As the Senate wrestles with healthcare reform over the next few weeks, it will leave tens of billions of dollars of potential savings on the table. By simply allowing Medicare recipients who wish to do so to buy their medical care abroad, the Senate could enable older Americans to afford better care, while achieving significant saving for taxpayers. More important, such reform would afford retired Americans an opportunity for a better standard of living.
The opportunity for enormous savings through the outsourcing of Medicare exists because of the gap between the price Americans pay for health care and the price people in other countries pay for comparable health outcomes.
The average annual per-person cost of health care in the United States in 2006 was $6,714, according to a recent study, "Free Trade in Health Care: The Gains from Globalized Medicare and Medicaid" by the Center for Economic and Policy Research. By comparison, the average per-person cost in 26 countries with longer life expectancies than the United States was $2,964.
Economists have long argued that such differences in costs create an opportunity to reap great benefits for both sides through globalization. Making Medicare reimbursable overseas is just such an initiative.
CEPR economists Dean Baker and Hye Jin Rho calculate that if only 10 percent of Medicare beneficiaries opted to live overseas and purchase their health care through foreign medical systems, the U.S. Treasury would save $8.6 billion a year by 2020. By 2030, the projected annual budget savings would increase to $19.5 billion. And by 2045, the annual budget savings could rise to almost $53.9 billion, in current dollars.
Over its first decade, a Medicare voucher system would result in total healthcare spending savings of $45 billion. By comparison, the healthcare legislation recently passed by the House would result in a net reduction in federal budget deficits of $104 billion over the 2010 to 2019 period, according to an assessment by the Joint Committee on Taxation. So if the Senate were to add Medicare outsourcing to the House bill, it would increase potential healthcare savings by 43 percent.
Such a Medicare voucher plan might work something like this: Each Medicare beneficiary would receive a voucher she or he could use to buy into the healthcare system of any country with a longer life expectancy than the United States, to ensure recipients get only the best care. The voucher would allow the beneficiary to move to that country and to be fully covered by its healthcare system.
CEPR proposes that the value of the voucher be based on the average cost of providing care in the countries with longer life expectancies, plus some differential between per-person Medicare expenditures in the United States and that cost.
To provide an inducement for other countries to participate, they would receive a premium above their costs. The U.S. Treasury and Medicare beneficiaries would split all savings.
For example, a retiree who moves to Canada, where healthcare costs are lower, would pocket $2,722 a year from the savings achieved by buying into the Canadian medical care system. By 2020, that person's benefit check would grow to $5,600, supplementing their expected Social Security benefits by 31 percent. With Social Security benefits currently accounting for more than half of the retirement income for two-thirds of retirees, such outsourcing would create an opportunity for the elderly to stretch their income and experience a much higher standard of living.
The savings to the U.S. Treasury and the supplemental income for retirees would be even greater if the person chose to retire to a country with even lower medical care costs. A beneficiary would pocket an additional $4,137 a year by retiring to the United Kingdom, for example, and $7,416 by moving to New Zealand.
A Medicare voucher system would be likely to spark investment in foreign countries by Marriott and other U.S. retirement community entrepreneurs, further broadening retirees' opportunity to obtain high quality health care with English-speaking medical personnel at a fraction of the cost in the United States.
U.S. citizens can already receive their Social Security payments abroad. But the absence of affordable, high-quality health care keeps most seniors from considering overseas retirement as an option. By including a Medicare voucher system in its legislation, or even an experiment involving one country, such as Canada, the Senate could ensure that such limitations are no longer an obstacle.
Outsourcing of Medicare is an admittedly radical proposition certain to be opposed by U.S. physicians, nurses and other protectionist interests in the U.S. healthcare establishment. But it is the just the kind of out-of-the-box thinking that is desperately needed to put America's health care spending on a more sustainable trajectory. And since it would be voluntary, if it's a bad idea, it will fail.
This article appears in the Nov. 21, 2009, edition of National Journal Daily.