New health commission to review costs

Posted: Monday, October 25, 2010

A state health commission created by the Legislature earlier this year will review rapidly rising medical costs and patterns of health care pricing among providers, the executive director of the commission said.

Alaska health care costs are rising faster than the national average, boosted partly by shortages of health care providers, particularly physicians.

The commission held its first meeting in Anchorage Oct. 14 and 15 after its members were appointed by Gov. Sean Parnell. Most people on the panel were on an earlier health care task force, but this panel has five new members, including two legislators: state Sen. Donny Olson, D-Nome, and Rep. Wes Keller, R-Mat-Su.

As a creation of the state Legislature rather than a task force appointed by the governor, as was the case previously, recommendations of the new commission will have more influence.

"Our next steps will be to learn more about what is driving the increase of health care in Alaska, factors unique to our state, and to learn more about compensation procedures among providers. There are anecdotal reports of cost-shifting, for example," said Deb Erickson, executive director of the new commission.

Another goal is to learn more about low reimbursement problems for medical providers from federal agencies such as Medicare, she said. Erickson said the commission will retain consultants to do the work.

In a report to the commission, health care economist Mark Foster outlined what he believes will be the effects of the new federal health care law on individual Alaskans and businesses in the state.

Foster estimates federal health care reform will add $200 million to $300 million to the total cost of medical care in Alaska by 2019. The total Alaska health care spending in Alaska is about $9 billion. Some segments of the population will bear more of the cost than others, he said.

For example, families headed by Alaskans in the 27- to 34-year-old bracket will pay about $560 per year more in expenses, and families headed by Alaskans in the 35- to 44-year-old bracket will pay about $400 per year more, but families headed by older Alaskans in the 55- to 64-year-old age bracket will pay about $160 per year less, according to an analysis presented by Foster.

There will be increases in demand for health care beginning in 2014 by Alaskans who are now uninsured and who will be covered by expanded Medicare. This will be somewhat offset later by decreases in demand by Alaskans in higher income groups who will pay more taxes under the health reform law, Foster said.

Although the 40 percent "Cadillac" tax on higher-value health plans doesn't kick in until 2018, it will have a major impact in Alaska because about half of the health benefit plans offered in Alaska have higher benefits that will be subject to the tax, Foster said.

This includes benefits to state, school and municipal employees, he said.

Other taxes imposed under the law also will have a disproportionate effect in Alaska, as well as Washington state, because incomes are higher in the two states than the national average, Foster said.

"We believe the effect of these taxes will be felt earlier, and harder, in Alaska than elsewhere, and this will begin to affect the way companies negotiate benefit plans with their employees," Foster said. "Employers pay the tax but they will pass part of it on to employees, and employees will have to weigh the value of their health benefits, and the taxes, against their wage compensation."

As employees bear more of the cost of the taxes there may be some shifts, with some deciding to seek more wage compensation, where there are lower taxes paid compared to benefits, Foster said.

There will be different effects among businesses of varying sizes, Foster said. Small employers in Alaska with 50 or fewer employees are exempt from the mandatory coverage requirement and will benefit from new tax credits if they do provide coverage, but most employers in this category do not offer health benefits, Foster said.

Generally, small employers in this category benefit under the new federal law. Employers with more than 50 workers will tend to bear more costs, however, because of the insurance mandates and penalties if coverage is not provided.

Roughly 98 percent of Alaska employers with more than 50 employers provide coverage to employees, but Foster has found 50 or 60 firms, about 2 percent of this category, that do not provide insurance.

Self-employed workers, which include many professionals, are likely to see increases in their overall costs because of the new requirements, Foster said. He has found that about 7 percent of the self-employed in higher income brackets do not have health insurance and are essentially "self-insured" against medical problems.

This group will see higher costs because of the insurance mandates, penalties and taxes, Foster said.

In a briefing to the commission on implementation of the federal law, Erickson said two parts of the reform have now kicked in, a group of insurance market changes and tax subsidies to encourage employers to offer coverage, including tax credits for very small businesses and for all firms to cover retired employees in the 55 to 65 age bracket, after which they are eligible for Medicare.

Employers can be reimbursed for 80 percent of retiree's claims for medical costs up to $90,000 until 2014, which is when coverage will be available under the new insurance exchanges being created, Erickson said.

Insurance market reforms now effective, she said, include prohibitions for insurers to exclude children for pre-existing conditions, a requirement that dependents be covered until age 26 under parents' health plans, and a prohibition against lifetime benefit limits and a restriction to annual limits.

In 2014, the prohibition against restrictions for pre-existing conditions will apply to adults as well as children, and all limits on lifetime coverage will be prohibited, not just restricted.

Many other parts of the law become effective in 2014, including an expansion of Medicaid to cover the uninsured, the new health insurance exchanges, mandates for individuals to have insurance, requirements for employers to offer coverage, and subsidies for low-income individuals, Erickson said in her briefing.

The state meanwhile is challenging the constitutionality of the part of the health care reform law requiring individuals to obtain health coverage or pay penalties. Alaska has joined a suit brought by 20 other states, and a U.S. District Court judge in Florida ruled Oct. 14 that Alaska and the other states have made a viable claim that the individual mandate violates the Commerce Clause of the U.S. Constitution.

A ruling by the district court on whether the individual mandate is unconstitutional is expected by the end of the year. If the court agrees with the states' claim, the question will go to the U.S. Supreme Court.

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