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health / Stones & Bones / volume 9 number 12, December 2007 DOSE OF REALITY Touting it as a means to provide all Alaskans with health care insurance, Anchorage Democrat Senator Hollis French (D) has introduced Senate Bill 160, titled "Affordable Health Insurance for All Alaskans." The intent is perhaps commendable, but, if enacted in its present form, this bill will actually increase overall health care costs for Alaskans. It also has the potential to do serious financial damage to the 106,000 Alaskans who now receive Medicaid benefits. The cost of supplying Alaskans with health care in 2005 was $5.3 billion, an amount equal to one-third the value of North Slope oil exported that year. That is a lot of money, and it amounted to about $8,000 per Alaskan. Of that amount, nearly $1 billion was dispersed to hospitals and other medical providers through the Alaska Medicaid program, almost $10,000 per Medicaid beneficiary. Medicaid is a joint federal-state public insurance program intended to pay the full cost of health care for eligible low-income parents, children, seniors, and people with disabilities. It is the largest source of funding for medical and health-related services for people with limited income. Medicaid provides insurance coverage for 38 million Americans, including 106,000 Alaskans. The federal government pays about 60 percent of the cost in Alaska, and state government pays the rest. The Alaska Medicaid insurance program is highly efficient in that its administrative cost is only about three percent; that is, about 97 percent of the program money goes directly to pay for medical care. Of that 97 percent, 62 percent pays for acute medical care, 37 percent pays for long-term care, and 1 percent goes to what are called “Disproportionate Share Hospital (DSH) Payments.” The DSH payments, amounting to about $7 million in fiscal year 2006, go to hospitals serving more than usual numbers of low-income and uninsured patients. So the purpose of the DSH funds is to go beyond just paying directly for care to Medicaid beneficiaries; it provides general support to certain hospitals located in areas where incomes are low and have abnormal uninsured populations. Because of the state’s higher average salaries, Alaska does not fare as well in the distribution of DSH payments as other parts of the country. On average, DSH payments amount to six percent of the total Medicaid payout, but Alaska gets only one percent. Now, in addition to those 106,000 Alaskans covered by Medicaid insurance, there are another 114,000 Alaskans not eligible for Medicaid and who do not have other insurance. The stated purpose of Senate Bill 160 is to provide those people with insurance issued by the private insurance industry. The bill will require every Alaskan to have some form of insurance. Those already insured will be able to keep the insurance they already have if they choose, but if they have none they will, by law, be forced to buy health insurance from the insurance industry, whether they want to or not. The idea is to require participating Alaskans (those who have no other insurance) to buy vouchers to be used only to purchase health insurance—not to purchase health care. To help low-income Alaska residents pay for the insurance vouchers, the bill calls for subsidies using funds from various sources. These sources include required contributions from employers, legislative appropriations, federal funds, premiums, contributions, and “state money appropriated to subsidize uncompensated care.” What is that last-mentioned source; that is, what money does Alaska appropriate to subsidize uncompensated care? Senate Bill 160 is vague on this point but bill sponsor Senator Hollis French, in an article published in the Anchorage Daily News on March 16, 2007, stated that the intent was “to take the Medicaid dollars currently being spent to reimburse hospitals and other providers for the free care they provide to the uninsured, and use the money instead to subsidize health insurance for those who cannot afford it…. Take the money spent on hospital bills each year for the uninsured, and buy health insurance instead.” Reading that statement, warning bells clanged in my head. Did Senator French mean that Senate Bill 160 would raid Medicaid of all its funding and use it to help buy health insurance? Was he considering the Alaskans on Medicaid to be uninsured? No, not at all, Senator French responded when I queried him about this; I had the wrong idea altogether, he said. He meant that only the Medicaid Disproportionate Share Hospital (DSH) funds would be taken away from Medicaid. That is an interesting thought when one looks at the Alaska DSH payments in 2006: $7 million. Of that amount, the state appropriates only 40 percent, just under $3 million. That’s coffee money compared to the $5 billion cost of health care for Alaskans, or even the $1 billion in the Alaska Medicaid program. Yet, Senator French featured this source over all others in his newspaper article promoting Senate bill 160. The truth is that any money diverted from government health insurance to private insurance drives up overall health care costs. That is because so much private insurance money is consumed by administrative costs, advertising costs, and shareholder profit. Government programs like Medicaid and Medicare pay 96 to 97 percent of the money taken in directly to health care providers, whereas the payout from the private insurance industry averages only 73 percent, and some policies pay out as low as 45 percent. Senate Bill 160 as now written is a boon to the private insurance industry, but of questionable value to the 114,000 uninsured Alaskans it supposedly helps. They will, by law, have to buy some form of health insurance, but they will also be stuck with the deductibles and co-pays required by the policies they buy. On top of that, they will themselves have to pay for any health care not covered by the policies. For those persons needing the most health care, that extra cost will be substantial and in many cases unbearable. It would be a different matter if SB 160 called for providing uninsured Alaskans with vouchers that would buy health care rather than just health insurance policies that pay only part of the cost of health care. That could bring down the overall cost of health care for all Alaskans while simultaneously improving access to needed health care for Alaskans now uninsured.
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