Business/Economy

Amid budget gloom, good news on Alaska health care costs

JUNEAU -- In a rare bit of good financial news for Gov. Bill Walker and state budget writers, the soaring health care costs of years past appear to have leveled off. Next year, they're even projected to go down.

That's a far cry from recent years, when health care costs seemed to climb inexorably.

But a per-person cost this year of $1,371 per employee per month is projected to drop to $1,346 next year, said Chief Health Official Michele Michaud, with the state's Division of Retirement and Benefits.

While that's less than a 2 percent decrease, there was a slight decline in health costs for fiscal year 2015 (the current year), meaning the multi-year trend is giving state officials hope the trend line in cost growth may have turned.

The reversal, Michaud said, is "restoring these cost trends to fiscally sustainable levels."

The projected numbers for next year, fiscal year 2016, are incorporated in the draft state operating budget developed by former Gov. Sean Parnell and provided to the Legislature this month by Walker without endorsement.

The state's health care bills are huge, and include paying costs for 6,900 active employees under AlaskaCare, as well as their dependents, for a total of about 17,000 individuals. It also funds union health care trusts for an equally large numbers of employees.

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Those amounts total hundreds of millions a year for employees alone, state officials say.

Further, the state pays the health care costs for an even larger number of retirees, with 68,500 covered. That includes 39,700 retirees, with the remainder being their dependents.

Those who watch the health care business in Alaska are trying to figure out what's causing the declines for hints about what will happen in the future. Michaud said a decrease in dental costs played a role last year, while a switch to a new third-party claims administrator seems to be helping this year.

Alaska doesn't technically provide insurance for those it is responsible for providing health care, but instead directly pays for the care itself, something it's done for a dozen or more years. That saves costs by eliminating insurance company profits, state officials say.

That means the state takes the risk each year costs will rise faster than premiums, but also means an insurance company doesn't have to be paid to take on that risk.

This year, Alaska switched to Aetna to administer those claims, in a bid to cut costs by using Aetna's negotiated rates with a network of health care providers.

The experience from the first six months of this year seems to indicate that's working, Michaud said.

"The data reflects the AlaskaCare medical plans are experiencing significant savings as a result of network savings," she said.

Alaska is likely also benefiting from slowing growth of health care prices nationwide, said Becky Hultberg, president and CEO of the Alaska State Hospital and Nursing Home Association.

"I know that overall hospital cost growth has been fairly flat nationally, and I think that's probably been reflected here as well," Hultberg said. "Our trends are not going to be too far apart from national trends."

While the trends may be similar, Alaska's health care costs have long been much higher than the rest of the nation due to Alaska's isolation and small markets, according to a 2011 study by the University of Alaska's Institute for Social and Economic Research. That study found hospital costs in Alaska were 50 percent higher than the costs in the U.S. as a whole, while costs for common procedures were 35 percent higher.

When Hultberg served as commissioner of the Department of Administration, she and other state officials took a number of steps to rein in costs, including joining larger networks to negotiate better deals, providing travel benefits for state employees to get cheaper care in the Lower 48, and seeking a new claims administrator and promoting preventative care.

In addition to the health care costs the state pays, it also negotiates payments for union employees who get their care through union health care trusts.

The Alaska State Employees Association, which covers employees in the state's General Government Unit, gets funding linked to what the state pays for the employees it covers, said Jim Duncan, the union's executive director.

If the state's cost doesn't go up, the amount it provides the union trusts won't either, he said.

But the union has taken its own steps to cut costs, including joining a coalition with other employee groups to negotiate better rates and using a third-party claims administrator.

"Anytime you can come together with a large number of people you can negotiate better payment schedules with providers than you can if you are on your own," he said.

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That seems to be working to hold down costs, Duncan said.

"I think the health care costs have moderated, I don't think the increases have been to the extent we have seen in the past," he said.

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