Enough is Enough: Healthcare Costs Are Breaking the Bank

No one likes being in last place, but this time, oh how I wish we were. Alaska is number one among the 50 states for what we spend on healthcare[1]. Brace yourself, because it gets worse. Alaska is the most expensive location on the entire planet for healthcare[2].

This is not sustainable, folks. Families and individual Alaskans cannot continue to bear this heavy of a burden.

Our economy cannot withstand it either. Sure, the medical industry segment of the economy is thriving in Alaska, but it is at the expense of other industries.

How can we be a business-friendly state when medical costs are breaking the banks of employers and employees? Funds that an existing company could invest to expand are eaten up by health insurance premiums for their employees. Savings an entrepreneur could use to launch a start-up are gobbled up by unexpected hospital bills. Plans for a new Alaskan division of a business are scrapped when the out-of-state headquarters realizes the astronomical cost of healthcare.

Not only does the problem negatively impact the private sector, but it also hurts the public sector. For example, the largest expense for our state government is healthcare. Add up what we spend on Medicaid, healthcare for state employees, for retirees, for inmates, to run the Pioneer Homes, the Alaska Psychiatric Institute, and more — and nothing else comes close to the amount targeted to healthcare. Consider that more than $1 billion in state dollars go to school districts each year and that healthcare costs suck up as much as 25% of some districts’ budgets.

For just a moment, let’s roll back the calendar a few decades. Remember when charges for medical services in Alaska were just a bit higher than in Seattle or Salt Lake City or Scottsdale? Enough to cover the cost of shipping the band-aids and bedpans up north and to pay healthcare workers a few additional dollars to fill their gas tanks? Health expenses for the Alaskans consumer back in the early 1990s were comparable to the lower 48 and a tad more in the late ‘90s but not outrageous as shown by the graphics[3] below.

Note the navy-blue line after the year 2000. Our outlay for healthcare entered the realm of outrageous. This graph only takes us to 2014. What’s happened since?

Per capita annual spending for an Alaskan was $11,064 in 2014 and five years later? $14,500 per person in 2019.[4] A growth of  31% in five years. It’s now 2023, four years later, so you can bet it’s more now.[5]

Now here’s the real kicker. $4 of every $10 spent on healthcare was paid out-of-pocket by Alaskans. A whopping 42%. Compare that to District of Columbia, the second highest in per capita spending, where only 12% spent on healthcare is from a patient’s pocket.[6] No wonder we’re feeling crushed.

Premiums are expected to increase in 2023, and guess who is among the top five states with the steepest increase, approximately 14.97% over 2022[7]? Alaska unfortunately is a top contender in this category too.

According to spending on hospital and physician services, Alaska is 50-80% higher than the national average. Medicaid expenditures are 56% higher.[8]

Let’s do a little comparison on charges in Alaska versus the lower 48 based on the 2014 Truven Health Analytics MarketScan[9].

• Comparisons of medical procedure codes in 2014 showed the cost of an MRI or CT scan in Seattle averages about $500, where in Anchorage, the average cost is just over $2000.
• The average amount paid by insurers for an Emergency Room visit in Anchorage in 2014 was $614. The average amount insurers paid that same year for an ER visit in New York City was $275.
• Payments to doctors and hospitals in Alaska are 76 percent higher than nationwide averages using a national Medicare benchmark.

Next, let’s take a snapshot of a few hospital charges to compare Alaska versus the lower 48.[10] This data was released in 2011 by the Centers for Medicare and Medicaid Services. This compares the charges by a hospital in Alaska with a hospital in another state. It is not a comparison of the average charge for each state.

What about routine care, preventive care, chronic disease management? Mammogram screenings save lives and prevent higher cost care; however, many cannot afford them. What about the cost of insulin for diabetics? Allergy testing, the associated doctor’s fee, the prescribed allergy shots add up to hundreds of dollars. The burden for these costs on Alaskans is tremendous.

The fact that we have a problem is clear, real, and obvious. Think back for a moment to the graph earlier in this article. The problem has been creeping up on us gradually since the late 1990s, but the pain in 2023 is now extreme,

We are the frog and can jump out of the pot before the water boils. We can and we better.

TIME FOR SOLUTIONS

I won’t try to theorize what went wrong and why we are where we are – that would comprise an entire book. I will say, however, that the causes are many, and although it would be fantastic if we had one silver bullet, we must address the problem with multiple solutions.

One foot in front of the other. Over time. With patience and perseverance. The rising costs did not occur over night. The nudging down of the costs will not either. As nice as it would be if the next medical bill we opened were dramatically lower than the one we received last month, the truth is that any changes too drastic would have damaging ripple effects on our economy.  We must take one step at a time, loosening up the free-market principles as we go, and let the prices edge downward as they will.

There are a few steps we can take now. You can advocate for each.

PASSAGE OF SB 45 DIRECT HEALTH CARE AGREEMENTS

A bill which I sponsored last year and am co-sponsoring this year is Senator Wilson’s Senate Bill 45. It would allow healthcare providers to enter into a Direct Health Care Agreement with a patient to give access to an agreed upon set of services for a periodic regular payment.  These agreements would remove surprise costs; improve outcomes due to earlier intervention; and allow the patient to better manage their health care. This type of provider-patient contract removes insurance from the equation, greatly reducing administrative overhead for the provider and thus healthcare costs overall.

PASSAGE OF SB 3 HEALTHCARE CONSUMER RIGHT TO SHOP ACT

I am sponsoring Senate Bill 3 which will bend the cost curve down over time to help relieve the disproportionate burden of health care costs on family budgets, seniors on fixed incomes, and employers providing insurance coverage to their employees.

The bill will provide Alaskans with the information they need to plan financially for their health care decisions. The bill requires health care insurers to provide comprehensive comparison guidance online and by phone as well as an online price tool to allow consumers to compare cost sharing amounts that they would be responsible to pay depending on the provider they choose.

The bill also adds a mechanism so insurance companies will provide an incentive – a shared savings check – to policyholders who choose a provider who charges below the median in-network cost. Employers providing insurance coverage for employees will also be eligible for some of the shared savings. This approach will help bring down the high cost of healthcare in Alaska by encouraging consumers to shop and providers to compete for Alaska’s healthcare dollars.

The Alaska Health Care Consumer’s Right to Shop Act will empower Alaskans with the tools needed to make healthcare choices that fit their needs and work for their budgets while introducing a bit of competition into the healthcare market in Alaska to help nudge down the costs over time.

PASSAGE OF SB 8 REPEAL CERTICATE OF NEED

Senator Wilson has sponsored this bill for six years. It is well time we pass Senate Bill 8. The legislation repeals Alaska’s certificate of need (CON) program and provides for a three-year delayed implementation date before the repeal becomes effective. The certificate of need program was first mandated nationally by the federal government in 1974 to attempt to restrain healthcare costs and improve access to care for the poor and underserved populations.

Since the mandate was repealed by the federal government in 1987, data and studies show CON laws have not controlled costs, improved quality and outcomes, or increased access to healthcare for the poor or underserved.

CON laws instead have established healthcare monopolies, which has resulted in barriers to new or expanded medical facilities and limited healthcare choices for consumers. Because CON laws regulate and limit the entry and supply of medical services and facilities, providers are not incentivized to improve quality and outcomes.

ELIMINATION OF 80th PERCENTILE RULE FROM REGULATIONS

This rule put into our state regulations in 2004 was intended to protect consumers from surprise billing, but increased charges over the years negated any benefit. The rule could be responsible for as much as 25% of the healthcare cost increases the last two decades according to research[11]. The Division of Insurance has proposed removing the rule. Public comment closes March 6, 2023. You can read about the proposed changes here.

CONCLUSION

In Alaska, we have little competition, higher fees, and higher profit margins. People are hurting and the economy is stymied due to our high healthcare costs. The free-market principles simply have not been working well in our state. The four policy changes just outlined are things we can do to loosen up these principles. We can begin to change the trajectory of the cost curve if we stand together and advocate for SB 45, SB 3, SB 8, and the elimination of the 80^th percentile rule.