Home > The Economy > Free trade in Medicare: An alternative to austerity

Free trade in Medicare: An alternative to austerity

from Dean Baker

Washington policy debates are chock full of rich people telling poor and middle-class people that they will have to tighten their belts. In fact, in the crazy upside down world of Washington this passes for “courage.”

Cutting back Medicare is one of the favorite forms of belt-tightening being pushed by the elites. Many of the advocates of deficit reduction argue for raising the age of eligibility for Medicare from 65 to 67. Another favorite among this group is to require larger premium payments for Medicare from middle-class beneficiaries. Of course many Republicans would simply privatize Medicare and replace it with a voucher, which almost certainly would not be sufficient to cover the cost of health care.

It is striking in this discussion that no one advocating Medicare cuts ever proposes taking advantage of the lower cost health care systems in other countries. As every policy analyst knows, the problem of Medicare costs stems almost entirely from the fact that our health care system is incredibly inefficient. We pay more than twice as much per person for our health care as people in other wealthy countries even though we have almost nothing to show for it in the way of better health outcomes.  

This enormous gap in costs suggests an easy opportunity for massive gains from trade. If people in the United States can get their health care from other countries there would be huge savings.

While it may impractical for most of the population to go to another country for most of their health care needs, this is not true for Medicare beneficiaries, the vast majority of whom are retired. Many retirees have friends and/or family in other countries. If they opted to move to another country to get their health care, there could be enormous savings that they could share with the government.

To take a simple example, the Medicare trustees project that the cost to the program for an average beneficiary in 2020 will be close to $16,000. Suppose the cost of providing care in the United Kingdom is half as much or $8,000 a year.

If Medicare paid for a beneficiary to get care in the U.K. instead of the United States, the savings would be $8,000 a year. It could pay half of this money, or $4,000 a year, to the beneficiary and still save $4,000 for each beneficiary that opted to go to the U.K. to get care. If 1 million beneficiaries (at 2 percent of beneficiaries) opted to take advantage of this sort of deal, the savings would be $4 billion a year. If 5 million beneficiaries took advantage of this opportunity the savings would be $20 billion a year.

Over a longer horizon the gains would be projected to get much larger as U.S. health care costs are projected to hugely outstrip the increase in costs in other countries. As a result, the savings from going to the U.K. or elsewhere could easily exceed $16,000 a year by 2030. This would mean both that the government’s savings would be increasing for each person that took advantage of this deal and also that many more beneficiaries would likely opt to get their care from other countries.

Once we go out 20 years, for many beneficiaries their share of the projected savings would more than double their income. The projected gap in health care costs are so enormous than the U.S. government could even pay a premium of 10-20 percent above the cost of health care in other countries and still have enough money left over to allow large payments to beneficiaries and huge savings to the government.

The point is simple. The story of those incredibly scary long-term deficit projections is a story of exploding health care costs. If these projections of exploding health care costs prove accurate, then the country would enjoy enormous savings by having Medicare beneficiaries get their health care from the more efficient health care systems in other countries.

If we were having an honest policy debate this sort of proposal for free trade in health care services would be front and center on the national agenda. After all, which is a better way to save money on Medicare, making people wait until age 67 to qualify for benefits or giving beneficiaries the option to get health care in another country and to put some money in their pockets?

However you won’t hear about free trade in health care in the Washington policy debates. The Washington policy elites love trade when it can be used to beat down the wages of auto workers or truck drivers. However when trade might jeopardize the income of the pharmaceutical and the insurance industries, and highly paid medical specialists, they don’t even want it to be part of the discussion. And since the elites control the Washington policy debate, folks can expect to wait until age 67 for their Medicare and/or pay higher premiums.

See article on original website

About these ads
Categories: The Economy
  1. Podargus
    December 24, 2012 at 7:09 pm

    Dean,I know you mean well and you are considerably more advanced in your thinking than some of the retards in economics profession but free trade in health care?

    What makes you think that the nations which have passably sensible health care systems have the resources to cope with an influx of sick outsiders?
    What makes you think that these nations have any desire to have an influx of any sort of outsiders,other than self interested groups like tourist operators?

    Stay at home,fix the problems on your own patch,don’t try to shove them off onto other people.

  2. Bruce E. Woych
    December 24, 2012 at 8:39 pm

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=9411

    The Bottom Line: Healthcare
    We are economists who think that the economy should serve people, the planet and the future.
    Go to story | Go to homepage

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=9411

  3. Susan Pizzo
    December 25, 2012 at 3:56 am

    Thanks Podargus and Bruce E. Woych. For saving me the trouble of making the same points. Efficiency can be had at home by copying what works in the rest of the developed world. Single-payer, baby…

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 10,503 other followers