‘Reluctant’ Legislature passes bill to salvage insurance market
The Legislature forwarded a bill to Gov. Bill Walker that will stave off steep insurance premium increases in the individual market — at a $55 million cost to the state — at least for two years.
Reinsurance is a form of subsidy for insurance providers. It will subsidize existing individual plans to slow rate increases, which spiked in Alaska by nearly 40 percent this year and a similar hike was likely coming in 2017.
The Affordable Care Act, or ACA, drew high-risk patients away from the Alaska Comprehensive Health Insurance Association with its lower-cost, federally-subsidized plans. When federal reimbursements for insurer losses came up short, insurance companies hemorrhaged money and have been forced to raise insurance rates to recoup losses or leave the state altogether.
Insurers will submit claims to the Alaska Division of Insurance, then receive a direct payment from the state to dampen the costs.
The bill, drafted by Gov. Bill Walker’s administration and sponsored by Sen. Mia Costello, R-Anchorage, will draw proceeds from a statewide insurance premium tax to pay the reinsurance. This tax of 2.7 percent per plan typically draws between $50 million and $60 million per year according to Lori Wing-Heier, director of the Division of Insurance.
Reinsurance will cost $55 million. The premium tax currently goes into the General Fund. The bill establishes an Alaska comprehensive health fund within the General Fund designated to pay for the reinsurance. The proposed operating budget will have to be amended or supplemented to account for the $55 million.
The Senate added two key elements to the bill during a June 3 hearing. First, it sunset the reinsurance program in two years. Second, it established a legislative work group assigned specifically to discuss matters related to medical insurance, with hopes of isolating some of the underlying causes of Alaska’s high health care costs.
Premera Blue Cross, Alaska’s lone individual insurance provider, said the bill is a good first step, but hints at some unease with the two-year sunset and hopes for something more substantial in the working legislative group.
“We’re pleased that the Alaska Legislature has taken this positive step toward providing relief for Alaskans by helping to stabilize the state’s individual insurance market,” read a Premera statement. “We recognize that longer term solutions are needed to strengthen the insurance market and help consumers manage rapidly rising healthcare costs. We are committed to continue working with legislators, the Division of Insurance and other stakeholders on these efforts.”
Legislators cringed at a $55 million operating budget cost in the current fiscal climate, but acknowledged Alaska has no choice if it wants to keep insurance rates from ballooning beyond a mortgage payment.
“Through this legislation we’re addressing a crisis,” said Costello during the June 3 Senate hearing.
Two senators characterized their support for the bill as “reluctant” given the cost, but supported it all the same.
“$55 million is a huge amount of money,” said Sen. Anna MacKinnon, R-Eagle River. “We’re living through those moments each day trying to make those tough decisions.”
Only Sens. Charlie Huggins, R-Wasilla, and Mike Dunleavy, R-Wasilla, voted against the bill during the hearing.
In a House concurrence session, representatives had mixed feelings about the Senate’s two-year sunset. Some thought the plan would only delay the problem of all but one of Alaska’s insurance providers leaving the state in the last two years.
“The purpose of this bill was to entice insurers up here so we would have some competition,” said Rep. Les Gara, R-Anchorage. “To say, ‘Come on up here, and by the way, the program is going to disappear in two years,’ I don’t understand exactly how that makes sense. I don’t think any insurance company is going to change their practice to come up here for a year.”
Those in support said the House has little choice.
“The choice before the body is to have two years of stabilization, or no stabilization,” said Rep. Dan Saddler, R-Eagle River. “If we don’t offer some direction and some assurance that the industry can get the support and cooperation of the state, they will make the business decision to abandon this market, exposing the state to the need to spend a couple hundred million dollars to set up our own state regulated state run insurance company and the $200 million a year to operate that.”
Premera will file its new rates with the Centers for Medicare and Medicaid Services on July 15.
Premera spokeswoman Melanie Coons said the company was discussing a rate increase of up to 42 percent prior to the bill’s passage. She said Premera expects the rate increase to be less now; previous estimates said the bill would produce an increase of 15 percent to 18 percent.
Premera received an extension to incorporate Moda Health’s rate information for its 14,000 Alaska customers last month. On May 1, Moda Health announced that it is leaving the Alaska individual market in 2017.
Moda officials said the company could no longer operate in Alaska without a substantial increase in insurance premiums, which had already increased by 29 and 37 percent in 2015 and 2016, respectively.
Even with the rate increases, insurers have been losing money. Premera’s rates rose approximately 37 percent and 39 percent in 2015 and 2016, but Premera still lost roughly $13 million since 2014 because of Alaska’s small customer base of individual policyholders cannot offset the number with high medical costs.
Premera’s average premium is $713 per person per month, but costs per plan exceed $900 per person per month. Statewide, the average $700 per person per month is the highest in the nation, which averages $468 per person per month.
In Alaska, people with pre-existing conditions were previously insured in a special high-risk pool, operated by the Alaska Comprehensive Health Insurance Association, or ACHIA.
These plans were expensive, based on the nature of the risk pool, and many of these customers left for the subsidized federal insurance exchange. Congress passed an appropriations bill that restricted reimbursements to insurers to the amount received from premiums collected that exceeded costs.
This has meant that many insurance companies, Moda Health for example, received reimbursements for 20 percent or less of their losses. The nation’s largest health insurance provider, UnitedHealth, announced earlier this year it will mostly exit the federal ACA exchanges next year after losing hundreds of millions since 2014.
DJ Summers can be reached at email@example.com.