State repeals health insurance rule that protected consumers; It could also mean fewer health care providers

Alaska’s state Division of Insurance has repealed a regulation that sets a minimum payment that insurance companies have to pay on medical bills.

One health care provider, Chris Logan, APRN, a registered nurse practitioner working with a group practice, said the repeal will result in her payments being cut 70%. More of this may be coming.

The rule that was repealed effective Jan. 1 was originally adopted as a consumer protection measure to require insurance companies to pay at the 80th percentile rate for services. It applied to “out of network” health providers, or those not under a negotiated set of contract prices with an insurance company.

But the effects will ripple through the health care community. When insurance pays less than the cost of a procedure a patient will likely be responsible for the remaining balance.

Premera Blue Cross, which dominates the health insurance market, says it will base its payments to medical providers after Jan. 1 on 185% of Medicare, or 85% above what Medicare pays. That’s a rate that will not cover costs for many small independent medical practices. Logan said small primary care practices as well as behavioral health providers may be the most affected and at risk.

Private insurance reimbursements in Alaska more typically pay about four times the Medicare rates, providers say, although they are usually higher for some specialized services. Without the 80th percentile rule as a guaranteed floor for payment insurance companies can drop reimbursements, even sharply as in Logan’s case.

Logan is now practicing as an independent provider, as a small business, and is not in a “network” with negotiated contract rates with an insurance company. She said she will now join a network to negotiate a new payment but expects that even with that she will still take a 50 percent cut.

The 80th percentile rule was adopted in 2004 by the state Division of Insurance to protect consumers against large unexpected balances due on medical bills. Before 2004 insurers could low-ball provider reimbursements, basing them on costs in other states where the companies did business.

One insurance company used Alabama medical costs as a basis for its Alaska payments. The 80th percentile rule was adopted as a protection against abuses and required reimbursements to be based on Alaska prices.

While the rule affects only private insurance, like that provided by employers, its repeal will affect payment, and ultimately service, in government-sponsored insurance like Medicare and Medicaid as well as TRICARE, which covers military personnel and families. This is likely because private insurance typically pays more than the government programs and medical providers often cover patients in these programs but at a loss. Losses are made up from private insurance, which can pay enough to cover other losses.

But when insurance companies cut the private reimbursement rates, even in networks, many of these providers may no longer be able to serve patients in the federal programs. This problem now affects Alaska senior citizens on Medicare who find it difficult to find primary care physicians.

Many medical practitioners are small businesses who fear being squeezed out by the reimbursement cuts or forced to join health care chains who have more bargaining power with insurers. “I don’t know of many small businesses that can take a 50 percent revenue cut and survive,” in a high cost area like Alaska, said one medical services executive, asking to remain unidentified because he must deal with insurance companies.

A key problem is that while the 80th percentile consumer-protection rule is being repealed nothing is proposed to take its place except the payment of 85% over Medicare, which is very low. This leaves consumers with little protection against surprise billings for care, health providers are saying. A federal law, the “No Surprise Act,” prohibits surprise billings for emergency and hospital care but does not cover primary or many types of specialized medical services.

The trend of reduced payments for many providers has been underway for several years now and it is happening in parallel with increasing premiums for employers in group as well as the individual health policies. This is according to information gathered by an Alaska health provider coalition that filed a lawsuit against the Division of Insurance seeking to block the Jan. 1 repeal of the 80th percentile rule. The cost and premium information has been shared with the Division of Insurance as well as Gov. Mike Dunleavy.

The data includes information on reimbursements from insurers paid to a cross-section of provider types compared with premiums paid by a typical large employer, as an example, over the same period. The data shows payments to providers decreasing while the premiums are increasing. The information was aggregated by provider types to protect confidentiality.

“With no constraints on what the carriers (insurers) must pay (because of the repeal of the rule) insurers have a virtually unlimited ability to cut payments even to contracted ‘in network’ providers,” said one person familiar with the situation, again asking not to be identified.

A key problem is the lack of published cost information for Alaska on medical procedures that would be available to state agencies and the public. Several states maintain an “All Claims Data Base” where providers are required to submit cost data, although in a form where confidentiality is protected. This has been proposed in Alaska for several years but has never gotten traction in the Legislature, mainly because of its cost.

The health provider coalition argues in its lawsuit that absent a source of public data the state could not have justified its decision to repeal the 80th percentile rule based on independent information. One piece of research that is public is a 2018 study by a University of Alaska Anchorage economist who attempted to find a connection between 80th percentile the rule and rising health care expenditures. He was unable to find a clear link.

An alternative set of information compiled by a national nonprofit, Fair Health, and used by several Alaska state agencies has been found to have omissions and errors in its Alaska data, the health provider coalition in the lawsuit argues.

Premera said its internal data shows a trend of 4% cost growth trend for out-of-network providers covered by the 80th-percentile rule but only 1.8% for providers in networks covered by contracts, which would seem to show that the rule does drive up costs. However, this is not public data that can be independently verified, however.

Despite a clear link between the 80th-percentile rule and rising costs many Alaska business including the Alaska State Chamber of Commerce have pushed for the repeal of the rule as an antidote to soaring health care costs.

However, the real drivers of medical cost increases are the aging of Alaska’s population with more seniors who require more health care. The use of more advanced medical technologies are also a factor. Those allow people to live heathier and longer, but also cost more.

Population demographics and technology advances have more impacts on rising medical costs than what doctors and hospitals charge, although fewer providers and lack of competition in certain specialty areas helps drive up costs for those procedures.

Health care is devilishly complicated. Insurers like Premera are burdened with heavy costs and losses in the federal Affordable Care Act (ACA) “metallic” health plans. The losses are caused by, among other things, federal rules that require accepting people with preexisting conditions and prohibiting higher rates for those people. That may help individuals but it burdens the overall system.

The company suffered a $26.5 million operating loss last year in serving 20,000 customers in its individual policies, mostly in the ACA metallic plans, it said. To cover those kinds of losses Premera has had to raise premiums on individual policies 16% in 2024, on top of an 18% increase in 2023. The company also said 80% of its premium revenue is required to be paid out to cover medical claims, so the issue is not about profits.

Premera also said it is cutting rates for employer plans by 2.5% for 2024 based on anticipated savings from the 80th percentile rule repeal. But it’s uncertain how this will play out, and whether this will result in actual reductions in premiums for employers, state officials said.