Outsourcing Healthcare

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Dean Baker
The Guardian Unlimited, November 12, 2007 
AlterNet,
November 12, 2007
CommonDreams.org,
November 13, 2007

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The congressional budget office (CBO) releases its updated long-term projections for Medicare and Medicaid this week. They will almost certainly show a frightening story.

Healthcare costs in the United States are expected to hugely outpace the growth in income and inflation. When these increases are projected out over 50 or 100 years, the picture is very frightening indeed. In fact, many prominent politicians and political pundits have made a career out of scaring the public with these projections, warning of long-term budget deficits in excess of $70tn (approximately 7% of future GDP). Of course the scare stories usually neglect to point out that the vast majority of the projected deficit is due to our broken healthcare system.

While healthcare costs pose a problem everywhere, the United States really does stand out in having an incredibly inefficient healthcare system. Although we spend more than twice as much per person as the average in other wealthy countries, the United States ranks at or near the bottom in life expectancy, infant mortality rates and other key outcome measures. This gap continues to grow year by year. If the long-term trend in healthcare costs in the United States follows the path that has been projected by CBO and others, then the gap between the United States and other countries will reach hugely astounding levels in the not very distant future.

This gap suggests one obvious way to deal with this projected explosion of healthcare costs. If our political system is too corrupt to allow for meaningful healthcare reform in the United States, why not just let people get their healthcare from systems that work?

This actually would not be as hard to implement as it may first appear. The major government healthcare program is Medicare, which primarily serves a population of retirees. (Medicaid expenditures also disproportionately go the elderly.) Suppose that Medicare beneficiaries were given a voucher that allowed them to buy into the healthcare systems of other countries. (A simple quality control mechanism would be a requirement that the country must have a longer life expectancy than the United States.)

The voucher could be set at a level that is roughly halfway between the average cost of providing care for people over age 65 in other countries and the cost of providing care for that person under Medicare. If a beneficiary opts to take part in this Medicare Choice Plus programme then they use their voucher to buy into the healthcare system in Canada, Germany or any other country. They then pocket the difference between the value of the voucher and the cost of buying into these other countries' systems.

That difference could be serious money. According to calculations based on CBO projections, in 2040 a couple would be able to pocket more than $14,000 a year if they opted into the British healthcare system. By 2060, their projected pocket money from these vouchers would exceed $30,000 a year. Going out to 2080, a couple could earn themselves almost $70,000 a year if they chose to get their healthcare from the Spanish system (all numbers are in 2007 dollars).

People opting for a foreign healthcare system could decide to move to the country whose system they have chosen. Alternatively, they could stay in the United States, meeting routine medical expenses out of their voucher, and relying on the foreign healthcare system only for especially expensive procedures. The savings should be large enough that beneficiaries could incur substantial out-of-pocket expenses and still come out far ahead. In fact, the gap in projected healthcare costs between the United States and the rest of the world is so large that it would even be possible to ensure that other countries benefit as well by providing them with a premium of 10-20% above their costs. This would still leave room for enormous gains both to US taxpayers and to Medicare beneficiaries.

Of course the idea of Medicare beneficiaries flying around the world for healthcare is ridiculous. The rational solution is to fix the US healthcare system. However, if the healthcare industry owns so many members of Congress that a fix is not possible, then a few more medically motivated vacations is preferable to either axing Medicare altogether or bankrupting the country. Where are the free traders when we need them?


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues. You can find it at the American Prospect's web site.