Alaska’s medical cost increases are showing no signs of slowing down, while the cost gap continues to widen, according to a study Premera commissioned that compared Alaska’s medical costs to other states.

The study, conducted by actuarial consultant Milliman Inc., found that health insurance companies pay Alaska doctors and hospitals more than double what Washington doctors and hospitals receive for similar in-network services, while specialists like orthopedists and cardiologists are paid more than 2.5 times the national average.

Milliman compared costs in Alaska to states with similar geography and demographics like Idaho, Hawaii, Maine and Vermont. The study also compared costs to expensive cities like Washington D.C., Chicago, Seattle, New York and San Francisco. Data for the study came from the 2014 Truven Health Analytics MarketScan®, a national database of all commercial healthcare claims.

The study updates a 2011 medical cost study produced for the Alaska Healthcare Commission, which found  Alaska hospital and physician payments were 59 percent higher than payments made in other Western states like Washington, Oregon, Idaho, Wyoming, North Dakota and Hawaii. 

It should come as no surprise that Alaska is expensive. The state’s remote, rugged geography, small market and high cost of living naturally make medical costs more expensive than other states. Drugs and equipment get to Alaska by boat and plane, and people sometimes need to be transported by expensive air ambulance service to get care.  Alaskans visit emergency rooms rather than use less expensive options more often than people in other states, due to the lack of medical facilities. Alaska also has lower use of preventive medicine, leading to higher cost procedures.
What is surprising is that even accounting for these facts, Alaska’s medical cost gap is growing even when compared to states of similar size and geography or even to cities with a high cost of living.

Among the key findings:

• Payments to doctors and hospitals in Alaska are 76 percent higher than nationwide averages using a national Medicare benchmark. 
• The average amount paid by insurers for an Emergency Room visit in Anchorage in 2014 was $614. The average amount insurers paid that same year for an ER visit in New York City was $275.
• Insurers paid an average of $7,000 for knee replacement surgery in Anchorage, but costs to insurers for similar procedures in Seattle, New York, N.Y. and Washington D.C., were less than half of that.
• Comparisons of medical procedure codes showed the cost of an MRI or CT scan in Seattle averages about $500, where in Anchorage, the average cost is just over $2000.
• Hospital payment levels in Alaska are 56 percent higher than the national average and increased at a rate 6 percent higher than other states in the study comparison areas.
• Payments are increasing at an average rate of 10 percent over the last five years, faster than states of comparable size and demographics. These increases outpace the trend projections in the original 2011 study. 
• These examples illustrate why the ability to afford medical care, even for those with health insurance, is becoming increasingly out of reach for many Alaskans. They also validate Premera’s own claims data and serve as a guide for where the company should focus its efforts to make healthcare more affordable.

What actions is Premera taking?
Having access to more in-network doctors means lower and more predictable out of pocket costs for our customers. Premera maintains the largest provider network in Alaska, including a large number of specialists. We continue to grow that network, with more than 100 new doctors and specialists added in 2017.

Because the price of medical care may be lower in another state, customer medical costs are lower too. We make it possible for people to get care where it’s affordable, approving travel costs for eligible medical procedures outside Alaska. Premera customers can receive health-related services and information through a variety of telecommunication channels for prevention, health advice, and managing chronic conditions.

In Alaska, many doctors and specialists are independent and care can be fragmented. Our strong relationships with providers help address this issue by staying in regular contact, and making data available overviewing their patients’ medical history, including current conditions and prescriptions.

In 2015, Premera helped a number of independent physicians form the medical group, Alaska Innovative Medicine (AIM), where care is coordinated across multiple treatment disciplines.  The AIM doctors and nurses have a complete overview of their patients using information from Premera, and proactively reach out to patients and initiate care to prevent the need for more serious interventions later. This team approach provides a valuable communications bridge between doctors and specialists and reduces barriers that prevent patients from getting better.

As a health plan that has served Alaska for more than 60 years, we know doctors in Alaska care deeply about their patients and strive to give them the best care possible. With our strong relationships and understanding of the challenges these providers face in delivering care, we believe we can find common ground and work together to bring the cost of healthcare down in Alaska. 
View the Milliman Study.

Jim Grazko is President of Premera Blue Cross Blue Shield of Alaska