The Boston Globe, August 2, 2009
See article on original website
Why don’t we globalize American healthcare?
With the rising cost of healthcare now atop the national agenda, one theme rings like a frustrating refrain: healthcare is special, so the tools we use to fix normal economic problems don’t apply. What good is mass production in confronting the complexities of the body? How can cost-benefit analysis grasp the unfixable value of a human life?
There is at least one tenet of modern economic policy, however, that we are excluding from the healthcare debate at our peril: globalization.
It may seem bizarre to suggest that globalization could somehow improve healthcare. After all, the practice of medicine is not only deeply individual, but tightly tied to time and place. Apart from possibly buying drugs from Canada, most people have probably never given any thought to the idea that globalization could have a meaningful impact on healthcare in the United States. But globalization, carefully applied, could reduce costs in the short term and create pressure for the bigger changes our system desperately needs.
There are clear ways to take advantage of lower costs in other countries, making our own system more affordable without diminishing the quality. We could allow more foreign-born doctors to work in the United States, for instance. We could encourage the “medical tourism” that allows Americans to have major procedures performed in other countries, and we could permit Medicare beneficiaries to buy into the lower-cost healthcare systems of other wealthy countries.
Each of these offers enormous opportunities for savings in the healthcare sector and benefits for the economy. They don’t need to be exploitive - we can structure any new arrangements to ensure that our trading partners benefit as well. This is especially important in the case of developing countries: we cannot let healthcare savings for the United States come at the expense of reduced access to care for people in the developing world.
It will not be easy to globalize healthcare. The interest groups that oppose government cost-containment measures will be just as vigorous in their objections to increased international competition, if the result is to reduce their income. There are also real problems in ensuring quality control. But if we get it right, a globalized healthcare system would not only lower costs, but could even bring health benefits. Canada, Germany, France, and the United Kingdom all pay roughly half as much per person for their healthcare as the United States, yet all these countries enjoy longer life expectancies than ours. This implies that there are enormous potential gains to the US economy, and to American patients, in opening up this sector to the world.
The economic idea driving globalization is simple: that the United States - and the world - gain when goods and services are produced in the country that can provide the best quality at the lowest price. Just as we benefit from allowing goods and services to flow freely over the border between Pennsylvania and New York, we also benefit from allowing them to flow across international borders.
The reality of globalization is often less beneficent than the textbook picture. It has reduced wages for a large segment of the US workforce; it has often meant dreadful working conditions and environmental degradation in the developing world. Nonetheless, there are real gains: we pay far less for our clothes, our cars, our computer service calls than if the United States was a closed economy. Costs go down, and our standard of living, on balance, goes up.
Globalization has been conspicuously missing in healthcare policy debates, however. Even the economists who normally push a free-trade agenda have been silent, largely because there has been a tendency to conceive of healthcare narrowly as a domestic issue. There is some logic to this narrow view: in a healthcare emergency, we need immediate treatment, not assistance from someone halfway around the world. Nonetheless, there are some obvious and important ways in which the healthcare sector can benefit from increased globalization.
The first route is through opening the door wider to medical professionals from other countries. Doctors in the United States, especially highly trained specialists, earn far more than their counterparts in Western Europe or Canada, at least in part because it is very difficult for doctors - even those who meet our high standards - to train in other countries and then work in the United States. There has been little effort to coordinate medical licensing standards so that well-trained doctors elsewhere can practice here. In economic terms, this is a form of protectionism, just as arbitrary as restrictions on imported shoes or clothes. Trade policy over the last three decades has worked to dismantle the barriers to imported goods, but largely ignored the barriers that obstruct the entry of qualified doctors.
What if, however, the government sought to remove the licensing barriers for foreign physicians? Compensation in the most highly paid medical specialties averages far above $250,000 a year (even after paying malpractice fees). Many doctors trained outside the United States would find these positions attractive even if they only paid $100,000 a year. Opening medical practice to foreign competition would allow for the same sorts of gains from trade that we have seen with opening trade in apparel and textiles - except that we spend far more on doctors each year than we do on clothes.
To allow hospitals to hire well-trained doctors from Mexico, India, and other developing countries, the government would need to eliminate certain protectionist barriers, such as the requirement that an employer first try to hire a US citizen or green card holder at the current market rate. The next step would be drafting international training and licensing standards; doctors could be tested in their home countries, by US-certified testers. Those who do would have the same access to a healthcare job in the United States as a US citizen. A kid growing up in Mexico City or Beijing would have as much opportunity to work as a neurosurgeon in the United States as a kid growing up in Long Island.
To compensate for the inevitable brain drain from developing countries, we could impose a modest tax on the gross income of foreign-trained doctors in the United States for their home countries to spend on training doctors who stay. A 10 percent tax on one US-based doctor’s salary would almost certainly support the training of two doctors in most developing countries, and ensure that countries sending doctors to the US would also see an improvement in the quality of care at home.
The next important way to gain from globalization is to move some procedures overseas. Today this practice goes by the slightly pejorative term “medical tourism,” but behind that nickname is an important and growing trend that can offer real benefits.
Facilities in developing countries such as Thailand and India can perform many major medical procedures for a fraction of the cost in the United States. These facilities are set up to meet Western standards of care; in many cases they are equipped with the most modern medical equipment. For some medical procedures, the savings over an American procedure can easily cover the cost of airfare and hotel bills for the patient and several family members. Today, between 60,000 and 85,000 people cross international borders each year for medical procedures, according to consulting firm McKinsey & Co., and the number is growing. But its growth, and the potential gains, are limited by the lack of adequate government oversight.
If US policymakers embraced rather than ignored medical tourism, the government could create a process for certifying facilities in other countries to ensure the quality of care. It could also establish guidelines for malpractice liability; insurance companies could contract with facilities in the developing world and offer large discounts to patients who opt to travel for major procedures. (Some insurance companies have already begun offering such options.) To ensure that the host countries also benefit, the US government can insist that developing countries impose taxes on medical tourism, and use the proceeds to improve their own healthcare systems.
The third way that globalization can help healthcare is by allowing Medicare beneficiaries to buy into national health systems overseas. Currently, tens of millions of current or future Medicare beneficiaries have close family or emotional ties to countries with more efficient healthcare systems, and in many cases may want to retire to these countries. However, at present their Medicare benefits are of no use outside of the United States. Medicare beneficiaries moving to a foreign country are left to make healthcare arrangements for themselves, or return to America for any expensive procedure.
What if Medicare benefits could cross borders instead? With portable healthcare, Americans might feel more liberated to retire abroad, enjoying comfortable lives in lower-cost countries and generating enormous savings for the US government. The cost of healthcare abroad is so much lower that the U.S. government could even offer a premium to participating countries - say, 10 percent above that nation’s per-person healthcare costs. Medicare beneficiaries and the US government could split the remaining savings, which would still be substantial. For example, a beneficiary moving to the Netherlands or the United Kingdom in 2010 could expect to pocket close to $2,000 a year just from their share of the savings, a nice supplement to retirement benefits. That amount will only grow over time.
Having a large segment of our retired population living overseas may not be desirable in the long term, but it is almost certainly better than letting their runaway healthcare costs wreck our economy.
There will be many objections to increased globalization of healthcare. Some people may object to being treated by immigrant doctors, no matter how highly qualified they may be. And the thought of people flying around the world for major surgery is somewhat offensive on its face - if you need healthcare, you’d like to think that you could get it near where you live. The AMA and the other interest groups will object just as strongly to potential income losses due to globalization as they do to potential income losses due to President Obama’s healthcare plan.
To counter this opposition, we need stronger voices among the experts. It would be helpful if my fellow economists would act like economists on this issue and start singing the praises of globalization. If economists denounced the doctors and others demanding special protections in the same way they denounced autoworkers seeking such protections, it would go a long way toward moving the debate forward.
The goal of globalizing healthcare, of course, is not to send Americans around the world in search of healthcare. Our real goal should be to fix the US system to provide quality at a reasonable price. Globalization is best seen as a stopgap measure: a way to save money by taking advantage of more efficient foreign healthcare systems, while providing incentives for retooling our own.
If it works, it could increase the pressure for reform by making the inefficiencies of the US system more apparent. It could also put much-needed downward pressure on prices in the United States. If the gap between the cost of major medical procedures performed in America and other countries continues to grow, fewer people might have those procedures performed here. Highly paid medical specialists will either accept lower fees or go with much less work. The same logic will apply to other high-cost areas of the system.
Globalization offers enormous opportunities: it allows Americans to escape a broken healthcare system and generates new pressures to fix it. If done right, our trading partners will benefit as well. This may be a circuitous route to a system that provides high quality care for everyone, but it may also be the only route.
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.