Gov. Sean Parnell is playing his cards close on whether he will expand Medicaid coverage to an estimated 38,000 lower-income Alaskans but said he would not form a state-managed health insurance exchange, two provisions of the federal Affordable Care Act passed in 2010.
Alaska health care providers are closely following the governor’s statements on expanded Medicaid because if the coverage is provided it could substantially reduce losses hospitals and other medical providers suffer because of patients who cannot pay for treatment.
Those losses are included in costs the providers charge other patients who are covered by insurance, and have the effect of driving up health insurance costs. So far, Parnell’s statements indicate he is leaning against the expanded coverage despite most of its being paid for by the federal government.
The recent U.S. Supreme Court decision on the Affordable Health Care Act gives states the flexibility to expand Medicaid coverage if they choose, but voided a requirement in the law that the expansion is mandatory. Following the Supreme Court decision, several states have indicated that they will not expand Medicaid.
Parnell rejected a state-managed health insurance exchange, another part of the federal law that was upheld by the Supreme Court. The governor said he will opt to let the federal government organize and run, and pay for, an exchange for Alaska.
“I have serious concerns about the costs of implementing the exchanges and expanding Medicaid. My review has thus far determined that if the state designs and implements the exchange, the state will have to pay upwards to $70 million initially for infrastructure and development plus ongoing annual operating costs estimated at $7 million,” Parnell said in a statement released to reporters.
Parnell has declined to accept federal funds that would help to set up the exchange. Also, the federal health care law requires that exchanges be self-supporting through fees or other revenues, and that operating expenses not be borne by states.
A consultant study released July 17, which Parnell had seen prior to its release, estimated that a state-managed exchange would cost $6.7 million a year to operate, and recommended that it be funded by fees paid by consumers purchasing insurance through the fund.
Other options are having insurance companies pay fees for policies sold, or for revenues from advertisers using the exchange web site to reach potential customers, the study, by Public Consulting Group, said.
The exchanges are required to be in place by 2014 under the federal act.
Meanwhile, Parnell is coming under fire from state legislators over a decision to request a waiver of a federal requirement that insurance companies disclose the reasons behind a health insurance rate increase of 10 percent or more.
Eight state senators, all Democrats, wrote Parnell July 13 to ask him to reconsider the waiver request.
“If the rate increases are reasonable, there is no reason why insurance companies can’t let Alaskans know why their premiums are increasing,” said Sen. Hollis French, D-Anchorage, one of the senators who signed the letter. French is chairman of the Senate Judiciary committee.
“Alaskans are already concerned about the rising cost of health insurance. Making companies publically justify their rate increases is simply good policy,” French said in a statement.
The Division of Insurance has pushed for the waiver and has said that a requirement for public justification at a 17 percent annual increase is more justified. An internal April 30 memorandum within the Division of Insurance argued that requiring companies to report at a lower percentage could “create unreasonable expectations among Alaskans at what constitutes an unreasonable rate increase,” according to the memo.
A problem cited by the division is that 10 percent annual rate increases are now common, and occurred among 25 of 30 applications for rate changes among health insurers. The division’s proposed 17 percent threshold constituted almost half, or 13, of the 30 rate changes.
Cost of care
On the expanded Medicaid, Parnell said that, even initially, not all costs are covered by the federal government. Certain administrative costs will still be paid by the state and the estimated cost is $12 million per year, the governor said.
This is up from a $7.5 million per year estimate given earlier by the state administration to health care providers. No medical providers were willing to speak on the record, but several said on background that the administration has not provided backup as to how the estimate is derived.
About 120,000 Alaskans are now covered by Medicaid. The program now covers certain categories of lower-income people including pregnant women, children, and certain other adults with disabilities and elderly. Single males are excluded. The expanded coverage would include all Alaskans, including single males, up to 133 percent of the Federal Poverty Level, which is adjusted in Alaska to $28,820 per year for a family of four. The coverage would include many of the “working poor” among Alaskans who are low income and work at jobs where employers offer few if any health benefits.
Many of these people go to expensive hospital emergency rooms for treatment, which contribute to the hospitals’ uncollectable bills. Hospitals by law cannot turn away people needing care.
Aside from effects on the state’s overall health care establishment, the growing cost of Medicaid is a serious concern for Parnell and Health and Social Services Commissioner Bill Streur. Even if the federal government pays most of the cost of expanded coverage, the long-range cost implications for the state are troubling, Parnell has said, particularly in view of declining oil production and oil revenues.
In Fiscal 2012, the budget year ending June 30, the Alaska Medicaid program cost about $1.5 billion, Streur said in an interview with the Journal.
Alaska pays 50 percent of this, so the program required state support of about $750 million. Medicaid costs are growing at about $100 million per year, or $50 million per year for the state share.
Streur said that an increasing population of those covered and increasing utilization of medical services, are the key drivers in Medicaid cost increases. The underlying rate of inflation in medical costs is less of a factor, typically 3 percent to 5 percent per year, Streur said.
Another factor affecting Medicaid in Alaska is that the particular set of services paid for, many which are discretionary for states, is more generous in Alaska than is the case in most other states, and has been so for years.
Streur also said that the level of reimbursement for medical services, which is also discretionary for states, is far higher in Alaska than in most other states.
“Most state Medicaid fee schedules are less than Medicare fees, but we are about 40 percent higher than Medicare,” the commissioner said.
Medicaid in Alaska pays fees that are close to the health providers’ actual charges, where Medicare, which is completely funded and managed by the federal government, pays much less than providers’ charges. That has resulted in many Alaskan physicians turning away Medicare patients, while most Medicaid patients are accepted, Steur said.
As for the health exchange, Streur said the small size of the expected population in an Alaska health exchange will be a challenge in operating one, and enticing more that one insurance company to compete in the exchange.
“There is a lot of money involved in setting up the exchange, as much as $70 million to build the infrastructure, and possibly about 77,000 people who may participate,” the commissioner said. “We have no clue as to how many insurers would participate.”
The issue is made more complicated because of the federal requirement that insurers competing within the exchanges offer a set of “essential health benefits,” the commissioner said, and the details of what those will be have not yet been spelled out by the federal government.
In states with larger populations, it is possible to do better analysis. Also, many large Alaska employers are self-insured and the Alaska Native Tribal Health Consortium covers a large part of the state’s population.
“What we will probably wind up with is a lot of small business employees and the self-insured,” he said.
Eric Earling, spokesman for Premera Blue Cross, one company active in the Alaska health insurance market, said there may be more people enrolling in an exchange than many think because of the federal low-income subsidies and tax credits that will be available.
If Parnell opts not to expand Medicaid there will be a much larger pool of potential participants, the low-income people who are not now eligible for Medicaid. A larger pool may entice more than one company to compete, he said.
Premera Blue Cross expects this to happen in Washington and Oregon, states that are now far along in setting up their exchanges.
“We are seeing new market entrants in Washington and Oregon,” to compete in the exchanges, Earling said. “We can’t say the same thing will happen in Alaska, but if the state says ‘no’ to Medicaid expansion all the people in the group that would have been covered will be eligible for subsidies in the exchange. The market may be big enough to where it makes sense for new companies to enter the market.”