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Sue and save: Alaska joins health-care reform lawsuit while accepting related funds

Posted: Sunday, September 12, 2010

Alaska's decision to sue the federal government over parts of the new health-care reform law hasn't affected the state's decisions in complying with and implementing the new law, a senior state official said Sept. 2.

Alaska has joined several other states in challenging the constitutionality of the requirement that people buy health insurance.

Despite the suit, the state has accepted some federal grants to plan implementation of the new reform law.

"We tell them, 'We'll accept your money, but we reserve the right to sue,'" said Deb Erickson, executive director of the Alaska State Health Care Commission.

Erickson was part of a panel of Alaska health care experts, including medical providers, insurers, a tribal health program administrator and an economist, which told its audience, mostly people in the health care industry, the latest known about how the new law will affect Alaska.

The panel session, held at the University of Alaska Anchorage, was sponsored by the Rasmuson Foundation and Providence Health Systems.

In a separate interview, Gov. Sean Parnell said decisions on accepting federal grants are being made on a case-by-case basis, and his decision on whether to apply for two significant federal grants are still pending. One is a grant for states to conduct a review of insurance rates. The second is a grant to plan for the new health insurance exchange that is to be in place in 2014.

"I don't want to accept grants that start us down a path of being more dependent on the federal government and tie our hands," Parnell said.

Erickson said in the panel discussion that the state would play a major role in implementing health care reform because Medicaid, which will be a primary instrument for expanding health care coverage, is administered by the state. Also, Alaska's state government has primary responsibility for prevention of chronic disease and promotion of healthy living, she said.

Overall, the panel's message seemed to be that health care reform is a mixed bag for Alaska, with the problems probably outweighing the benefits. Overall, total new costs imposed by the reform law appear more modest than initially thought - about $200 million a year or a 2 percent increase, Mark Foster, a consulting economist, said in the forum.

However, specific groups are likely to feel a jolt. Another panel member, Jeff Davis, president of Premera Blue Cross Blue Shield of Alaska, said people holding individual health insurance policies and small businesses with small-group plans could see significant increases in costs.

"We believe the increases could range from 30 percent to 200 percent for individual and small group plans, although there may be some types of small group plans that could also see decreases," Davis told the audience.

Most small groups and individual policyholders will see increases, however, and they will come about because of new mandates in the law like prohibitions of insurance denial because of pre-existing conditions.

Foster said employers will inevitably pass some of these costs on to employees in the form of higher co-payments and deductibles.

Parts of the reform law are already kicking in. New rules affecting private insurers begin in September and reductions in federal payments to medical providers start Oct. 1. The prohibition against pre-existing conditions for insurers begins in 2014, but it is effective this year for children under 19.

Overall, the reform involves bringing uninsured people under health care coverage through an expansion of Medicaid, the health care program for lower income people, and the creation of new insurance exchanges on a national level that, in theory, will enjoy economies of scale because they include large numbers of people and will therefore spread the risks.

However, critics say the exchanges, and also other insurers, will be required to offer a fairly rich set of benefits, which will raise their costs.

In Alaska, meanwhile, about 60,000 Alaskans who are currently uninsured will have coverage, Mark Foster said, and this will inevitably put new strains on the delivery system.

There are a lot of unknowns on how Alaska's health care workforce and providers can deal with expanded demand created under the law, mainly because federal reimbursements for a major pillar of the system, Medicare, are being cut, Foster said.

On a national level the picture isn't pretty either, according to Joel Gilbertson, Providence Health Systems' vice president for government affairs, and another panel member. There are real worries about whether the initiative is financially sustainable, Gilbertson said. The estimated $940 billion cost for the reform bill estimated by the Congressional Budget Office has already been increased by $115 billion in new CBO estimates, he said.

These costs will be paid for by $1.1 trillion in new revenues and savings projected under the law. About 49 percent of the $1.1 trillion will come from reduced expenditures and 51 percent will come from new fees and taxes, such as the tax on high-value "Cadillac" health plans imposed by the law.

Gilbertson said a big financial burden, an estimated $156 billion nationally, will fall on hospitals and nursing homes, mainly through the reductions in federal reimbursements. Foster said the changes this pattern will hold true in Alaska too, with hospitals being hit financially, but physicians to a lesser degree.

Foster estimated that by 2019 Alaska hospitals will be hit financially to the tune of $78 million, nursing homes will be hit $12 million, home health service providers by about $30 million, but physicians only $3 million.

Changes in Alaska's demographics, with a larger over-65 population in the future, will exacerbate the scarcity and strain on the system, Foster said. That's because senior citizens require more medical services and because Medicare, which funds seniors' services, pays at levels that are inadequate for many Alaska medical providers.

The result is a scarcity of providers willing to serve Medicare patients in certain fields, particularly in primary care.

The increased demand is also a concern because many small Alaska communities already face shortages of physicians and skilled nurses. "The scarcity will only increase. It's a little terrifying," Gilbertson said.

For providers, the new law will encourage some fundamental changes in how care is delivered, Gilbertson said. Reimbursements will be linked to the quality of outcomes, whether patients get better, in lieu of the current system where services are paid for regardless of outcome, he said.

Just how this can be done is unknown at this point. "There will be lots of demonstration projects on different models," for delivery of care, Gilbertson said. Hospitals will face other costs. There are penalties, for example, if infections occur in hospitals or whether patients are readmitted with the same medical condition.

The new law will bring about significant changes but there are also serious shortcomings. "It falls short of universal coverage," Gilbertson said, because the low penalty for an individual not buying insurance will encourage noncompliance, thus defeating a major goal of the legislation.

Davis, of Premera Blue Cross, said this is a fatal defect of reform. People will be guaranteed insurance coverage but with a weak penalty many healthy people will opt out because paying the $95 penalty is less than the cost of buying health insurance.

"The nightmare scenario we all worry about is people literally buying their insurance while they're in the ambulance on the way to the hospital," Davis said. "If everyone pays, this can work. But if it's 'jump and dump,' it won't work."

Gilbertson agreed with Davis, saying, "The private insurance reforms that are mandated, but the weak requirements for people to have insurance is likely to destabilize the insurance market."

Gilbertson also said the law isn't as aggressive as it should be in truly reforming the system. For example, in encouraging innovations there are still legal barriers that remain for health providers attempting to collaborate and work together to provide higher quality care. There are also still big questions as to what it will take to really "bend the curve" in slowing rising health costs, Gilbertson said.

Meanwhile, the final shapes of the reforms are yet to be known. Details and decisions on implementation are yet to be worked out in the thousands of pages of regulations that have yet to be written, Gilbertson said.

Technical fixes will inevitably be needed in legislation, and changes in the political environment by the time that happens, in Congress and the executive branch could reshape the law, he said.

Meanwhile, the increases in Alaska medical costs continue. Davis said when he came to Alaska in 1998 the cost of medical service was about 38 percent above Seattle, on average. Now it is 60 percent higher, he said.

Tim Bradner can be reached at tim.bradner.@alaskajournal.com

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