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How health care costs are bleeding Alaska dry

The health care industry is sucking the life out of Alaska's businesses and state government. Slowing this massive wealth transfer of medical bills and insurance premiums is among the toughest economic problems we face.

It is a problem nationally, but Alaska's costs are rising faster than any other state's and we already spend more on health care per person than any state but Massachusetts.

Since 2001 (when we already had a problem), the cost of premiums for family health care has risen from 10 percent of the average Alaskan's salary to 33 percent, according to Mouhcine Guettabi, an economist with the Institute of Social and Economic Research at the University of Alaska Anchorage.

The increase in health care costs also contributes to the state's fiscal crisis. While budget cuts have brought overall spending back to where it was a decade ago (lower when accounting for inflation), the Department of Health and Social Services has increased 42 percent, becoming by far the largest part of the budget.

On top of costs for the poor and elderly, health coverage eats up public funds in various ways — for department employees, retirees, workers comp, the university, classroom teachers, prisons and juvenile justice. The state got a brief break from increases with tougher claims review and the Medicaid expansion, which moved part of the bill to the federal government, but now increases are projected the next two years, said Pat Pitney, director of the Office of Management and Budget.

A 2013 study by the Anchorage School District found that the majority of increases over a 20-year period went to health care and pensions. Our teacher's pay is about average nationally (adjusted for Alaska's cost of living), but our benefits are off the charts, more than double the national median.

And this is not because we use more health care than other states. Our utilization is below average. It's because health care here is way more expensive and has increased in cost much too fast.

I could easily fill a column with statistics. But everyone knows what's happening, because we're feeling it in our own budgets.

You can get a visual take on the problem by driving through Anchorage's U-Med District, which has exploded with new buildings, networking across former woods with long corridors and shiny, modern architecture. Profit margins for our hospitals are well above the average in other states.

And you can see the money in the wealthier neighborhoods around Anchorage. Our physicians are paid significantly better than doctors in other states. In some specialties, dramatically better.

And you can see it in job numbers. Employment in health care has risen so rapidly it has offset the job losses in oil and gas, so our overall jobs picture has stayed steady.

Economist Mark Foster, who did the school district report, calls Alaska's health economics a wealth transfer to high earners, as we've taken investments in teachers and sent them to doctors. But there's no conspiracy at work here.

What's happening is complex and fixing it will require reworking the market with different incentives and more transparency. It won't be easy and will take many steps. I'll cover solutions in future columns.

A first step is figuring out why we are paying so much more and why our prices are rising so much faster, said Guettabi, the economist at ISER. It's not as simple as saying Alaska is remote.

"Our costs are also growing at a faster rate, which can't be explained by the distance factors," he said. "That's something that can't be explained by cold winters and different demographics."

Yes, we pay more for milk and tires, and doctors and nurses have to pay those prices, too. But prices for goods haven't risen as they have in health care.

In fact, we don't know exactly why Alaskans pay more at the store for products. Some part is shipping (much more in rural areas). But a bigger part of the higher cost of living in Alaska could be due to extreme health care costs borne by employers, which are passed through to consumers.

Guettabi said there are no big, simple solutions, and that is one reason why we've made little progress. Policymakers like to speculate and focus on single factors. It's fun to be envious of doctors and blame it on their salaries.

But something deeper is wrong with this system. After all, if Alaska doctors are making so much more than they're worth, why aren't more doctors flocking here to take those jobs and driving the salaries down?

Guettabi said the problem lies in administrative overhead, technology, the cost of dying, underfunding of public health, and the cost of prescription drugs, as well as physician incomes.

Those many factors point to a problem with the way we buy health care. Obamacare expanded coverage, but failed to fix the cost of the system, especially in Alaska. Cost controls aren't working satisfactorily anywhere, but they're working worst here.

Until last year, the Alaska Health Care Commission studied the problem and made many detailed recommendations. But the Legislature defunded the commission to cut the budget (truly an example of being penny wise and pound foolish). Few of the recommendations for cost containment have been adopted.

The Medicaid bill that passed the Legislature this year includes money for a study to find out if the state could save by combining all its health plans into a single pool run by an authority. That feasibility study is due next January.

But that won't help the rest of us. We need to address cost.

Effective cost control would be painful for some. If it works, we might see a break in the construction of new buildings in the U-Med area, which would mean fewer construction jobs, fewer new hires to fill the buildings and provide care and less profit for the hospitals.

Our choice, however, is to become a society that just works for health care. There's got to be more to life than that.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

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