Alaska Hit With Lawsuit Over Steps To Address Runaway Medicaid Costs

By Bonner R. Cohen

This article was originally published by The Heartland Institute on August 28, 2019.

In an effort to transform its financially troubled Medicaid program, the state of Alaska has implemented “emergency regulations” to cut Medicaid reimbursement rates and is working with a consulting company to make the state the first in the nation to receive a Medicaid block grant from the federal government.

The moves are meeting resistance. The Alaska State Hospital and Nursing Home Association sued the state on July 12, claiming the cuts are arbitrary and violate due process.

Meanwhile, the state is working with the Boston-based Public Consulting Group to evaluate whether a block-grant system would save the state money. The Department of Health and Human Services awarded the $100,000 contract to analyze the feasibility of implementing a block grant of federal funds for Medicaid payments that would add work requirements for Medicaid enrollees and move some recipients to private insurance.

Would Be a First

The effort to convert Alaska’s federal Medicaid funding to a block grant has been in the works for months. In March, Dunleavy sent President Donald Trump a letter encouraging him to support the idea.

“Your Medicaid Administrator, Seema Verma, has urged us to be the first state to receive Medicaid dollars as a block grant,” Dunleavy wrote. “We are eager to do this, but your support of her on this ‘first’ will keep the proper focus and speed on the application,” the letter stated.

Trump and Dunleavy had met in April during the president’s brief refueling stop at Alaska’s Joint Base Elmendorf-Richardson military facility, where the two reportedly discussed Medicaid.

Circumstances unique to Alaska could make the transition to a block grant challenging, according to the Alaska Journal of Commerce. Premiums in the state’s private health care insurance market are among the highest in the nation, at hundreds of dollars per month, and the state is generally regarded as having the nation’s highest health care costs, the publication reported.

Contributing to these high costs are Alaska’s geographical isolation and low and widely dispersed population. In addition, since 2017 the state has had only one company, Premera Blue Cross Blue Shield of Alaska, offering health insurance in the individual private market.

Partisan Divide

Alaska Democrats were quick to criticize the contract with Public Consulting, saying a shift to block grants would be bad for the state’s 215,000 Medicaid recipients. Opponents of the plan cited a 2016 study conducted for the state, known as the Milliman Report, which stated “costs of private coverage would be prohibitively high compared to Medicaid coverage.”

House State Affairs Committee Co-Chair Zack Fields (D-Anchorage) told the Alaska Journal of Commerce the struggles of Alaska’s insurance market make the state probably the least likely to succeed at shifting some Medicaid recipients to private insurance.

In an attempt to reshape the state’s health care system, the Dunleavy administration in February proposed cutting $225 million to $270 million from the state’s share of Medicaid. Federal funds covered 100 percent of expansion until 2016. The following year, the state was required to pick up 5 percent of the cost, 6 percent in 2018, and 10 percent in 2020.

Under the block grant concept, the Dunleavy administration is calling for, the federal Centers for Medicare and Medicaid Services (CMS) would send a lump sum for Medicaid to Alaska each year, and it would be up to the state to keep spending within that amount or find ways to cover any additional expenses.

High Summit for Medicaid Costs 

Overall spending on Medicaid in Alaska has risen from $1.7 billion in fiscal year 2015 to $2.3 billion in the current fiscal year, according to Alaska’s Legislative Finance Division, which analyzes state budgets. The state’s share of spending dropped during that time period, from $724 million to $677 million, largely attributable to legislation passed in 2015 that expanded Medicaid. Federal funds paid 100 percent of the cost of expansion up until 2016.

Responding to claims that current Medicaid recipients would have to pay unaffordable premiums if shifted to private insurance, DHSS spokesman Clinton Bennett wrote in the Alaska Journal of Commerce, “only those with modest health care needs [healthier people] will be eligible for placement in the private market.” The Public Research study is determining what group of people that includes, Bennett wrote.

“Block grants provide a time-tested model that empowers states to modernize Medicaid and give states the flexibility to experiment with their Medicaid programs, to find new and better ways to take care of the needy,” said Mathew Glans, a senior policy analyst at The Heartland Institute, which published Health Care News.

“As with all new programs, the devil is in the details,” Glans said. “As long as the new block grants are not saddled with a litany of rules, requirements, or regulations, they are the ideal first step toward reforming Medicaid at the state level.”


Bonner R. Cohen, Ph.D.,( is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow (CFACT).