Alaskans for Sustainable Presentation to Alaskans for Sustainable Healthcare Costs Ralph Townsend Director Institute of Social and Economic Research University of Alaska Anchorage Nov. 1, 2017 ISER publications and presentations are solely the work of individual authors and should be attributed to them, not to ISER, the University of Alaska Anchorage, or the research sponsors.

Four Reports Consolidated Purchasing Strategies (PRM Consulting, “PRM-1”) Analysis of Coordinated Health Plan Administration (PRM Consulting, “PRM-2”) Medicaid Technical Assistance (Pacific Health Policy Group, “PHPG”) Estimate of the Potential Value of Consolidating Alaska State, Local, and School District Employee Health Plans (Mark Foster and Associates, “MAFA”)

PRM-1 (Joint purchasing only) Assume existing (separate) plans continue 2 insurers (Aetna and Premera) provide 90% of coverage under the various plans 91% of plans are Preferred Provider Organizations (PPOs) 65-70% in-network (Outside, 90%-95%)

PRM-1 Conclusion: Limited scope for savings with consolidated purchasing because of existing market scope of insurers and low in-network coverage.

PRM-1: Three areas of savings Medicare Employer group waiver plan (EGWP) instead of Retiree Drug Subsidy (RDS): Save $61 m/year ($7 m “normal” cost and $54 reduction in amortization savings. Centers of Excellence/Travel Benefit. Save $2.9 m to $3.5 m/year. Pharmacy benefit carve-out. Save $3.5 m to $8.0 m/year (5-10% savings.)

PRM-1: Estimate of savings from consolidated purchasing $14.5 million/year by year 5 (1.2%)

PRM-2: Administration Recommendations: Three pools: retirees, school employees, all other employees. Coverage options within pools. Require participation as CBAs expire. Require uniform tiered pricing (individual vs. couple vs family)

PRM-2: Sources of administrative savings. Biggest savings is on reinsurance premia for small self-insured employers. Significant administrative costs require mandatory participation by all jurisdictions. Reduced complexity and reduced costs of administration source of benefits. Reductions in negotiated administrative fees.

PRM-2: Two large potential savings Significant savings by “tiered” employee contributions based upon coverage of spouse and/or children. Avoiding the Cadillac Tax via multiemployer pool.

PRM-2: Total savings $17.4 million by year 5 (1.3%)

PHPG: Medicaid Background Very different services: 50% for long-term care/support, ancillary services, and behavioral health. Multiple eligible groups, each with distinct requirements. Medicaid involves detailed federal approval of MIS support systems

PHPG: Medicaid Background Cost-sharing (deductibles, co-pays) have limited applicability to Medicaid clients One or more Medicaid waiver provisions would be required to bring Medicaid into HCA. Implementation must be aware of potential reductions in federal payments for services and for administrative functions.

PHPG: Medicaid for Alaska Native clients 40% American Indian/Alaska Native clients 20% of all services and 33% of health care for AI/AN clients from Tribal health providers Medicaid pays 100% of costs for AI/AN clients at Tribal health providers Changes to State Plan require consultation with Tribal entities

PHPG: Themes Even without Medicaid, HCA will be challenging. Thoughtful details on administrative structure, pp. 84-87. Three-part system: Operations, Finance and Health Care Transformation. Ultimately, the big benefits are in Health Care Transformation

PHPG: Themes Strongly recommends launching HCA without Medicaid and then adding Medicaid Some Medicaid functions likely to remain with DHSS (e.g., eligibility) Serious administrative and technical challenges, including MIS. Underlying philosophical/cultural differences in Medicaid and employee health programs.

PHPG: Themes Unique issues with Alaska Native clients and Tribal health providers. Some states have struggled to incorporate Medicaid into HCA. Oregon and Washington are examples of successful integration. A lot more homework required before action.

PHPG: Not discussed Evidence of advantages in joint purchasing? Differential payment structures for Medicaid and for employees.

MAFA Much more critical of monopolistic power of both providers and insurers in Alaska than PRM. Sees large possible gains by leveraging purchasing power into discounts from providers

MAFA Not clear if MAFA envisions still using insurance companies as benefit administrators. Does envision direct state involvement in discount negotiation. Does envision state driving “value based insurance.”

MAFA: Total Savings Projects annual savings of 8.8% by 2025. 2.4% from PRM-1 and PRM-2 1% from tiered pricing of premiums 2.7% by negotiating “benchmark pricing” of 1.5 to 3.0 times Medicare. Assumes holding medical inflation 1% below national average. 2.6% from switch to value based insurance.

Some take-aways PRM-1 sees modest gains from coordinated purchasing (1.2%.) and from consolidated administration (1.3%.) PRM-2 and MAFA both identified tiered pricing of premiums as desirable. MAFA estimates savings at 1%.

Some take-aways PHPG identified significant administration challenges to incorporate Medicaid, including unique Alaska Native aspects. (PRM and MAFA do not assume Medicaid integration.) At a minimum, PHPG recommends initial launch of HCA without Medicaid

Some take-aways 5. MAFA estimates total savings by 2025 at 8.8% per year. In addition to PRM-1 and PRM-2 gains and gains from tiered pricing, MAFA predicts: 2.7% saving by using Medicare reference pricing. 2.6% from value-based insurance. (Some double counting of purchase pooling savings by PRM-1 and MAFA?)

Some take-aways Both MAFA and PRM estimates assume complete integration of local government and local school districts. PRM sees larger benefits for these units (relative to benefits to state government.) Both PHPG and MAFA emphasize importance of transformation of health care delivery and finance to meaningful results.

Alaskans for Sustainable Presentation to Alaskans for Sustainable Healthcare Costs Ralph Townsend Director Institute of Social and Economic Research University of Alaska Anchorage Nov. 1, 2017 ISER publications and presentations are solely the work of individual authors and should be attributed to them, not to ISER, the University of Alaska Anchorage, or the research sponsors.