Healthcare Proposals Impact Medical Travel

American Healthcare & Medical Travel

Today, more than 48 million Americans are uninsured, while millions more learn they are underinsured when they become sick. America spends more than $2.3 trillion, or 16% of GDP, annually on healthcare costs. By the year 2016, U.S. Department of Health and Human Services forecasts that health spending will be $4.3 trillion or 20% of GDP.

Though America spends more than any other country on healthcare, it is ranked 37th in overall quality among the world’s healthcare systems by the World Health Organization. According to the Organization for Economic Cooperation and Development, healthcare spending accounted for 10.9% of the GDP in Switzerland, 9.7% in Canada and 9.5% in France, all countries ranked higher than the U.S.

A recent Wall Street Journal-NBC Survey reported that the cost of healthcare is Americans’ number one economic concern. Growing numbers of underserved patients are turning to healthcare delivery alternatives such as traveling to foreign hospitals for necessary treatment. While the medical travel phenomenon started with cosmetic surgery, successes have emboldened patients who need joint replacements, cardiac surgery, spinal fusions and bariatric surgery to reach beyond America’s borders for alternatives. At the same time, health insurers and employers are noticing the opportunities for cost savings by outsourcing and the ability to reach new markets with tailored healthcare products.

Republicans and Democrats agree that current trends in healthcare are not sustainable. Not surprisingly, both presidential candidates, Senators Barack Obama and John McCain, have proposed equally radical remedies for America’s broken healthcare system. Though neither candidate addresses medical travel specifically, their healthcare plans suggest the likely impact on the medical travel market.

McCain’s Healthcare Plan

Sen. McCain would ask Americans to take on greater personal responsibility for their healthcare choices and rely on market forces to meet today’s healthcare challenges. According to Sen. McCain, increased competition and less government involvement will improve the quality of health insurance with greater diversity among plans, lower prices and portability.

Specifically, Sen. McCain would seek to make insurance more available by increasing variety and affordability of private plans. The Senator’s revolutionary idea is to eliminate the tax break that workers receive from employer-sponsored health plans, treating the benefit as taxable income, offset by a new tax credit of $2,500 for individuals and $5,000 for families. If the tax credit is more than the amount a person spends on healthcare premiums, the excess can be placed in a health savings account.

Sen. McCain believes that people who are covered by employer health benefits consume more healthcare services than is necessary. Presumably at least some of those excess services that can be redirected to the uninsured population. Putting patients in control their health spending will encourage competition among providers and insurers, reduce costs and improve the quality and portability of coverage.

Sen. McCain has proposed several policy initiatives to lower healthcare costs. These include: (1) greater competition in the pharmaceutical market; (2) improved systems for chronic disease prevention and management; (3) coordinated care among providers to render better outcomes at lower cost; (4) improved access through walk-in clinics in retail outlets; (5) use of information technology; (6) reforming the Medicaid and Medicare payment systems to pay for diagnosis and prevention but not treatment made necessary by preventable medical errors or mismanagement; (7) anti-smoking programs; (8) state spending flexibility; (9) tort reform to reduce frivolous lawsuits; and (10) improved transparency with better public information on treatment options, doctor records, outcomes, quality of care, costs and prices.

The Impact of Sen. McCain’s Plan on Medical Travel

The impact of Sen. McCain’s healthcare plan is to de-emphasize the employer-based health insurance system that currently covers 158 million Americans. Sen. McCain’s plan will likely encourage Americans to avoid taxation of health benefits and use their new tax credit to purchase health insurance on the open market. Young healthy people would likely be the first to switch from their employer plans and find cheaper alternatives in the open market.

Conversely, sicker older workers may initially choose to stay with the security of their employer-based plans. As the risk pool of employer-based plans becomes older, sicker and more expensive to insure, more employers will stop providing health benefits. Eventually, all workers will likely move to individual health plans.

Due to its focus on competition and free market solutions, Sen. McCain’s plan may encourage the medical travel market. Thus far, medical travel has been a completely consumer-driven phenomenon. By placing patients in control of their healthcare spending, and eliminating the tax incentive for workers to rely on their employers for coverage, patients will be encouraged to pursue treatment alternatives that maximize their healthcare dollars.

Let’s use the average American family as an example. The average employer-sponsored family health plan currently costs about $12,000 in annual premiums. On average, employers contribute $9,000 and workers contribute $3,000 to pay the premiums. Under McCain’s plan, workers will be taxed on the employer’s $9,000 contribution as income (as if the employer paid the $9,000 to the employee as wages), thereby eliminating the tax incentive for an employer-sponsored plan. Instead, the family gets a $5,000 annual tax credit.

A typical high-deductible, low-premium family plan on the open market costs about $10,000 annually ($2,000 less than the average employer-sponsored plan). Workers may use the $9,000 that their employer would have used to purchase coverage, (about $6,000 after taxes) and the $5,000 tax credit ($11,000 total) to pay for health coverage. Money left over after buying health insurance can be put in a Health Savings Account.

Insurers are finding that high-deductible, low-premium plans incorporating foreign providers can be offered to previously uninsured markets. These cheaper plans attract cost-conscious patients or patients with cultural ties to featured providers in Latin America and Asia.

Informed healthcare consumers will demand choice, transparency, high quality and reasonable prices from their providers and insurers. Consumers who receive more complete information and better prices from foreign providers may be persuaded to go abroad for treatment. McCain’s plan encourages consumer-driven market responses.

Obama’s Healthcare Plan

The central tenant of Sen. Obama’s healthcare plan is that everyone should have quality, affordable and portable coverage. His plan reflects the philosophy that government should guarantee affordable healthcare to all Americans. While Sen. Obama would mandate that every child be covered, he would seek to cover adults through a combination of employer and government programs.

Sen. Obama’s healthcare plan encompasses two revolutionary initiatives. First, Sen. Obama would require all employers to “pay or play.” All employers, except small businesses, must either provide quality health plans to employees or contribute (a new tax) to the cost of a public plan available to all Americans. The public plan would be similar to Medicare and provide coverage similar to that given to federal employees.

Sen. Obama’s second revolutionary idea is to create a National Health Insurance Exchange (“NHIE”) where insurers would sell coverage to small businesses and individuals. To participate, insurers would have to disclose costs and benefits of various plans and the percentage of premiums that go to patient care as opposed to administrative costs. The goal is to create a transparent market for health insurance that will improve quality, efficiency and value.

Notably, small businesses are exempt from Sen. Obama’s “pay or play” plan. Instead, small businesses receive a refundable tax credit of up to 50% on paid employee benefit premiums. The Small Business Health Tax Credit is meant to incentivize small businesses to offer quality health plans without hampering their ability to compete in the global marketplace.

Sen. Obama also proposes that hospitals and providers be required to publicly report data on preventable medical errors, nurse staffing ratios, hospital acquired infections and disparities in care. Transparency is required of both insurers and providers and is meant to help patients make better choices. Finally, Sen. Obama’s healthcare plan would allow Americans to purchase medicine from other developed countries offering safe products at lower prices.

The Impact of Sen. Obama’s Plan on Medical Travel

The immediate impact of Sen. Obama’s plan would be to bring millions of uninsured Americans into government sponsored managed care. Sen. Obama’s plan may also encourage employers to avoid the financial risks of raising healthcare costs and opt to pay into the public plan instead. Workers may get better benefits under the government’s plan than their employers can afford. If healthcare costs continue to climb unchecked, under Sen. Obama’s plan, employer plans may disappear.

Under Sen. Obama’s plan health insurers will need to look for ways to reduce the cost of covering previously the previously uninsured. Medical travel offers quality treatment at a fraction of the cost of similar care in the U.S without sacrificing quality. Some may argue that sending a patient abroad for care is itself a reduction in quality. However, foreign providers can demonstrate international accreditation and credentials that rebut such criticism.

Sen. Obama’s 50% tax credit for small businesses may encourage medical travel. Often small businesses operate in local, often demographically homogenous, communities. People with cultural ties to provider destinations may be more likely to travel for care. Small business and insurers can team up to offer customized plans that enhance care while reducing the cost.

In his calls for transparency, Sen. Obama’s plan echoes the philosophy of medical travel. Patients who travel for care demand information about surgeon success rates, infection rates, and nurse to patient ratios. The information empowers patients to make informed decisions. American providers often resist collecting this information to avoid it being used against them in a malpractice lawsuit. Sen. Obama’s transparency initiative encourages consumer-driven demands for more and better information.

Notably, Sen. Obama calls for all health plans to resemble the coverage offered to federal employees. The directive may limit the flexibility insurers need to introduce innovative cost cutting solutions like medical travel. If the government decided that traveling abroad for treatment reduced quality, insurers would have to eliminate medical travel from plans. Further, Sen. Obama has spoken out repeatedly against outsourcing. Medical Travel is the newest form of outsourcing. Given the reluctance of American doctors to embrace this trend in healthcare, it is unlikely that Sen. Obama would openly support medical travel.