Alaskans like to eat their cake, up to a point: healthcare overview in the 49th state.

AuthorVon Imhof, Natasha
PositionSPECIAL SECTION: Healthcare

People live in Alaska because they love the fresh air, open space, and the plentiful opportunities to hunt and fish. One would think with so much bounty, our state population would be busting at the seams. Not so. As the biggest state in the union, we have one of the smallest populations. While Alaska is a true gem, living in the Last Frontier comes at a cost. The climate is inhospitable to many, the location to the rest of the contiguous United States creates an additional travel burden, and the cost of living in Alaska can be a significant barrier to entry for many families.

But people who do choose to live here generally want it all: quick access to large swaths of wilderness, as well as fresh produce to eat, live theater to watch, an active commercial airport to fly in and out of, and a specialist doctor to treat any ailment.

It's this last point that could use further exploration.

High Cost of Care and Coverage

The high cost of medical care in Alaska is well documented. In August 2011, the University of Alaska Institute of Social and Economic Research (ISER) published a report that compared Alaska's medical care prices with those found in several other communities in the United States. The data showed that medical specialist costs are 35 to 40 percent higher than those same services offered in the Lower 48 and that hospital stays were 50 percent more expensive in Alaska than in the contiguous United States. Going forward, ISER projected that hospital cost differentials would moderate, but that physician, diagnostic imaging, and outpatient surgery center cost differentials would continue to grow faster than inflation.

Why would costs continue to rise in these areas? There is a growing influx of personnel attracted to the high wage differentials, which combined with high staffing levels and low capacity utilization levels, makes working in Alaska quite attractive, at the expense of being more costly to the downstream payers. Throw in opaque pricing and third party payer disconnect, and nobody is watching the bottom line. The Alaska Regional Hospital Development Manager in 2013, John Brassell, called this trend "The Wild West" of healthcare systems.

To compare, in 1990 Alaska and Wy oming's healthcare costs were the same. Fast forward twenty years, and Alaska's costs have doubled, while Wyoming's grew a quarter of that.

As a member of the Anchorage School Board, we have had to cut the budget nearly $30 million over the last three years, reducing staff by over 275 positions. Since 90 percent of the budget is labor costs, we analyzed the components of employee compensation, looking for the largest cost driver. We found it. It's healthcare.

The rapid escalation in group coverage costs, both active and retiree (red bar), is the largest primary driver of the increase in costs of education for the past thirty years, with a compound real growth rate of 16.8 percent, increasing from $977 per student in 1982 to $4,031 per student in 2012 (2012 US dollars inflation adjusted numbers), a factor of more than four.

It is important to note that the rapid increase in the cost of group medical coverage is not just occurring in the public sector. Because public sector budgets are available for all to review, people assume this is confined to the public sector only. It's not. The total cost of all healthcare benefit plans is significantly higher all across the state of Alaska, for everybody.

Factors in the Equation

So, how did the state get here? Why is the cost of medical services growing at such high a rate in Alaska?

Alaska's desirable attributes that contribute to an ideal quality of living are also the very same factors that play into the high cost of living. Plenty of open space means high cost of transportation. A small population means the costs are spread across less individuals. And finally, this biggest fundamental issue in exploding costs is that there is little to no inherent control of charges. There isn't market pressure because setting charges and payment is NOT transparent--the person pursuing services and the entity ultimately paying are not engaged in a direct transaction because of the third party payer system.

There are some intangible factors that play into the equation as well: the desire for independence and local control, combined with high expectations, also contribute towards the high cost of healthcare in Alaska. And it's not just one stakeholder who is responsible; everyone has contributed in their own way, from the individual patient to the largest hospital and everything in between.

One of the challenges facing our state is that many Alaskans live in small communities that are not accessible by road. In the last decade, Community Health Centers have been created in many rural communities to provide primary care to any and all people living in the area, regardless of demographics or economic status. The late Ted Stevens defined them as "Frontier Clinics" and helped to secure annual reoccurring Health Resources and Services Administration money from the federal government to subsidize the care. This has been a tremendous asset in rural Alaska, lowering costs for emergency room visits and improving overall well-being for local citizens.

But this is for non-emergent care visits. For people living in rural Alaska who are experiencing a life threatening emergency, the common practice is to load the patient onto a Cessna 185 airplane to fly to the nearby regional hub, followed by a flight on a medically equipped jet to Fairbanks, Juneau, or Anchorage. Total cost: $45,000.

Transportation costs to provide rural patients access to specialty medical services is a significant cost for insurers. For the uninsured, they either pay the bill personally, or, if they can't, the costs are absorbed by the medical system, which are oftentimes passed onto the payers through other avenues.

Al Parish, the retired CEO of Providence Hospital Alaska, described this phenomenon as the "hidden tax" where the uninsured, or underinsured, continue to receive medical services, but the medical care delivery system responds by increasing prices for the insured to recoup its costs. It's kind of like the Chilkoot Charlie's motto in reverse: "We cheat YOU and pass the savings onto the OTHER GUY."

Provider Rivalry

There's another factor: Alaska has several different health providers that either can't, or won't, play well together. There are four hospitals in Anchorage alone (Providence, Alaska Regional, Alaska Native Medical Center, and the military hospital on JBER) and numerous outpatient surgery centers to service a population that would be typically covered by one hospital and a few clinics in a comparable sized community in other states. This result is many redundant services...

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