capacity for the foreseeable future, we don't expect it to be nearly as acute as it was last year. With the increase in vaccination rates, while cases of COVID may continue, to direct COVID costs, we expect will be more manageable. We also continue to explore ways that we can work with Cigna, and I've identified several opportunities with work streams and process on these. Well, we are just a few months into the relationship.

We are excited about the potential of our two companies working together and the ways it can help strengthen our business and enhance Bright Health's capabilities. We are looking to the future and are confident the near-term steps that we are taking to improve our performance will optimize the business for long-term success. In closing, we remain convicted on our strategy for Bright Health, and the strength of our fully aligned care model in the face of substantial growth and a uniquely challenging year in 2021. We are confident that the combination of our Bright healthcare and NeueHealth businesses are built for where the healthcare industry is going.

We are targeted at the growing consumer retail healthcare market and are leaning into serving this market through a fully aligned and integrated care model that combines the financing and delivery of care. We are strengthening our foundational capabilities for sustainable and durable results, with greater visibility that will drive improved forecasting. As I look to the future, I want to conclude the prepared remarks for why my team and I are so excited about the future. We have a skilled and diversified platform that is purpose built to integrate the financing and delivery of care.

We have a market model that is flexible to meet local market needs, one that drives differentiation through our care partner relationships. We're developing a proprietary suite of technology that is specifically built to enable the fully aligned care model. And finally, we're seeing both performance and most exciting external growth and interest in our NeueHealth business. Whether new external payer contracts that are looking to NeueHealth to manage their populations or new programs such as direct contracting, which we believe is at the leading edge of where Medicare is going.

NeueHealth is developing a robust pipeline of future opportunities. I'd like to thank the more than 3,000 bright health employees who are hard at work executing on our strategic priorities and making healthcare right by working together. I believe we have the team to execute on our model that is built for the future of healthcare. Operator, now let's open it up to questions.

Questions & Answers:

Operator

Thank you.  [Operator instructions] Our first question today comes from Lisa Gill from J.P. Morgan. Please go ahead.

Lisa Gill -- J.P. Morgan -- Analyst

Thanks very much for all the detail. I just want to go back to really understand a little bit better what happened between the Investor Day in December, our conference in January and today, where your risk adjustment accrual came in much different that than expected. So a few things. One, are you making any changes to the accrual process itself? And then secondly, you did raise price, right? When we think about the individual market.

But what gives you confidence that you are able to price correctly as you think about going into 2023?

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Hi, Lisa. So, with respect to what changed between the time period that you referred to is, it's a confluence of factors, as you can imagine. The different areas that we talked about in terms of challenges, the compounding effect, but it starts with operational limitations. And we were -- from the beginning of the year with all the growth that we had guided from 2021, we had to build out more network the coverage for macro standpoint, loading our contracts, we made errors in loading.

And so early in the year we had a challenge with processing claims. And so the later part of the year, particularly in the fourth quarter, we processed somewhere around 40% to 50% of our underlying claim expense during that time period. Obviously, with that amount of claim processing, we didn't have the data or the insights to really understand how we were capturing the risk codes. And what other underlying medical trends where we are seeing.

And so as that came to fruition through January, as we closed out our books, obviously we determined in our estimates and we're impacted by an increase in risk adjustment as well as claim processing. When you look at risk adjustment, unfortunately for us, there were many different factors that impacted us in the year it had to do with, obviously, starting with the new member base, 85% of members being new to us and substantial growth. But then SEP came in and we got new lives and we were late to attribute them to our own medical centers and our affiliate network. And so engaging with them, it didn't occur until later part in the year, which is too late, which we talked about in Q3.

We talked about that in investor day and onward. What we didn't really understand was the impact of not having the data from all the claims that we had denied early in the year, and that impacted our understanding of the diagnoses versus the claims that we were paying. So there are cases -- many cases where we have now identified that we paid for certain services, but we don't have the original medical diagnosis because it happened prior to our watch and we can't code for that effectively. So there are things like that that have been happening that happened to us in 2021, that we believe we're much better positioned for in 2022.

And those are some of the actions that we've talked about. It starts with we got to get on a new platform, which we made the decision to do. The good news is all new markets are on a new platform, the other good news is starting in the later part of the third quarter into the fourth quarter with our outside vendor on our legacy system. We were able to build our own team or put our own team in that system so we can improve performance.

So it all comes down to attributing earlier in the year to providers, getting that -- giving them the data to engage with those that have higher chronicity and then better data to manage them going forward. And we're starting the year in a much better position than we were obviously, in 2021. With respect to pricing, we  -- as I mentioned, we look to many different initiatives to improve underlying gross margin, pricing is one lever. Pricing is a consideration for us.

We're going to look at markets that are that we believe we've got opportunity to take pricing up. And then we're also going to look potentially some markets, Lisa, that don't necessarily fit our long-term plans. And so where we can't see differentiation or a path to get, the gross margin contribution we want to, we'll consider those for potential exit. So I recognize that's a long winded answer, but there's a lot in that, too.

To answer that. So I appreciate the question.

Lisa Gill -- J.P. Morgan -- Analyst

Thanks very much.

Operator

Our next question comes from Kevin Fischbeck from Bank of America. Your line is open.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. I guess I wanted to drill two of the issues that I think you cited as problems in 2021 that should large or some degree be addressed in 2022. I guess first, that the systems issue, is any part of the business in 2021 that was on the current system that you're on? And if so, did that perform differently or better than the rest of the business? And then two, your model is about getting people into high performing networks, either third party or through NeueHealth and is there -- it sounds like the rapid growth meant that you needed to pull together a broader network than normal.

Is there some way to bifurcate the performance of membership that was more within that normal network that you would have seen versus the membership that ended up being outside the so we can see and give some proof points that the core model is performing better?

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Yeah. With respect to the go-forward system, 1/1/22 was the first time we put new markets on that and we made a specific decision to not migrate other markets to make sure that we were starting a new, and make that we've had all our kinks worked out in 2022 so we can migrate for '23. So we are looking at early activity, we're very pleased with our so far performance. And so we're looking forward to that migration in '23.

But no, we don't really have any other experience on our go-forward system other than what we put on it, which is about 30% of our membership today. With respect to the under -- the performance of our own care centers and the affiliate network versus the broader curated network, we believe that managing our underlying medical costs in our own care centers, as demonstrated with external customers, that we've had not just Bright healthcare, that we can demonstrate -- that we can provide care at a lower cost. The risk adjustment impact to both our own care centers and our affiliate network was pervasive regardless of whether it was in the curated network versus our affiliate or own medical centers. And that SKUs the results from a gross margin perspective.

But underlying medical costs, we see an advantage and we do believe over time we're going to see greater engagement and better integration with data with our specialist network, our care partner systems and what have you. And we're going to do a better job of accurate coding with the integrated model. Unfortunately, it is 2021 with a challenge for us, for the same reasons I talked about earlier on risk adjustment, and that's no different within the Bright healthcare business versus NeueHealth or Bright healthcare business. If you look at our external customers, we've seen the proof points that they perform better than the average.

And that's what gives us conviction that our model is sound going forward.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great. Thanks.

Operator

We now turn to Steve Valiquette from Barclays. Please go ahead.

Unknown speaker

Hi, this is [Inaudible] on for Steve. So in January, you gave an update that you had a little over a million members at the end of the annual enrollment period. I think you confirmed that today. And the guidance is calling for about a million at the end of the year.

So is the current assumption that you'll have like the normal monthly attrition IFP business, partially offset by gains in MA throughout the year, and is there any assumption baked in for Medicaid members that are being predetermined starting in 2Q and then rolling into your IFP book? Or is that just pure upside to the guidance? Thanks.

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Yeah. Enrollment, you're right. We're assuming normal attrition. We don't expect the SEP activity that we saw last year, so that's what gets us to around any year or approximately a million lives.

And we don't have anything in our assumptions for redetermination. It's a -- we don't understand the timing yet, and and how the states would roll it out or what impact it would have in 2021. So we didn't put anything in our forecast. Or 2022 -- sorry.

Cathy Smith -- Chief Administrative and Financial Officer

And I would add too. You're right on Medicare Advantage that we do assume in your growth in Medicare Advantage as well.

Unknown speaker

OK. Thank you. 

Operator

We now turn to Ricky Goldwasser from Morgan Stanley. Please go ahead.

Michael Han -- Morgan Stanley -- Analyst

Hi, this is Michael Han on for Ricky. Thanks for the question. So in terms of capital position, I know you mentioned you have deficient liquidity, but most of the $1.7 billion you mentioned, can't really touch because of statutory capital reserves. So if I'm looking at your current liquidity correctly, you can confirm on that.

You have about $200 million non-regulated in cash, which includes short-term investments, if you add the $750 million capital raise on top, that's about 950, but you've only used about $150 million to pay down credit saturated borrowing, $200 million infused into your regulated insurance companies, that's about $600 million now. And then you add on $300 million under your current facility -- credit facility, that's about $900 million. Is that correct? Am I missing something? And if so, you may have just enough that to fund growth through '23. But how do you view capital position cash burn heading into '24 and '25 and with 70% growth? How should we think about the balance of investment in cash conservation going forward? Thanks.

Cathy Smith -- Chief Administrative and Financial Officer

So good morning, Mike. Yeah. Largely your math is in the right direction. Well, what I would say is we feel based on our plans for 2022, we've gotten sufficient liquidity to meet our near-term needs.

And with our past to break even more clear, obviously that will start to lessen our dependent on capital needs as well. And then growth and mix of the business are going to clearly have a big impact on what that capital need. As you know, we have many levers we can pull additional cost structure. We can continue to look at regulatory capital quota share arrangement, which we have some of pricing is always a lever, growth to de-lever.

And then, as Mike mentioned earlier, we can think about potential exit in non differentiated markets.

Operator

Our next question comes from Jeff Garro from Piper Sandler. Please go ahead.

Jeff Garro -- Piper Sandler -- Analyst

Yeah. Good morning. Thanks for taking the question. I want to talk about the FY '24 break even target, and it seems like that now implies a steeper ramp of MCR improvements from FY '22 to FY '24, so what gives you confidence that you can approach your long-term MCR targets by FY '24? Thanks.

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Thanks, Jeff. Yeah. It's -- scale matters, and that drives significant opportunities for us to improve underlying medical costs. We know the community better that we serve.

That's going to have a better risk coding opportunities. When you -- and then also just our ability to price to our underlying capabilities. So, now that we've got to scale, obviously we've been in heavy growth mode up until this point, but by strategy, we wanted to get to scale, obviously, we were hoping not to have the magnitude of the challenges we had in 2021, but between scale, knowing the community better, ability to capture code, medical cost initiatives by recontracting the network, underlying medical management capabilities, and then getting on one system. So we have one record for the consumer overall that we can manage the population holistically and health through care navigation, we believe by those different levers is going to be a big contribution to that FY '24 profitability.

And also, say, our integrated model on NeueHealth, the growth in external business and what have you, provided another profit stream for us and another contribution to that driver or that end goal or I guess, next major milestone 2024 break even, so those areas plus NeueHealth gives us confidence that we're on path to get to a break even adjusted EBITDA for 2024.

Jeff Garro -- Piper Sandler -- Analyst

Got it. Thanks.

Operator

We now turn to Justin Lake from Wolfe Research. Your line is open.

Justin Lake -- Wolfe Research -- Analyst

Thanks. Good morning. Just a few follow ups here quick. First, Mike, I appreciate the comments on repricing and maybe some market exits though, you think about that path to 2024.

Given the repricing could cause it's a membership market exit. What do you think the top line growth is? I assume it moderates, but where do you think top line shakes out? Just from a broad perspective, do you think it could be flat next year, for instance?

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Well. Justin, I appreciate the question, and we are evaluating Jay Matushak, our interim CEO, and his team are evaluating all our markets as we're going into pricing, our underlying cost structure, our tier partner network that we have, and it's really how we're positioned for differentiation. So we haven't made those decisions, although we're close to making those decisions. So I don't want to get ahead of that, Justin.

But we still believe growth. I mean, we're a growth company. We believe in scale. We believe we'll grow in our core markets.

At this stage, and so, you're not going to see the level of growth that we've shown to get to this point. And then I do -- back on the Bright healthcare side, we do see growth opportunities, what we consider to be more capital efficient growth with NeueHealth. And we think that's a real differentiator. And you've seen, that business, we've just put our guidance at $2.3 billion in opportunities with external payers in our existing markets, new market potentials that we're considering the DCE or ACO reach program that we think is right in line with our model, care partner model, around physician owned practices.

So all of that, we believe, is going to continue to drive growth. But the key is we need to drive to profitability. We need to get our underlying cost structure in line. We need to get to one system and then we need to drive other growth  profitable or capital efficient growth opportunities with the NeueHealth.

And we think that bodes well for us.

Justin Lake -- Wolfe Research -- Analyst

OK. And then, Cathy, you mentioned along the lines of capital that you felt like you had sufficient liquidity for the near-term. Can you just talk about the -- that when you say near-term, does that get us through at least the end of the year? Or are you talking about over the next quarter or two?

Cathy Smith -- Chief Administrative and Financial Officer

Oh. Yeah. No, through the end of the year, to your point, 12 months or so, that's obviously always what we look at and focus on.

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

I would have mentioned, Justin, we do -- I we just know the levers that Cathy talked about, we're we're managing to optimize capital. We understand its importance. Obviously, 2021 didn't turn out the way we wanted it to, but we've been taking action all along. We didn't just start in January.

We've been managing to a better cost structure to improve medical cost management. All of those things, in addition to the quota shares that Cathy talked about potentially exiting non-core markets that you don't have to have a capital impact. And our cost structure, we took a strong action to reduce not just forecast costs, but underlying costs, and we're going to continue to do that. And as we migrate more to one system, we're going to see significant opportunities there just in and that's imminent.

That's coming as we get there because we have a ton of redundancies, we have to add a lot of cost last year because we had to do a lot of manual processing. And we start the year in a much better position. So for all those reasons, they're going to help contribute hopefully to a better capital position. And then, I would just know this as well.

Entering into the biggest markets in healthcare, Texas, Florida and what have you, is taking a lot of capital. We're in those markets. We've got a strong capital position. So as we've talked about before, once you get to scale, you don't have the capital burn rate that you do leading up to it.

So we also feel favorable about the position there as well.

Justin Lake -- Wolfe Research -- Analyst

Thanks. And let me just squeeze in one more. The $103 million PDR, can you give us a ballpark estimate of how much of your 2022 revenue? Premium is associated with that?

Cathy Smith -- Chief Administrative and Financial Officer

Yeah. I guess, Justin, I'm not sure how to answer that question, PDR, as you know, obviously the PDR is a requirement when you have written a lot of contracts. So for 2022, we evaluate in aggregate the entire book, so all of IFPs versus all of MA, and we have to look at what our expectations are for gross margin versus the a limited amount of the operating expenses and that sets up the requirements. So we actually look at it in aggregate for all of the IFP business versus all of the MA business.

Justin Lake

My understanding is, you would have to look at that business by business, right? And you look to take a loss, you take a PDR and stuff you expect to lose. So I guess, all I'm asking is what percentage of your membership are premium? You had to take a PDR?

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Let us follow-up with you on that question specific -- I, we appreciate it. We'll follow up on that, Justin.

Operator

Thanks. Our next question comes from [Inaudible] from Citi. Please go ahead.

Unknown speaker

Great. Thanks for the question. I just wanted to go back to the previous question around Medicaid redeterminations, and I know you noted that there's nothing there in guidance yet, but maybe can you just help describe past experience for when individuals have rolled off of Medicaid and you've picked them up in your IFP business and the ability to match payment to health status of those individuals? I'm just trying to understand how the capture of the redeterminations could differ from the 2021 SEP experience around the risk adjustment capture argument. Thanks.

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

I think, it's better that maybe an answer in this way. Put SEP last year aside, if you look at just typical life events that occurred during the year and enrollees come in and we're able to do a really good job, in normal run rate to be able to capture the risk and manage the population. Obviously, with the way SEP occurred last year where we got a significant influx, capturing the data was posed to be a challenge. So, we would be managing it very closely on how we would pay commissions, how we would design our benefits for those type programs, and we're going to manage it very closely, because we don't want to incur the same situation that we've dealt with in 2021.

So I think that's the best way I can answer at this point.

Unknown speaker

OK. Thanks. 

Operator

We now move to Sarah Conrad from Goldman Sachs. Your line is open.

Unknown speaker

Hi. This is actually Lindsey on for [Inaudible]. Thanks for the question. The new MLR guidance implies 900 basis points of improvement in MLR.

Could you help us bridge from the 2021 MLR to the new guidance for 2022?

Cathy Smith -- Chief Administrative and Financial Officer

I'm happy to start, and we did provide a slide in our materials that were posted to the IR website, you'll see it in their. Slide 13, provides a pretty good bridge between 2021 and 2022, and Mike walk through each of those pieces as well. But first and foremost, you'll see some gross margin impact of volume and rate for a couple of $100 million. Some additional medical medical cost management initiatives that we've already outlined and taken or taking, as well as the differences in COVID costs that year-over-year.

Another hundred $325 million you would see in our estimates around risk adjustment in there. And then operating expenses to support the volume offset by the actions that Mike said we'd already taken. And then obviously, the PDR is in there too in '21, but doesn't expect a repeat. So the combination of all of those help us to get year-over-year. 

Operator

Our next question comes from Gary Taylor from Cowen. Please go ahead.

Gary Taylor -- Cowen and Company -- Analyst

Hi, good morning. I just wanted to ask one more about the liquidity position, given you've got a $931 million risk adjustment accrual, which I believe you have to pay the CMS in 2000 or in July. And then, so one, I want to confirm that. And two, when you show on Slide 13, that risk adjustment is $175 billion [Inaudible] from '22 and to '23, are you suggesting that you'll accrue $175 million less for risk for risk adjustment? So even though you're making this $900 million payment in July, you ought to have about $750 million of current year accruals that are non-cash during '22.

If that makes sense.

Cathy Smith -- Chief Administrative and Financial Officer

Gary, I wouldn't -- I don't know that's exactly the way I think about it. So we think about what the [Inaudible], as you know, based on every single market to a second year market does expect to improve as we understand those numbers better and better. And so that, but then new market, obviously we start at a higher expectation of a trend, risk transfer based on our position. So I don't know that I would have said that year-over-year percentage scores or the dollars went like you just said.

With regards to liquidity, though, we've contemplated that all in our estimate of capital for the year. And so when we say that, we feel like we've got sufficient liquidity to meet our near-term needs, then we've obviously already taken that into account.

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

I think, the way you were looking at the net net degradation in terms of the risk payable, you know, we did grow our book of business so that the risk payable will go up. What we're really talking about is specific initiatives where we know that we under-coded or weren't able to accurately capture the risk that we've got plans for to address that would take our underlying apples to apples risk adjustment down -- payable down as a result of those actions. And a lot of it is what I was talking about earlier where we've got -- the data to demonstrate that we provided a service, but we don't have the underlying diagnoses. And this year we're going to capture those a lot earlier because we're already engaged with the membership that we have.

We've attributed our lives to our care partner network, to our affiliates and our own centers, and we're already outreaching to them. So we know we're going to be much better at it this year. So that's the net improvement year-over-year that we expect them and we hope to do more, candidly. So, thank you all for your time today -- Yeah, go ahead.

Go ahead.

Gary Taylor -- Cowen and Company -- Analyst

I'm sorry, I was just going to say, one follow on, on that. Since ACA risk adjustment is a zero sum game, do you have data from actuarial firms at this point and '22 that are affirming that how you're accruing that risk adjustment for '22 is a better shape or more accurate? Anything to point to there?

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Yeah. Obviously, we use an actuaries to price our business and we're closing out using our actuarial teams, inside and outside team. And then, how we're booking going forward based on what we know, and the data that we capture internally, obviously, we'll get CMS data later in the spring, but we have the data coming through now and between what we ended the year at and how we were -- trending we take that data, the actuaries, we looked at it, and the we baked in initiative where we got prove points to show that we can improve. All that is taken into consideration.

And as Cathy mentioned, part of the increasing guidance B2B, the Invertor day conference, we took more a conservable approach from that time period to now based on what we saw, closing out Q4. Of course, we want to be optimistic, we want to improve this, but right now that's the approach we're taking in this actuarial support. Thanks for the question. So -- with that, thank you all for your interest.

And we look forward talking with all again, soon. 

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Stephen Hagan -- Director of Investor Relations

Mike Mikan -- Vice Chairman, President, and Chief Executive Officer

Cathy Smith -- Chief Administrative and Financial Officer

Lisa Gill -- J.P. Morgan -- Analyst

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Unknown speaker

Michael Han -- Morgan Stanley -- Analyst

Jeff Garro -- Piper Sandler -- Analyst

Justin Lake -- Wolfe Research -- Analyst

Gary Taylor -- Cowen and Company -- Analyst

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