Alaska moved a little closer to addressing the health care cost crisis last month with the release of a set of reports on how state and local government could buy health care for less, but the ideas they put forward are not aggressive enough.
Saving money on health care for government workers would be good. We currently pay an average of $21,738 per employee annually, compared to $13,907 in other states.
And there’s plenty of money to save. One of the reports says providers’ cost to give care is no higher here than in Seattle, although in Alaska providers charge much more, and in some cases many times more.
But forcing down government payment for health care without addressing the problem for businesses and individuals could make the problem worse for the rest of us. The reports hardly touch on the opportunity of using state buying power to fix our broken health care market.
The Legislature ordered the Health Care Authority Feasibility Study to look at how the state, local governments and school districts could join together for health coverage for employees and retirees to get better prices.
The heart of the report calls for combining all state, local and school employees into a single pool with coordinated administration and a limited menu of benefits. This has been done for years in Washington and Oregon.
But reports from the national PRM Consulting Group, a human resources company, don’t say much about how pooling would reduce cost in Alaska’s unique market, focusing more on insurance details.
“It was a narrowly defined report that produced narrow proposals,” said Rep. Ivy Spohnholz, chair of the House Health and Social Service Committee. “We’re going to have to look at systemic changes to get the kind of movement we need.”
Simply buying coverage for more people doesn’t lower the cost of care. Indeed, some smaller health plans already get a better deal than the state, a fact PRM acknowledged when it looked at the option of allowing those with lower costs to keep doing their own thing.
The Alaska Public Education Health Trust had better benefits for lower cost than the state the last time the idea of combining plans came up, said Glenn Brafia, executive director for the NEA-Alaska. The union opposes an authority.
But economist Mark Foster, who the state hired to analyze and synthesize the other consultants’ work, says an authority could change the balance of power in the market.
Foster’s report states flatly — and other economists seem to agree — that Alaska’s problem is lack of competition among providers and insurance companies. Real competition doesn’t happen in markets with just a few players, he says, because it is easy for them to match prices and offerings.
But an authority could beat monopolies by becoming a monopoly. If insurance companies won’t lower prices, the authority could bypass them and contract directly with providers. If monopolistic providers don’t pay ball, they could be bypassed, too.
For example, Foster writes, with more than 100,000 lives covered, an authority could keep eight cardiologists busy full time, enough for its own practice. He believes the threat of doing that would be enough to get established practices to reduce prices.
But he only expects to save 9 percent, of which only 3 percent would come from lowering physician reimbursements (the other 6 percent would come from administrative efficiency and plan re-design).
Foster said that if an authority pushes prices down more than that, some specialists might leave Alaska, causing supply problems.
Why leave if the pay is so good? Foster found that Alaska doctors, on average, are not as busy as doctors in other states (although some Alaska doctors are very busy).
One reason is that doctors, like the rest of us, prefer to enjoy Alaska rather than working all the time. But the small size of our market reduces their efficiency, too. There aren’t as many patients needing each subspecialty, so doctors don’t see as many repeated cases as they would in a large city.
That’s also a reason why we don’t get higher quality care for our higher spending. Doctors in busier centers do the same procedures over and over and get very good at them.
Independent economist Jonathan King said our excessive health care spending has built a medical establishment that is much larger and more complex than would be justified by our population.
“We have filled gaps over the last 20 years, with the heart center and now the cancer center, so that you don’t have to leave anymore. And we’ve paid the price for that. We’ve paid this stealth societal tax,” King said.
From that perspective, lowering prices so that some specialists leave might be OK. The luxury of having so many medical procedures available in Alaska may be more than we can afford.
It already is for the many patients who travel outside Alaska for less costly medical treatment.
Another problem with the authority idea is that lowering state payment for medical care could cause prices to rise for everyone else.
Could private industry get the same deals as the state?
The PRM report looked at allowing individuals in the Affordable Care Act marketplace to buy into the state’s plan, but concluded that only older people with higher premiums would do so. Their higher medical needs would wipe out the authority’s savings.
Given the public money already going into the individual market, maybe there is a way to make that work.
More importantly, the study didn’t look at allowing private employers to join the authority pool. Foster said Maryland is doing this, allowing all employers and the state to band together.
This study didn’t go far enough. Alaska is many years behind other states in addressing these problems. We haven’t even examined all the possibilities.
State leadership must become more aggressive and more creative. The state works for us and should use its market power to solve this problem.