State officials want to repeal a policy established nearly 20 years ago to protect Alaskans from surprise medical bills that’s now being blamed for soaring health care costs in the state.
Some, like the Alaska State Medical Association and numerous physicians, say repealing the rule would remove an important consumer protection and could lead to higher health care costs for patients and fewer specialists, particularly in rural Alaska.
But one of the largest insurance companies in the state wants the rule to go, claiming that it has actually contributed to Alaska’s high health care costs by incentivizing health providers to raise prices over time.
The Alaska Division of Insurance is proposing repealing it, and just finished taking public comment on the complicated piece of health care legislation known as the 80th percentile regulation.
That unwieldy label reflects the fact that the regulation requires insurance companies to pay 80% of the market rate for any health care service whether or not the service is within an insurer’s network of providers. The goal is to help prevent patients from being saddled with huge medical bills that insurance companies might otherwise have refused to pay because they’re out of network.
Following a series of public hearings in February and March, the state has received hundreds of pages of public comments over the last few weeks from Alaskans weighing in on the issue, including providers, patients and insurers.
What is the 80th percentile rule? How does it work?
The rule hinges on the amount of money insurance companies pay out, or reimburse, to patients who see practitioners outside the company’s approved network of providers. People may see out-of-network providers for various reasons ranging from seeking care in communities with few practitioners to needing surgery that involves an out-of-network anesthesiologist.
Alaska enacted the 80th percentile rule in 2004. The goal: making sure providers got most of their costs paid rather than having an insurance company refuse to reimburse them at a reasonable rate, setting up a scenario where providers pass along costs to patients, leaving them with large “surprise” bills. Critics say the law also sets up a problematic scenario where providers who know they’ll get 80% of whatever is determined to be a “reasonable” rate increase prices.
Under Alaska’s 80th percentile rule, if an insurance company receives 10 bills for similar medical services in a particular region, the seven lowest cost bills are paid in full by the insurance company, and the other three are paid at the rate of the third-highest of those bills.
Those asking for a repeal say that means medical providers with the highest health care bills get larger reimbursements than the rest.
“Here’s where human nature comes in,” said Gary Strannigan, vice president of congressional affairs with Premera Blue Cross, one of the state’s largest insurance companies. “Because the message to providers is, others got paid more than you. So the next time you file a claim or a bill for that service, you’re going to increase it.”
What happens if this rule goes away? Will health care costs go up?
Experts disagree on what will happen if the regulation is repealed: doctors say Alaskans’ medical costs could go up, insurance companies say removing the rule could lead to a reduction in health care costs over time.
If the regulation is removed, health insurance companies would still need to seek approval from the state for their reimbursement rates, according to Sarah Bailey, an insurance supervisor with the Alaska Division of Insurance. That oversight is meant to prevent unduly low payments to health care providers and steep bills for patients.
But Dr. Steven Compton, incoming president of the Alaska State Medical Association, said in absence of a requirement that insurance companies take on most of the cost of out-of-network medical care, he is still concerned that more costs could get foisted on to to patients. Rural patients in communities where specialist care can be costlier and providers are often out-of-network could be most affected by the change, Compton said.
He thinks the 80th percentile rule has helped Alaskans avoid unusually high medical bills for out-of-network care, and sees removing it as a risk.
“The legislation is a consumer protection that’s meant to keep patients from getting a surprise bill for elective and outpatient procedures, and it’s been very effective,” he said.
But isn’t there a federal law that prevents surprise medical bills?
The federal No Surprises Act was enacted in January 2022 as a way to protect consumers from steep medical bills for care outside of their insurance network.
According to Strannigan with Premera, consumers no longer need the 80th percentile rule because of this federal law.
But the No Surprises Act only protects patients from large medical bills in specific, out-of-network care scenarios: in cases of emergency services, inpatient care when a consumer has no choice of a provider or if there is no network provider, and for air ambulance services.
That means that without the 80th percentile rule, patients in Alaska could again be faced with huge medical bills for all other types of out-of-network care, Compton said.
Is there proof that this rule has contributed to increased health care costs in Alaska?
Yes, but it’s limited to a single study from 2018. And the Alaska State Medical Association says that study does not take into account other factors for rising health care costs in state.
Strannigan with Premera, who has been advocating for abolishing the regulation, says he has observed a “widening gulf” in health care costs in Alaska compared with Washington, which is the other state where Premera does business. He attributes the cost increase to the 80th percentile regulation.
He references a 2018 study from the University of Alaska that estimates that somewhere between 8% and 24% of Alaska’s health care cost increases since 2004 can be directly linked to the 80% percentile rule.
Compton takes issue with the study, however, claiming it didn’t take into account all the different possible explanations for the rising costs of health care in Alaska since 2004 — most significantly, the state’s rapidly aging senior population.
Health care is costlier for older adults, and Alaska experienced a dramatic increase in its senior population that other states did not, he said.
In the last four decades, the share of Alaskans 71 and older has increased several times over, from a little over 1% to close to 8%, according to an annual jobs forecast released in January by the state Department of Labor and Workforce Development.
“And so we have this unusual demographic problem that has been the primary driver of increased health care costs,” which the study does not consider, Compton said.
Bailey, with the state insurance division, said that study was ”the primary data source” cited as evidence that the 80th percentile regulation had driven up health care costs in Alaska.
State officials will weigh comments and testimony before making a decision by summer.