State suspends Medicaid inflation adjustments

Gov. Bill Walker expanded Medicaid in 2015.
Gov. Bill Walker expanded Medicaid in 2015.


The Alaska Department of Health and Social Services has, for the second year in a row, suspended inflation pay increases to Medicaid providers.

Payment rates remain frozen at the FY 2015 level.

Medicaid providers are feeling frozen out as they absorb what amounts to a 5 percent cut in pay across two years. Several small providers report that they haven’t been paid by the State for work performed over a year ago.

Medical inflation is substantially higher than inflation in other areas of the economy. The US health care inflation is 5.41 percent annually, higher in Alaska. For example, the national average for a doctor’s visit is $105.03, but it’s $169.40 in Anchorage and $173.50 in Fairbanks.

“This will hit hard on the most needy population,” said one State of Alaska health systems expert who asked to remain anonymous. “The care providers are dropping out in droves because some of them are getting 24 cents on the dollar for some of the services they provide.”

Last year, the total loss of funding for the Medicaid program was nearly $100 million. Last year’s freezing of inflation payments robbed providers of $8 million in uncompensated care costs; this year it may be higher.

“It’s the second big ‘I told you so moment’ on Medicaid expansion,” she said.

According to the department’s notification, the freeze in payments to Medicaid providers is a result of budget shortfalls:

“While the department hoped that this suspension would only be necessary for one fiscal year, significant fiscal challenges continue to exist. Accordingly, DHSS has determined that it must again implement cost containment measures under AS 47.07.036 and will need to suspend inflation adjustments for Medicaid rates in state fiscal year 2017. ”

Another way of looking at it is  this: The automatic step pay increases for public employees, which costs the state $70 million a year, has eaten away at funds that could have been available for Medicaid providers, who are mainly in the private and nonprofit sector.

The department will need to issue emergency regulations to implement this suspension of payments.

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Last July, Gov. Walker unilaterally expanded Medicaid in Alaska to include regular working age adults who earn up to 138 percent of the federally established poverty level.

By 2020, the State of Alaska will pay 10 percent of the exploding health care costs cost for the expansion population, which could be as much as 40,000 Medicaid recipients in Alaska.

But even in Year 1, with 19,000 new enrollees in Medicaid under the expansion, the governor had to come up with a huge patch for the health care boat over in the private health insurance pool, a disaster caused by Obamacare.

Gov. Walker introduced HB 374, which bailed out the state’s high-risk health insurance sector to the tune of $55 million. Without the patch, it was likely the entire Alaska health insurance market — down to one provider now — would sink.

The $55 million comes from taxes levied on most insurance policies in Alaska, including those that are not health care policies.

That bailout is seen as a harbinger of what to expect as the state picks up more of the costs of Medicaid.

Recent federal studies show the average cost of Medicaid expansion enrollees was 49% higher in fiscal year 2015 than Health and Human Services had projected.


Senate Bill 74, sponsored by Sen. Pete Kelly of Fairbanks, could save the state $75 million a year. It was signed into law by Gov. Walker and includes:

  • more telemedicine
  • more primary care case management and health homes for people who have chronic health conditions and behavioral health needs
  • reforming the behavioral health system
  • enhancing a public/private partnership to reduce non-urgent use of emergency room services
  • setting up better protections to prevent opioid dependence
  • enhancing fraud detection measures