Medical Tourism: The Key to U.S. Health Care Reform?

Health care reform is front-page news across the U.S. Discussion on the federal level is largely focused on how to pay for health insurance plans through employer mandates, government entitlements, tax deductions and tax credits. By and large, the plans do not address the underlying problem of exorbitant medical care costs.

“Medical tourism is the only thing in the industry that is lowering costs,” said Jonathan Edelheit, vice president, United Group Programs, a nationwide underwriter and administrator of health plans. Amidst soaring health care costs, this solution has so far been absent from the discussion on U.S. health care reform.

The Crisis

The cost of health insurance in America rose between 8.2% and 13.9% per year from 2000 to 2005. These rates are 2.4 to 8.1 times higher than the Consumer Price Index (CPI) over the same period. Meanwhile, wages have been flat. According to the U.S. Census Bureau, median household income was $46,326 in 2005, up 1.1% from 2004 after adjusting for inflation. This is the first annual increase in real median household income since 1999.

These statistics clearly indicate a worsening affordability problem and an unsustainable trend.

“In 2006, the average health care expenditures for a family of four for the first time exceeded the entire annual earnings of a minimum wage worker,” according to an article in the October 19, 2006 edition of the New England Journal of Medicine. An article in the February 15, 2007 edition of the New York Times reports, “We spend more than twice as much on health care, on average, as the 21 countries in which life expectancy exceeds ours."

The number of uninsured Americans is now estimated at 47 million. Many employers who offer health benefits are shifting a greater share of the costs to their employees.

The National Reform Discussion

President Bush and two democratic presidential candidates have been making headlines with health care reform announcements. However, their health care reform proposals do not include medical tourism as a measure for significantly reducing the costs of U.S. health care.

Bush Plan

Under Bush’s tax proposal, employees would pay tax on the value of health benefits provided by their employers. The new taxes would be offset by a standard deduction of $7,500 for individuals and $15,000 for families, if they purchase health insurance or receive insurance from their employers — regardless of whether their health insurance costs more or less. “This reform will level the playing field for those who do not get health insurance through their job,” said Bush.

The deduction does make health insurance more affordable for those without employer-sponsored health benefits. However, the plan ignores the underlying problem of soaring health care costs, and makes little progress in reducing the number of uninsured:

• Standard deduction amounts would be indexed to CPI and not to general health care costs. If health insurance inflation continues to outpace the CPI, the value of the deduction would diminish significantly each year.
• The White House estimates that the tax proposal would lead to three million newly insured people within five years — only 6% of the 47 million currently without health insurance.

Bush also advocates expanding Health Savings Accounts (HSA). [Editor’s note: See separate HSA commentary in this edition of the newsletter.]

Clinton Plan

Senator Hillary Clinton said, “Passage of a universal health care coverage plan will be one of my top priorities as President.” On February 7, she issued a statement praising the Better Health Care Together campaign, a coalition of labor and businesses including the Service Employees International Union, Communications Workers of America, AT&T, Intel, Kelly Services, and Wal-Mart.

Thus far, the coalition offers no specific proposal to reach its goal of “achieving a new American health care system by 2012.”

Edwards Plan

Former Senator John Edwards has proposed a universal health care plan which:

• Requires employers to either cover their employees or help finance their health insurance;
• Creates new tax credits;
• Creates regional "Health Markets" and expands Medicaid;
• Requires all American residents to get insurance; and
• Supports the use of information technology to reduce administrative costs.

Reuters reported that the Edwards proposal would require $120 billion a year in government spending, paid for by eliminating the Bush tax cuts for those making more than $200,000 a year and “cracking down on unpaid taxes.”

Senator Raises Awareness of Medical Tourism

There is at least one Washington politician taking an interest in medical tourism and looking at overseas health care as a key to U.S. health care reform. Senator Gordon Smith of Oregon led a U.S. Senate hearing on June 27, 2006 titled “The Globalization of Health Care: Can Medical Tourism Reduce Health Care Costs?” Medical Tourism Insight provided coverage of this hearing in the January 2007 edition. Senator Smith was chairman of the Senate Special Committee on Aging and remains Ranking Member of the committee.

In a follow-up to the hearing, Senator Smith wrote a letter to the secretaries of State, Commerce, Health and Human Services, and Homeland Security, calling for the formation of an interagency task force “to explore the full range of policy issues related to health care globalization and medical tourism.”

Senator Smith wrote the secretaries again on January 29, 2007 asking for a status update by February 16, 2007. Medical Tourism Insight will continue to provide coverage, as the interagency task force on medical tourism takes shape.

Competing in the Global Economy

Will competition from overseas medical care providers play a role in solving the health care crisis?

“American workers are being asked to take greater responsibility for health care. Once workers figure out they are ultimately the ones paying the bill, indirectly through reduced wages and direct contributions, they will be willing to travel abroad if it saves them money,” said Devon Herrick, senior fellow with the National Center for Policy Analysis. “Medical tourism will be huge. It’s only a matter of time before insurers work out the details.”

“One obstacle I see is the fact that much of health spending is paid for by Medicare. Medicare providers will put pressure on politicians to insulate them from global competition,” said Herrick.

Michael Cannon, director of health policy studies at Cato Institute and the author of Healthy Competition: What's Holding Back Health Care and How to Free It, said, “We talk about medical tourism not just as an example of competition, but as proof that most of the ‘markets don't work in health care’ myths are just that — myths. We've got a number of telling anecdotes about medical tourism in the book.”

Competition from accredited hospitals overseas is a missing element in the current health care reform debate. A comprehensive health care reform solution must address the underlying problem – the exorbitant cost of medical care in the U.S. market.