Medical off-shoring grows as patients combine tourism and surgery

During his presidential campaign, Barack Obama decried two seemingly unrelated challenges: Factories shipping U.S. jobs overseas and our health-care crisis.  But unless he acts quickly, President-elect Obama will face a threat that combines these trends as high costs make Americans seek health-care abroad.

Compared to health spending in other industrialized countries, the U.S. ranks dead last.  At $6,700 per person, Americans spend two times the average.  This money might be worth it if we were healthier.

But the dirty little secret is that Americans' health falls squarely in the middle of the pack compared to countries like Canada, the UK, and France.  U.S. life expectancy is lower, infant mortality higher, and recovery rates from typical medical procedures are surprisingly average.

What's more, no other country asks corporations to provide health insurance for most of its population.  If health-care were like any other service, these corporations would revolt against its inefficiency.

If the same service cost less in another country, managers would face enormous pressures to consider off-shoring.  Now, health-care seems trickier since you can't import it like oil.  However, Americans and American companies are still finding creative ways to lower costs.

In August 2006, Carl Garrett, a mill worker from North Carolina, agreed to be sent to India for operations on his gall bladder and shoulder.  The trip would save his employer $50,000.

Instead borrowing $20,000 for his surgery in America, Garrett would receive $10,000 of the savings, along with a tour of the Taj Mahal and 24-hour private nursing during his recovery.  His trip was stopped by the United Steelworkers union, which feared the program would lead to a two-tiered health system for executives versus employees.

While this highly publicized scheme was halted, the grassroots movement toward medical off-shoring is growing.  An estimated 750,000 Americans traveled in 2007 for "medical tourism" – coupling visits to exotic locations with lower-cost plastic surgery and dentistry.

Some travelers seek more serious operations like heart stents and hip replacements.  An estimated 100 foreign hospitals have been approved by the organization that also accredits U.S. hospitals.  Many of these "destination hospitals" have Western-trained doctors and boast state-of-the-art facilities.

Medical tourism and off-shoring address, in a backhanded way, the supply side of the health-care equation: U.S. health-care providers, such as doctors, hospitals, insurers and drug companies, offer services at too high a cost.  However, most health-care reforms focus on the demand side, increasing co-pays and using cost-shifting to make people more selective in their health-care consumption.

The demand siders' approach carries a certain logic: If you don't pay for that extra test or elective procedure because insurance covers it, why not get it?   Yet no other country relies on demand to control costs – and none spends as much to make their people just as healthy as Americans.

U.S. corporations have certainly taken note.  Mercer Health & Benefits has studied off-shoring for three Fortune 500 companies.  United Group Programs in Florida, which insures small businesses, offered to send patients to Thailand for medical care.  Both Blue Shield and Health Net of California now offer lower-priced insurance that allows members to seek care in Mexico.

Corporate wellness programs are another innovative approach to control costs.  Beacon Mutual Insurance of Rhode Island distributes monthly health magazines to employees, offers one-on-one nutrition counseling, and intranet updates with monthly themes.

Compared to companies covered by the same insurer, Beacon Mutual saved 13.6 percent on outpatient care, 13.3 percent on inpatient care, 12.8 percent on diagnostics, 4.2 percent on prescription drugs, and 1.7 percent on surgical procedures.  The company attributed half these savings – roughly $300 per person per year – to its wellness regime.

More than 120 companies drew praise in 2007 from the Wellness Council, a non-profit focused on workplace wellness.  The innovators ranged from small companies to behemoths like Merrill Lynch and IBM, whose programs have saved millions of dollars per year.

At a recent CEO Forum, Obama's new Chief of Staff Rahm Emanuel challenged companies to support health reform.  But Obama risks falling behind these same CEOs unless he learns from their successes.

The President must also look at other supply side reforms – or else Americans' health-care, like the toys we buy for Christmas, will increasingly be stamped "made in China."

Dan Magder, an investment banker and former economic policy analyst, has published his research through the Peterson Institute for International Economics.