Education health care costs a roadblock to budget reductions
As the Legislature battles over cuts in the fiscal year 2020 budget, K-12 education is set to be one of the biggest items of contention. Districts around the state are bracing for major cuts and layoffs, but working around one major cost item largely out of their control: health care benefits.
School district representatives have repeatedly identified health care benefits as one of their major cost drivers for increasing significantly each year. High health care costs are a problem for all employers, but for school districts, which depend heavily on state and local funding, the cost is coming under increased scrutiny as Gov. Michael J. Dunleavy proposes cutting more than $300 million from K-12 education and municipalities wrangle with other cost shifts that could reduce their own contributions to their school districts.
Health care in Alaska in general is the most expensive in the country, and thus in the world. With a limited market, remote geography and high cost of living, providers in Alaska regularly charge many times more than providers in the Lower 48.
Some school districts self-fund their insurance plans, and though public education is one of the largest employers in the state, the insurance pools are still relatively small.
It’s a thorny problem for school districts, said Tim Parker, president of the Alaska chapter of the National Education Association.
“NEA-Alaska is a steadfast in our resolve to provide the highest quality education to every student in Alaska but health care costs continue to be one of the primary obstacles to creating an educational environment that will allow us to hire and keep the best and brightest educators in the country,” Parker wrote in an email.
The cost of health care benefits is pushing down teacher salaries, making Alaska less competitive in attracting teachers to work in the state, said Dr. Dayna DeFeo, the director of the Alaska Center for Education Policy at the University of Alaska Anchorage’s Institute for Social and Economic Research. In a presentation to the House Education Committee, she outlined a number of the reasons education in Alaska costs so much, one of which is health care.
“Alaska has a teacher turnover problem,” she said. “It’s like a perfect storm. In the Lower 48 … we have fewer teachers coming from the system. Alaska hires most of its teachers from the Lower 48. The economy in the Lower 48 is booming, so districts are adding positions and offering more competitive salaries. Since we import most of our teachers from the Lower 48, we are competing in a national market.”
Salaries for teachers in Alaska, adjusted for the cost of living, are 23 percent less than the national average. However, the cost of benefits are 11 percent greater than the average, the fourth highest in the country, she said. When school districts start with a fixed budget, the increasing cost in one sector means cuts in another part. Other driving factors include energy and the cost of staffing schools in the smallest communities.
Districts have been grappling with the cost of health care for a long time. One of the pitched solutions is to create an Alaska Health Care Authority, which would pool together all state, municipal and school district employees into a single state-run health care plan in a bid to increase bargaining power to negotiate with providers for lower costs. In 2017, a feasibility study estimated that a health care authority could save the state about $200 million annually. The Legislature has not yet taken any action to establish an HCA.
Rep. Josh Revak, R-Anchorage, told DeFeo during the committee meeting that he would be interested in exploring the option to move all school district employees to the state’s insurance plan, which serves state employees and the Legislature.
However, some administrators of current health care pools say this would be a mistake. Rhonda Prowell-Kitter, the executive director of the Public Education Health Trust, said a state HCA would likely be more expensive than anyone anticipated because of the state’s lengthy procurement process and other legal roadblocks, and in the future could be politically swayed depending on the feelings of another governor.
“This idea of pooling together for health care services doesn’t really play out,” she said. “You would see Medicaid, Medicare, Tricare being very successful (if they did). They are not sustaining the hospitals. They need commercial payers to come in and sustain them. I would prefer the state look at cost containment strategies, not pooling strategies.”
The Public Education Health Trust serves school districts of various sizes in Alaska with eight different plans. Over the course of the 20 years since its founding, the trust has been able to negotiate lower costs for plan members. The average cost of health care went up about 3 percent for members last year, Prowell-Kitter said, while for others it went up 10 percent to 12 percent. That results in savings.
She cited examples from Oregon and Washington, where the states have established HCAs. Both states are now debating what to do as the funding has been undershot — Washington by about $900 million. Most of the Public Education Health Trusts’ ability to reduce costs is because of the trust’s ability to move quickly, Prowell-Kitter said.
“We’ve pulled together and been able to have great successes in tackling this problem,” she said. “I feel that the tactics and strategies that we’ve implemented over the last four or five year is finally bending the curve.”
One major move that has helped reduce costs in the last few years and may shift the tide of health care competition in the state is the introduction of BridgeHealth, a third-party medical company that negotiates discounts for patients in elective non-emergency surgeries to fly elsewhere in the U.S. for surgeries. For Alaskans, that means flying to Seattle and staying in a hotel for a surgery and still saving money compared to having the surgery done in Alaska.
Prowell-Kitter said the providers in Alaska were upset at first but now are starting to negotiate as they have to compete with prices three, four or five times lower in Seattle.
BridgeHealth Alaska Region Vice President Sarah Brown said the company has been in Alaska since 2007 but significantly taken off in the last five years or so. Nationwide, the company operates in 34 states, with 50 employers and approximately 600,000 employees. The company only contracts with Centers of Excellence and provides transparent costs to members and patients, which help them foresee costs.
“To encourage competition and we make it easy,” she said. “The plan sponsor doesn’t have to negotiate with the facilities themselves. We do it for them … We try to make it seamless and easy for the three individuals involved in our transactions.”
Prowell-Kitter said the program saved her members $1 million alone last year. While that money is being spent out of state with other providers, it saves the cost of health care premiums going up the following year.
Fred Brown, the executive director of the Pacific Health Coalition, agreed that a state HCA would likely not pan out with cost savings. In Oregon, school districts have wanted to opt out of the Oregon Health Authority but have not been allowed to, leaving them with a disadvantage to compete for teachers as that plan becomes more expensive, he said.
“If you know (the Alaska state government’s) procurement process at all, it’s cumbersome,” he said. “Nimbleness is a good term describing the ability of those who are parts of smaller plans not to be bound by the restrictions that exist in the state’s procurement process but being able to seize opportunities almost immediately as they present themselves and be able to obtain substantial savings.”
The Pacific Health Coalition has had a similar experience with BridgeHealth, using the program starting in 2012 and saving significantly on non-emergency surgeries for its approximately 110,000 Alaska members, which includes members beyond just public education.
Greg Loudon, who consults for Pacific Health Coalition in Anchorage, cited a recent example of a negotiation the coalition made with an orthopedic surgery practice in Anchorage to reduce charges for members of the coalition’s health plans.
“We’ve used BridgeHealth as almost a tool with a very sharp edge to negotiate with the local providers,” he said. “I don’t think it’s a coincidence that we were able to negotiate a good deal with the local orthopedic surgeons.”
Fred Brown, Loudon and Prowell-Kitter all cited some existing problems in Alaska driving up health care costs — the 80th percentile rule and a perceived lack of competition among them.
However, all three also said they’ve been seeing some changes in the provider market due to efforts like BridgeHealth and their collective bargaining power. School districts have begun some of their own efforts as well: the Anchorage School District opened its own health clinic in 2017; the Fairbanks North Star Borough and school district employees are pooled together in a health trust; and the Kenai Peninsula Borough School District began offering BridgeHealth services to its employees in 2018.
“We’re the innovators,” Prowell-Kitter said. “Don’t interfere with what’s working.”
Elizabeth Earl can be reached at [email protected].