Legislature(2025 - 2026)BUTROVICH 205
03/11/2025 03:30 PM Senate HEALTH & SOCIAL SERVICES
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| Audio | Topic |
|---|---|
| Start | |
| SB121 | |
| SB122 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 121 | TELECONFERENCED | |
| *+ | SB 122 | TELECONFERENCED | |
SB 121-HEALTH INSURANCE ALLOWABLE CHARGES
3:31:17 PM
CHAIR DUNBAR announced the consideration of SENATE BILL NO. 121
"An Act relating to settlement of health insurance claims;
relating to allowable charges for health care services or
supplies; and providing for an effective date."
3:31:33 PM
SENATOR GIESSEL speaking as sponsor introduced SB 121. She said
the bill establishes minimum reimbursement rates for healthcare
services. The repeal of the 80th percentile rule that was
originally removed because it incentivized inflated charges,
left no reimbursement floor in place. As a result, insurers now
control reimbursement levels, and providers have little to no
leverage in negotiations, which is causing significant strain on
healthcare practices.
3:33:59 PM
SENATOR GIESSEL stated that providers report insurers are
lowering reimbursement rates, refusing to renew contracts, or
offering flat or declining payments that threaten the viability
of clinical practices. SB 121 aims to fix this by establishing
consistent, fair reimbursement standards to protect access to
care and stabilize providers and patients financially. Falling
reimbursement rates lead to balance billing or "surprise bills"
and higher out-of-pocket costs, further reducing access to care.
Practice costs are rising sharply, including a 47 percent
increase in support-staff expenses since 2016, while Medicare's
physician fee schedule has fallen 33 percent over 20 years. She
said insurers use low out-of-network rates to push down contract
rates, forcing some clinicians to close their practices.
SENATOR GIESSEL said SB 121 directs the insurance director to
set statistically credible, market-based standards using the
most current 12 months of Alaska charge data. Reimbursements
must meet at least the statewide 75th percentile of charges or a
minimum of 450 percent of the Medicare fee schedule. These
standards will be audited periodically, and insurers must update
rates every three to five years. The 450 percent floor is based
on prior consulting analysis indicating that level is necessary
to keep primary care practices viable.
3:39:04 PM
SENATOR GIESSEL stated that the full repeal of the 80th
percentile rule was a positive step, but policymakers failed to
set a reimbursement floor to keep clinicians financially viable.
She stated that its clear adjustments are needed after four
years without that safeguard. Clinicians are struggling, and
establishing a minimum reimbursement standard is now an urgent
policy correction.
3:40:07 PM
CHAIR DUNBAR asked whether the 80th percentile rule was repealed
one year ago or four years ago.
3:40:14 PM
SENATOR GIESSEL stated her belief that the repeal occurred more
than one year ago.
3:40:26 PM
SENATOR CLAMAN said his recollection was unclear but stated his
belief that a lawsuit was filed over the repeal of the 80th
percentile rule. He asked for an update on the status.
3:40:46 PM
SENATOR GIESSEL replied that a hearing on that lawsuit was held
about two weeks ago. She said she has an invited testifier who
can speak to the lawsuit status in more detail.
3:41:10 PM
SENATOR HUGHES noted that the sponsor statement references
reimbursements set at the statewide 75th percentile or 450
percent of Centers of Medicaid/Medicare Services (CMS) rates and
asked whether this applies only to primary care or to all
charges.
3:41:31 PM
SENATOR GIESSEL replied that 450 percent of Medicare (CMS)
minimum applies to all charges. She added that, while primary
care costs are lower than specialties like orthopedics, primary
care is the entry point to the healthcare system and the group
she is most concerned about supporting.
3:42:12 PM
SENATOR HUGHES asked whether the 450 percent floor is based on
Medicaid rates or Medicare rates.
3:42:23 PM
SENATOR GIESSEL replied that the 450 percent floor is for
Medicare.
3:42:33 PM
SENATOR HUGHES said she has followed Alaska's high healthcare
costs and supported repealing the 80th percentile rule because
it contributed to rising prices. Historically, Alaska's costs
were only slightly above the Lower 48, but once the 80th
percentile rule took effect, charges steadily increased as
providers collectively raised their rates to stay in the top
tier. She is worried that setting reimbursement at the 75th
percentile could create similar upward pressure, causing charges
to rise again. While she understands the need for a 450 percent
Medicare floor to keep primary care practices viable, she
prefers allowing the free market to rebalance costs and is
concerned SB 121 would recreate the same problems the 80th
percentile rule caused. She asked why the 75th percentile would
avoid those issues.
3:45:30 PM
SENATOR GIESSEL replied that some questions are better addressed
by the invited testifier but clarified that the 75th percentile
refers to the level at which the 75th highest charges fall, not
what 75 percent of clinicians charge. Unlike the old 80th
percentile rule, which used geographic regions, this standard
applies statewide. She noted the prior system might have worked
better if Washington State data had been included, as many
patients already traveled out of state for lower-cost care. She
explained that large specialty groups, like cardiology and
orthopedics, merged and collectively set high charges under the
80th percentile model. She emphasized that SB 121 covers all
clinicians, not just physicians. She said while she supports
free-market principles, she argued that true market conditions
do not exist in healthcare because insurers also exert
significant power and often refuse to reimburse clinicians at
sustainable levels or fail to renew contracts, pushing providers
out of network and forcing patients to pay cash. A minimum
reimbursement standard is needed to correct this imbalance.
3:49:08 PM
JANE CONWAY, Staff, Senator Cathy Giessel, Alaska State
Legislature, Juneau, Alaska, provided the sectional analysis for
SB 121:
[Original punctuation provided.]
Sectional Analysis (vsn N)
"An Act relating to settlement of health insurance
claims; relating to allowable charges for health care
services or supplies; and providing for an effective
date."
Section 1. Amends AS 21.36 Trade Practices and Fraud
Adds new section 21.36.497 that outlines the
following:
? For an out-of-network provider the director of the
Division of Insurance shall set in regulation the
standards an insurer must use in considering an
allowable charge
? The director will require the insurer to use
statistically credible methodology to set the
allowable charge.
? The charges must be based on current data of provider
charges over a 12-month period and cannot vary for
different parts of the state.
? The allowable charge may not be less than the 75th
percentile of the charges as defined by the CPT code;
however, the director may set an allowable charge at a
higher percentile.
? For primary care providers, the allowable charge must
be the greater of the allowable charge or 450 percent
of the current CMS fee schedule at the time of
delivery.
? The director shall periodically audit the methodology
used by the insurer in setting the allowable charge
and should do this at least every 5 years, but not
more often than every 3 years.
? An insurer must uniformly and equally apply
reimbursement rates to any provider practicing within
the scope of their license for same services under the
same CPT code adopted by the AMA.
3:51:13 PM
CHAIR DUNBAR asked for clarification on SB 121, Section 1(c),
wanting to know whether its requirement for uniformly applied
reimbursement rates applies to in-network, out-of-network, or
something else. He asked whether this language would effectively
eliminate in-network and out-of-network distinctions in Alaska
or whether he was misinterpreting it.
3:51:44 PM
SENATOR GIESSEL replied that the provision requires equal
reimbursement for the same service regardless of whether it is
provided by a physician, physician assistant, or nurse
practitioner. As long as they are practicing within their
licensed scope and billing under the appropriate current
procedural technology (CPT) code, they must be reimbursed at the
same rate.
CHAIR DUNBAR noted this language is similar to an earlier
amendment and would prevent insurers from differentiating
reimbursement based on a provider's license type. However, it
would not stop insurers from setting different in-network and
out-of-network rates.
3:52:46 PM
SENATOR GIESSEL replied in the affirmative.
3:52:53 PM
MS. CONWAY resumed the sectional analysis for SB 121:
[Original punctuation provided.]
Section 2. Adds a new section that allows for a
transition period
In this section the insurer would set allowable
charges based on current data from provider
charges over a 12-month period beginning in 2023
or earlier. In 2029 the allowable charges must
be based on current data of provider charges for
services/supplies over the previous 12-month
period.
Section 3. Sets an effective date for January 1, 2026.
3:53:34 PM
CHAIR DUNBAR announced the presentation on SB 121.
3:54:03 PM
JEFFREY DAVIS, Principal, Weston Group Consulting LLC,
Wenatchee, Washington, provided a presentation on SB 121. He
stated that [health care] is a complex subject.
3:56:10 PM
MR. DAVIS moved to slide 2, History, and explained the history
of the 80th percentile in the following order:
[Original punctuation provided.]
-The 80th percentile regulation was established 20
years ago to protect Alaskans from "balance billing"
•Balance billing = difference between insurance
payment and provider charge
-Insurers don't base payments on actual charges base
them on "allowable charges"
-When the regulation was implemented, insurers'
definition of allowable charges were much lower than
actual prices/costs in Alaska
-As a result, Alaskans were stuck paying the
difference between the insurance payment and the
provider's charges the balance bill
-At the time, very few providers were "in-network"
where the contract defines allowable charges through
negotiation
-The regulation worked Alaskans were protected as
insurers adjusted allowable to Alaska market levels at
the "80th percentile"
3:57:59 PM
MR. DAVIS moved to slide 3, Intended and Unintended Consequences
of the Regulation, and explained that the 80th percentile rule
produced both intended and unintended effects. It successfully
reduced balance billing, as insurers aligned their allowable
charges with the 80th percentile, protecting Alaskans from
large, unexpected bills. However, providers with significant
market share could push the percentile upward by raising their
own charges, creating an unintended inflationary effect. He said
on the positive side, the rule stabilized reimbursement and
reflected Alaska's higher operating costs, which encouraged
provider growth and expanded access to care. A surge in new
practices, roughly a 40 percent increase over a short period,
helped meet long-standing unmet demand. He said the rule also
created a common benchmark for contract negotiations.
4:00:30 PM
MR. DAVIS moved to slide 4, Market Changes Since the Rule's
Inception, and explained that after the 2004 regulation took
effect, the market shifted significantly. Between 2014 and 2017,
providers moved from mostly out-of-network to mostly in-network.
By 2023, only about 400 providers remained out of network. He
said because the 80th percentile applied only when no contract
existed, its role diminished as providers signed network
agreements. However, it still shaped negotiations: a provider
knew that if they stayed out of network, reimbursements would
track the 80th percentile. So, when insurers offered contract
rates close to that level, providers usually acceptedsometimes
even slightly lowerbecause being in network meant better
benefits for patients and easier payment. He said this dynamic
made the 80th percentile the de facto benchmark that drew most
providers into network during that period.
4:02:44 PM
MR. DAVIS moved to slide 5, Where is the Money Going, and
explained that the horizontal lines on the graph represent
insurer reimbursements to providers. He said because competitors
cannot share actual rates, each provider normalized their 2018
reimbursement level to 1.0 and tracked percentage changes over
time. The data show insurer reimbursements staying flat or
declining, while insurance premiums continued to rise. This
disproves the idea that higher provider payments were driving
premium increases. He said instead, provider payments were
stable under contracts, and rising insurance rates were likely
driven by other factors.
4:04:15 PM
th
MR. DAVIS moved to slide 6, Repeal of the 80 Percentile
Regulation, and stated that the 80th percentile rule was
repealed on January 1, 2024, without a replacement, allowing
insurers to set their own standards for allowable charges. This
returned the system to a 2004-style model where payers determine
allowable, often far below previous levels. He said as a result,
providers have significantly less bargaining power, with
insurers offering lower contract rates because going out of
network now yields much smaller reimbursements. Providers report
that insurers are using this leverage to push rates down even
further, despite flat reimbursements over six years and rising
practice costs, about a 47 percent increase, creating
substantial financial strain.
4:06:47 PM
MR. DAVIS moved to slide 7, Bargaining Dynamics-Power Shift to
Insurers, and stated as reimbursement dynamics shift, providers
have few options: leave the state, go out of network and balance
bill patients, or close their practices. Significant changes
haven't appeared yet because insurers agreed not to adjust
contract rates until 2025, but many providers are forecasting
closures, and some have already shut down. He said these
outcomes are harmful for Alaskans, especially given existing
provider shortages.
4:07:34 PM
MR. DAVIS moved to slide 8, The Solution- State Defined
Replacement.
4:07:40 PM
CHAIR DUNBAR interjected calling on Senator Claman for a
question.
4:07:52 PM
SENATOR CLAMAN stated that an insurer paying 185 percent of
Medicare for in-network services appears far below typical
reimbursement and seems unfair. He asked whether, in cases where
a provider's negotiated in-network rate is close to the Medicare
rate, a 450 percent cap could result in out-of-network payments
that are higher than in-network rates.
4:08:40 PM
MR. DAVIS responded that, in theory, out-of-network payments
could exceed in-network rates, but he is not aware of any
practices where that occurs. He said he would move ahead to
slide 10 to help address the question.
4:08:58 PM
MR. DAVIS moved to slide 10, Myth Busting-Alaska Providers
Highest Paid in the Country-WRONG, and explained that many
discussions assume Alaska providers are among the highest paid
because Alaska's medical charges are high. However, new data
from the Medical Group of Management Association's (MGMA) 2024
compensation studybased on 211,000 responses and used by the
federal government for fair-market-value assessmentsshows
otherwise. He said according to the study, Alaska family
physicians and non-surgical specialists are actually in the
bottom five states for take-home compensation, and surgical
specialists fall in the middle. He stated that high charges
reflect high operating costs, not high provider pay, especially
given years of flat reimbursement.
4:11:21 PM
MR. DAVIS moved back to slide 7 and noted that Alaska's high
charges stem from high operating costs, not high compensation.
He stated his belief that, due to high operating costs, Alaska
does not have practices operating anywhere near 185 percent of
Medicare rates.
4:11:49 PM
SENATOR CLAMAN said he is convinced that 185 percent of Medicare
is an unreasonably low out-of-network rate, noting that double
of nothing is still nothing. His stated his concern is balancing
competing market pressures: insurers want to reduce healthcare
costs, providers need fair compensation to maintain high-quality
care, and consumers want good access without large out-of-pocket
bills. He asked how market forces could operate effectively
while still encouraging providers to remain in-network, noting
that when out-of-network rates are too similar to in-network
rates, providers have little incentive to participate.
4:13:58 PM
MR. DAVIS replied that from 2014 to 2017, most providers moved
in-network at rates near the 80th percentile because it created
a balanced negotiating environment. Patients received better
benefits, providers preferred insurer payments over patient
collections, and both sides rejected rates that were too far
from that benchmark. He said removing the 80th percentile
without a replacement disrupted that balance, giving insurers
significantly more leverage, especially in a market with few
carriers. With years of flat or declining reimbursement, low
provider compensation, and now no meaningful floor, Alaska is
seeing provider practices fail.
4:15:51 PM
MR. DAVIS moved back to slide 8, Solution-State Defined
Replacement, and stated that the solution is to reestablish a
state-determined, market-based floor for allowable
reimbursements. The key is that the state, not insurers, sets
the standard, and that it reflects Alaska's own cost structure
rather than fee schedules from other markets that create winners
and losers. He said previously he opposed repealing the 80th
percentile without a replacement because it would destabilize
the medical community. After evaluating alternatives, he
concluded that a statewide, market-based percentile, such as the
75th, updated every few years, would best restore balance, limit
excessive market power, and avoid cost-inflation problems seen
under past regulations.
4:18:50 PM
MR. DAVIS moved to slide 9, Summary, and concluded that, based
on publicly available filings insurance rate increases in the
individual market did not slow from 2023 to 2025 after the
repeal. He said the repeal has had significant negative effects
on providers, and those impacts are beginning to accelerate.
Losing providers in Alaska, which is an already federally
designated healthcare professional shortage area, creates long-
term problems, as they are difficult to replace. He emphasized
that the market is now out of balance, and that restoring
balance is essential to prevent worsening shortages and protect
access to care.
4:21:06 PM
SENATOR HUGHES agreed that free-market principles don't function
well in the current healthcare system, but argued that
policymakers should let the self-insured, private, and self-pay
markets drive pricing, rather than allowing Center for Medicaid
and Medicare Services (CMS) to dictate pricing. She noted
concerns about moving from four regions to one and updating
rates every three to five years, but questioned whether a 75th-
percentile floor would still allow charges to rise unchecked.
She argued that providers could collectively raise charges,
causing the percentile to increase regardless of market share,
and asked for an explanation of why that wouldn't lead to the
same problems as before.
4:22:46 PM
MR. DAVIS replied that the data did not show providers
clustering at a single charge level before contracting. After
most providers moved in-network between 2014 and 2017, contract
rates, not the 80th percentile, set reimbursement levels. The
percentile only applied to out-of-network claims but remained
important as a benchmark during contract negotiations. He said
because of that, the dynamic is different when providers are in
network and negotiating rates rather than all operating out of
network.
4:23:42 PM
SENATOR HUGHES said she still doesn't understand how the
proposal avoids incentivizing providers to go out of network.
She shared the concern that out-of-network care is worse for
consumers and asked how this approach meaningfully changes
bargaining dynamics.
MR. DAVIS replied that when the 80th percentile was in place,
providers moved in network because it served as a fair benchmark
for contract negotiations. Insurers could offer rates near the
80th percentile, and providers often accepted slightly less
since it benefited patients and simplified collections. He said
based on that experience, a new, improved replacement modeled on
the 80th percentile should encourage similar in-network
participation while avoiding the earlier problems.
4:25:07 PM
SENATOR CLAMAN asked Mr. Davis whether he would choose the 450th
or 75th percentile floor and why.
MR. DAVIS responded that he would choose the 75th percentile
because it is market-based and adjusts with business costs. He
noted rising expenses, such as a 47 percent increase in support-
staff costs over eight years, while Medicare reimbursement
continues to decline. He emphasized the need to keep Alaska
providers viable, noting they are among the least compensated,
and argued that years of stagnant rates followed by proposed
cuts will not sustain a functional market.
4:26:31 PM
CHAIR DUNBAR asked Ms. Wing-Heier to answer questions pertaining
to SB 121.
4:26:54 PM
LORI WING-HEIER, Director, Division of Insurance, Alaska
Department of Commerce, Community and Economic Development,
Juneau, Alaska, answered questions on SB 121. She put herself on
the record.
4:27:03 PM
CHAIR DUNBAR noted that the 80th percentile was repealed in
January 2024 and that last year there wasn't enough data to know
the impact. He asked whether insurers have actually lowered
rates, as expected, and expressed surprise that insurers can set
allowable charges without regulatory guardrails. He inquired
about any guidelines that limit how they set those charges.
4:28:20 PM
MS. WING-HEIER replied that most insurers determine allowable
charges using Fair Health, a national database that collects
over 2 billion claims annually to identify usual, customary, and
reasonable charges.
4:28:46 PM
CHAIR DUNBAR asked if it's a reasonable charge nationwide.
MS. WING-HEIER replied no, the division looks at Alaskan
charges. The division follows statute and regulation that
require providers to reimburse at a reasonable rate, preventing
a return to pre-2004 levels before the 80th percentile.
CHAIR DUNBAR opined that the requirement to reimburse at a
reasonable rate partly undermines the argument that there is a
need for a 75th or 80th percentile floor. He asked whether the
repeal has changed insurer-provider negotiation dynamics and
whether insurers are now lowering their charges now that the
80th percentile is gone.
4:30:05 PM
MS. WING-HEIER replied that she is aware as of April 1, Primera
sent some providers letters reducing certain charges while
increasing others. Filings showed a 4 percent decrease in 2025
and about 2.5 percent in 2024, expected to accumulate overtime.
She said although the 80th percentile portion decreased; other
factors drove overall rates up. She noted that without the
repeal consumers' 15 percent rate increase would have been 4
percent higher.
4:31:08 PM
SENATOR HUGHES asked how many providers the percentile impacts
and what claim trends are being noticed in-network versus out-
of-network.
MS. WING-HEIER replied that one concern the department has with
SB 121 is that it places the sole burden on the 118,000 Alaskans
that are in the insured market. SB 121 does not include
AlaskaCare unions and large self-insured employers. It places
disproportionate burden on roughly 15 percent of the population.
4:32:11 PM
SENATOR HUGHES asked what movement trends the department has
observed in claims submitted for in-network and out-of-network
services.
MS. WING-HEIER replied that in 2023, AlaskaCare repealed the
90th percentile and adopted 185 percent. Since then, 1,100
providers have moved in-network, benefiting both consumers and
the broader healthcare industry.
4:33:10 PM
CHAIR DUNBAR held SB 121 in committee.