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Faced with rising health care costs, lawmakers consider taking over school district plans

Pat Forgey

JUNEAU -- The Alaska Legislature is exploring a state takeover of local school district health plans, hoping that a government-run program can save the state millions and help keep a lid on rising health care costs.

A new report commissioned by the Legislature says savings could be significant.

Sen. Mike Dunleavy, R-Wasilla, has sponsored Senate Bill 90 to accomplish that and combine plans serving 53 districts into one plan that can operate more efficiently and drive harder bargains with health care providers and lower costs.

"This larger insurance pool places the state of Alaska in a position to negotiate a more favorable employee health care insurance plan," he said.

But teachers and their unions worry that those plans are localized for a reason, and differences were often the result of local negotiations in the collective bargaining process.

Currently, school districts in the state range in size from Anchorage, with nearly 5,600 covered employees, to the tiny fishing community of Pelican, where the school district has two employees. Districts across the state spend nearly $300 million a year on employee health care.

That amount per employee has been growing faster than inflation for many years, the report said.

"Health care costs are eating everyone's lunch," said Pete Kelly, R-Fairbanks, co-chair of the powerful Senate Finance Committee, which commissioned the study at Dunleavy's request.

With the state paying most school costs in Alaska, Dunleavy said that it might be more efficient to combine those plans.

His bill was introduced late in the last session without time for passage, but with enough to commission the Hay Group to look at options. The group's consulting contract calls for up to $350,000 to be spent, with $189,000 expended so far and additional work likely to be done during the upcoming session, said Suzanne Armstrong, staff to Sen. Kevin Meyer, R-Anchorage, co-chair of the committee with Kelly.

A centrally run program can be customized to meet individuals' needs and still provide substantial savings given the hundreds of millions spend on health care, the Hay Group said.

"The estimated financial impact of 7.7 percent to 11.4 percent of current health care costs is significant," the report said.

The report looked at a variety of options, and recommended a centrally managed plan with standard options, and which would take away from school districts the power to make decisions about employee cost sharing.

But those 53 school districts don't each purchase health care coverage for their employees, instead using a variety of options. Most common is contracting with the NEA-Alaska Health Plan, a privately operated health care trust that is separate from the NEA-Alaska union. It is a health trust that is now changing its name to "Public Education Health Trust."

That plan is run by Rhonda Kitter, who noted it was odd to have a state government in which top leaders talk about free enterprise but want a government agency to start doing what her organization is now doing.

Having state government taking over what is now being done by the trust "seems a little at odds with policy prescriptions in favor of private-sector free enterprise," she said.

Kitter also challenged Dunleavy's expected savings, saying that the trust was operated highly efficiently and had been aggressive in seeking savings. More so, she said, than the state's own plans.

She said the expected savings from provider networks, where insurance companies negotiate better rates with local hospitals in exchange for sending them more business, is likely to to be difficult to come by in Alaska's many one-hospital cities.

"There is not the same level of competition as in the Lower 48. We do not see where these savings would come from," Kitter said in an email.

She also questioned the claims of additional efficiency the relate savings.

"This trust manages health insurance coverage for 17 school districts with three employees, it is difficult to see how the state of Alaska would manage 53 districts with four people," she said.

"There is nothing to suggest that the state has done a more effective job at maintaining costs and securing preferred contracts that would be better than what most school districts already enjoy," she said.

The Hay Group report praised the NEA-Alaska trusts' low administrative costs and efficient operation but said it would be at a disadvantage in competing with larger provider groups like Aetna, Premera and others in the future.

Contact Pat Forgey at pat(at)alaskadispatch.com.