State expenditures on employee and retiree health care are bending downward a bit this year due to cost control steps the state is taking, but the reluctance of many specialty providers to join health care networks is undermining those efforts, Alaska Department of Administration Commissioner Curtis Thayer says.

Thayer spoke at the Alaska State Hospital and Nursing Home Association annual meeting in Girdwood Sept. 11.

Between 2001 and 2013, state annual spending on health care, including employees, retirees and Medicaid, has more than doubled, from less than $1 billion to $2.28 billion a year, Thayer said.

State-funded care now constitutes 25 percent of all health care spending in Alaska, he said.

“Too many medical providers in Alaska are resisting coming into networks,” Thayer said. “They ‘balance bill’ our members with extraordinary bills.”

Many providers are continuing to increase fees for services by 5 percent to 7 percent a year.

“Our health plan cannot afford that. It has to stop,” the commissioner said.

An annual average of 7 percent increases would double costs in 10 years.

Most of large care providers, such as hospital groups, are now in networks but serious challenges remain with other segments of the medical community, Thayer said.

“Providers need to understand the new financial dynamics that are in play in the state. They need to come into networks,” where they can continue having success but at the sacrifice of slower growth of revenues, the commissioner said.

Within the spending for public employees, the retiree health plan is the biggest component. Of the $12 billion in the state’s unfunded liability projected last year, $4 billion was the projected health care costs of retirees.

The unfunded liability total is now decreased due to the Legislature’s action last spring to transfer $3 billion from state savings to the pension funds, but the underlying problem of rising health care cost among the retirees remains a key cost-driver.

“Our plan cannot afford another decade of doubling of costs. The era of the Legislature being able to bail out this plan (with cash infusions) is coming to a close,” Thayer said.

Meanwhile, the state is hamstrung in reducing the cost of retirees’ benefits, at least unilaterally, by a provision in the state constitution that says public employee retirement benefits including medical cannot be diminished.

“Past (state) Supreme Court interpretations of this clause have made it difficult to manage the plan in a ‘mainstream’ way,” the commissioner said. “Diminishments in benefits (as in a deductable increase) must be offset with corresponding enhancements. We do not believe this was ever the intent of the plan, and in order for it to be sustainable over the long term it must be agile and flexible.”

However, “the expectations of the (retiree) members of the plan also reflect a high desire to see the plan remain unchanged,” he said.

Thayer said the average age in the retiree pool is 63, and once members turn 65 they become Medicare eligible with Medicare becoming primary.  There are about 67,000 members and dependents in the retiree pool with a higher distribution of women.

As in many health plans, a small number of members with more serious health problems impose high costs. In the case of the retirement pool there are 67 individuals who constitute about $10.5 million in annual spending. Specialty medications also are expensive. Thirteen members are on Sovaldi, a daily medication for Hepatitis C, creating $842,271 in costs, he said.

“As in the plan for active state employees, diabetes and mental health disorders are important focus areas for us, but in the retirement plan we also need to tackle orthopedics,” Thayer said.

More important, health care has become a budget-buster for the state, with increases crowding other public services as state revenues decline.

Some good news, however, is that the monthly cost of care paid by the state is projected to decrease in the current fiscal year 2015 to $1,371 per month, down from $1,389 monthly in the prior fiscal year 2014.

That’s a small bit of respite on sharp cost escalations since 2010, when the per-member annual expense was $910 per month.

Thayer credits the state’s success in stopping the increase, at least for this year, to its new contract administrator for the health plan, Aetna. He also gave credit to Becky Hultberg, former commissioner of Administration, who had a laser focus on getting control of the state health costs.

What threatens to undermine cost control efforts is the difficulty of coaxing health providers, mainly physicians, into networks.