Free trade in Medicare: An alternative to austerity

An international free market in healthcare would solve America’s Medicare funding problem, but deficit hawks just want cuts – Published on The Guardian, by Dean Baker, Dec. 21, 2012.

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 healthcare.

It is striking in this discussion that no one advocating Medicare cuts ever proposes taking advantage of the lower-cost healthcare systems in other countries. As every policy analyst knows, the problem of Medicare costs stems almost entirely from the fact that our healthcare system is incredibly inefficient. We pay more than twice as much per person for our healthcare 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 could get their healthcare 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 healthcare 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 healthcare, 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 UK instead of the United States, the savings would be $8,000 a year.

Medicare could pay half of this money, or $4,000 a year, to the beneficiary and still save $4,000 for each beneficiary who opted to go to the UK to get care. If 1 million beneficiaries (@2% of beneficiaries) opted to take advantage of this sort of deal, the savings would be $4bn a year. If 5 million beneficiaries took advantage of this opportunity, the savings would be $20bn a year … //

… However, you won’t hear about free trade in healthcare 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. But 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.
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