A Medicaid card is seen in this undated photo. Alaska’s annual Medicaid costs, which are currently borne by both the federal and state governments, are expected to increase by an annual average rate of 4.7% through 2045, according to a report presented to state lawmakers. (Photo by Getty Images)
Alaska did a good job of keeping its Medicaid costs in check in past years, but the state faces pressures that will increase costs in the next 20 years, an expert told state lawmakers on Monday.
Alaska’s Medicaid costs are expected to increase by about 4.7% a year through 2045, Ted Helvoight, president of Oregon-based Evergreen Economics, told the House Finance Committee.
Total Medicaid costs in Alaska are expected to be about $3 billion this year, with the federal government picking up about three-quarters of that, he said in his presentation. By 2045, the total cost is expected to be about $7.4 billion, despite some past state successes at keeping those costs in check.
“It’s still going to be growing quite a bit over the next 20 years,” Helvoigt told the committee.
Helvoigt was presenting findings from an annual forecast he and his company have prepared for the Legislature since 2006. The forecasts make 20-year projections; last year’s forecast projected an average annual increase of 4.4% over the 20-year period.
This year’s forecast does not take into account any of the drastic cuts being contemplated in Congress to pay for Trump administration priorities. Those proposed cuts have alarmed state lawmakers.
Helvoigt said national budget cuts are creating uncertainty for all states’ Medicaid programs, and it is unclear what the ultimate effects will be.
In response to a question from Rep. Andy Josephson, D-Anchorage and co-chair of the committee, Helvoight was able to make one quick calculation for costs to Alaska if federal Medicaid contributions were to be cut.
For the segment of the population that joined Medicaid when the program was expanded under the Affordable Care Act, the state’s costs would increase by $4.6 million for every percentage point reduction in federal contribution, he said. The federal government currently covers 90% of the costs for the expansion population and 52% for other Medicaid recipients.
But federal cuts of the scope being contemplated would likely affect a far wider segment of Medicaid recipients than just those who joined during expansion of the program, he said, as well as placing much heavier fiscal burdens on the state.
As for total Medicaid costs, the biggest driver for future increases no matter how the cost burden is shared between the federal and state governments, will be increases in reimbursement payments to providers who care for covered patients, Helvoigt said.
Those reimbursement rates have lagged the very sharp increase in costs of medical services, he said.
From 2017 to 2024, medical costs increased by 44%, but reimbursement rates to providers increased by only 27%, Helvoigt said. And those increases for providers came after a decade-long stretch of flat reimbursement rates, he said.
The reimbursement rate increases, which started in Alaska in fiscal 2021, “quite honestly, had to happen,” he said.
He said he expects increases in reimbursement rates to continue to lag increases in medical price inflation, but only slightly so. Having reimbursement rates at least close to actual costs will be important, he said.
“I don’t see providers being able to operate without those increasing rates over time,” he said.
Josephson, in comments during the hearing, also said that the statistics suggested that increased reimbursement rates have been necessary.
“Providers in the last seven years have been disincentivized, to some degree, to have this population of patients. But in the three years of 2021 to 2023, they were perhaps incentivized,” he said, naming the years when reimbursement rates in Alaska began to increase.
Helvoigt said another important driver of future Medicaid cost increases is Alaska’s changing demographic mix.
State projections are for a future decrease in overall population, with far fewer children and far more elderly residents, he said.
While children under 15 make up the largest group of Medicaid recipients, they are the least likely to have the type of chronic health problems that drive up costs.
But the proportion of patients with chronic conditions like mental health problems, drug or alcohol abuse, cardiovascular disease or tobacco use, are higher in each subsequent age group, he noted.
“Age itself doesn’t mean your spending is going to be high,” he said. “But your likelihood or your probability of getting a chronic condition and then getting a second chronic condition and then a third and fourth is increasing with age. So, the longer time you spend on this earth, chances are you’re going to get one or more chronic conditions.”
According to Evergreen Economics’ calculations, the presence of two or more chronic conditions makes a big difference in Medicaid costs.
The least healthy 1% of recipients accounted in 2024 for 22% of Medicaid spending, he said. The 10% of recipients with the highest costs accounted for two-thirds of the spending, he said. Meanwhile, the 50% of recipients with the lowest costs accounted for only 4% of spending, he said.
“So that’s a big deal,” he said. “Simply reducing the number of individuals on Medicaid is not going to really drive down costs. There’s a relatively small number of individuals who are driving the spending in Medicaid.”
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