State repeals rule aimed at reducing health care costs

The Dunleavy administration has repealed a rule meant to lower health care costs, triggering opposition from hundreds of providers who say the regulation is needed. An ongoing lawsuit is challenging the state's authority to remove it Under the rule, which was formally repealed Jan. 1, insurance companies were required to pay out-of-network providers at least the 80th percentile of the average going rate for a medical service. Without the rule, an insurance company is free to pay a lower rate for services - and consumers have to pay the difference. Since its implementation in 2004, the rule - which applies only to the private insurance market - effectively prevented Alaska patients from receiving large medical bills for out-of-network care. But the state argues the rule also increased the cost of health care over time by incentivizing providers to keep rates high. The state asserts the repeal can help lower Alaska's health care costs, which are the highest in the nation. Even with the rule repealed, insurance rates are going up. Premera Blue Cross Blue Shield of Alaska, which controls more than 70% of the health insurance market in the state, is raising its rates 5.2% this year for the small group market But the rates would have gone up faster if the rule were still in place, according to the company's Alaska president, Jim Grazko, who said rates would have gone up by an additional 2.5% without the repeal. For individual plans, Premera's rates increased by 16% in 2024, according to a federal database. Dozens of health care providers say removal of the rule will make it harder for them to stay afloat. If insurance companies significantly lower their reimbursement rates, providers say, keeping their doors open may no longer pencil out And there is no assurance that the long-term savings for insurance companies translate to long-term savings for consumers, they say. Repealing the 80% rule doesn't drive down health care costs, it simply decreases insurance carrier's costs while deflecting the cost to providers, who will have no choice other than to deflect the cost to the patients they serve, Dr. Laura Moore, a physician based in Anchorage, told the Division of Insurance in one of hundreds of letters submitted to the state by medical professionals. Providers claimed in public testimony that the idea for the repeal came directly from Premera, which has lobbied the state for the change for years, including by telling Alaska employers that the repeal would lead to reductions in the cost of the insurance policies they buy for their workers. Grazko said Premera is required under state law to pass through any savings due to the rule repeal or removal through rate reductions.

We can't keep that money. That money needs to be passed through to the consumer, he said. The flurry of opposition from health care providers culminated in November with a coalition filing a lawsuit challenging the division's authority to remove the rule. The plaintiffs include a newly formed Coalition for Reliable Medical Access, the Alaska State Medical Association, the Alaska Medical Group Management Association, the Alaska Podiatric Medical Association, the Alaska Physical Therapy Association and the Alaska Chiropractic Society. I understand the concerns of the medical community, but I also understand the consumers that are saying they don't have any more to give for the cost of health care. And we're at a point where we make a decision or we keep going with the 80th percentile and our cost of health care is high, Division of Insurance Director Lori Wing-Heier said last year in a legislative hearing. 'Unreasonable and arbitrary' The lawsuit, filed in Anchorage Superior Court, asks for the repeal of the rule to be declared invalid, contending the Division of Insurance decision was unreasonable and arbitrary. The providers also asked the court to temporarily stop the state from repealing the rule while the lawsuit is underway. The state has yet to respond to the lawsuit. In a statement, the Division of Insurance said it complied with administrative procedures. Wing-Heier declined to respond to a list of questions aboutthe repeal, citing the ongoing litigation. Providers allege in the lawsuit that with very few exceptions provider payments in Alaska have not increased while health insurance premiums have climbed steadily year over year and that the Division of Insurance did not adequately consider whether repeal of the rule would result in cost savings for consumers, or a loss of providers on whom Alaskans rely for medical care. Providers say that in the immediate future, Alaskans can expect to see large medical bills for out-of-network care that were previously unheard of in the state thanks to the regulation. In the long term, they say lower reimbursement rates from insurance companies will mean that fewer providers will choose to establish practices in Alaska and patients will have to leave the state more often for specialized care. Removing an important consumer protection without some sort of replacement is just going to put us back to where the state was in 2004, said Dr. Steven Compton, president of the Alaska State Medical Association. Compton was one of a group of health care providers who met with Gov. Mike Dunleavy in September to discuss possible changes to the 80th percentile rule. Compton said the group proposed that all providers who benefit from the regulation be required to accept patients covered by federal insurance programs, including Medicaid and Medicare. The proposal, they argued, would help solve another longstanding problem in Alaska's health care industry: Federal insurance programs' reimbursement rates are too low for providers in Alaska to accept, they say, leaving limited options for Alaskans who rely on public insurance options.

Compton said that Dunleavy listened, and he said he'd get back to us quickly, and we never heard another word. In August, the Division of Insurance gathered a group of providers to discuss alternative ways that providers should be paid. Another meeting was planned for September, but the providers advised the division that they did not think that proceeding would be worthwhile, and the meeting was canceled, according to the division. Asked Friday about the governor's meeting with the health providers, Dunleavy spokesperson Jeff Turner said that the 80th percentile rule is now under active litigation so we can't comment on it The wait for a reply from the governor is what led the providers to cancel their second meeting with the Division of Insurance, and what led them to ultimately file their lawsuit, said Compton. The Commerce Department, which houses the Division of Insurance, began in November to solicit input on health care reimbursement and the future of health care payment in the insured market as well as other payers, with a deadline of March 1. In a statement, the Division of Insurance said the rule impacted only the insured market, which is around 20% of Alaska's population. Of that, the division estimated, outof-network reimbursements account for about 10% of the market. The rule does not apply to government-issued insurance, including Medicare and Medicaid. But Compton said the repeal could affect the entire health care landscape in Alaska, and particularly those who rely on Medicare and Medicaid, by making it harder for providers to subsidize care for Medicare and Medicaid recipients through their reimbursements from privately insured patients. The problem we are running into is just a fundamental social question of 'well, are we going to take care of each other or not? Are we going to take care of our neighbors?' he said. 'Some gaps' The 80th percentile rule was implemented in 2004 because consumers in Alaska were complaining that the insurance companies were paying such small amounts and they were left with huge balance bills, or surprise bills, Wing-Heier told lawmakers last year. Wing-Heier said she had been a proponent of the rule because she thought it stopped consumers in Alaska from being charged, or receiving a surprise bill. For nearly 20 years, the rule protected Alaskans from what was a more common occurrence in other states. But Wing-Heier claimed that the No Surprises Act, a federal bill that went into effect in 2022, made Alaska's rule unnecessary. The No Surprises Act was implemented to prevent unexpected medical bills for out-ofnetwork care, but it applies in a narrower set of circumstances related to emergency care. If a patient seeks specialized, non-emergency care offered only by an out-of-network provider, they are not protected by the federal law. Wing-Heier told lawmakers last year that there could be some gaps between what is covered by the No Surprises Act and what was once covered by Alaska's 80th percentile rule. Without the rule, Wing-Heier said, when there are disagreements between providers and patients on the amount they should pay for a service, the amount would be decided through an adjudication process that could lead patients to pay more than they expect for out-of-network services. We have not seen many adjudications in Alaska because of the 80th percentile, Wing-Heier told lawmakers lastyear. Even with the repeal of the rule, the state still requires private insurers to cover part of out-of-network charges. Grazko said Premera's plan was to reimburse out-of-network providers at a minimum rate of 185% of the Medicare reimbursement rate.

So our hope is that all the providers that have chosen not to contract, knowing that they can get paid at the 80th percentile of billed charges, will reconsider and come to the table. And then will get much much more than 185% of Medicare most likely, because that's where negotiations end up landing in Alaska most frequently, he said. 'A unique moment in time' This is not the first time the state has considered doing away with the 80th percentile rule. In 2018, the Division of Insurance solicited feedback on the possible removal of the regulation but did not move forward. At the time, a researcher at the University of Alaska found that the rule had contributed to rising health care costs. Medical providers say the s tudy did not take into account other factors contributing to rising costs, like Alaska's aging population, and Wing-Heier suggested at the time the study was published that its conclusions were uncertain. No additional research was conducted on the topic after 2018. Wing-Heier did not respond to a question on what had changed between 2018 and 2023. One change since then: The Alaska Legislature in 2022 approved the creation of a health payment utilization database at a cost of $1.5 million. The database is still not finalized, but it is expected to provide Alaskans with more transparency about the cost of health care services and the amount that individuals pay for services under different plans. One interpretation of events is that the insurance industry wants to scuttle the 80th percentile and get more control over the market before the database is up and running said Compton. Grazko said that Premera will willingly participate in the database and that Premera is 100% in favor of transparency in the market. Premera has taken an active role in advocating for the rule's removal, both in 2018 and more recently. We've been trying for so long to have the public, and really everyone, take note of the fact that the rule needs to be removed because of its inflationary impact, said Grazko. We finally got through to people. In their lawsuit, providers claimed they filed an information request in September seeking communications between the Division of Insurance and executives at Premera and other insurance companies. The lawsuit asks a judge to require the state to produce the information, which has not yet been provided. Premera has made no secret that has supported the repeal. A week after the Division of Insurance announced it was considering removing the regulation, Premera posted on its website a call to action for people to urge the division to move ahead with the repeal. This is a unique moment in time with a short window during which there is an opportunity to remove the rule, Premera declared on its website. If we miss this opportunity, we will likely not have another chance, and the status quo with continued cost increases will continue.