TCS Daily


How Latin America Might Help Solve America's Health Care Crisis

By Coley Hudgins - January 18, 2007 12:00 AM

The problems with America's Medicare system are well known. Late last year U.S. Fed Chairman Ben Bernanke cautioned that reform of entitlement programs such as Medicare -- the $342 billion U.S. health insurance program for people age 65 or older -- should be the nation's top priority since a wave of retirees is coming Medicare's way.

One partial solution to the problem would be Medicare portability.

Currently, the Social Security Act of 1964 prohibits Medicare payments for most medical care received abroad. Medicare portability would change the rules to allow U.S. retirees to be reimbursed by Medicare for medical expenses incurred in other countries.

The precedent for Medicare portability was established nearly a decade ago by Professor David Warner with LBJ's School of Public Affairs at the University of Texas who proposed a pilot program to permit U.S. residents living in Baja, California to be reimbursed by Medicare for health care treatments received in Mexico. In that case, a research and demonstration project waiver from the U.S. Health Care Finance Administration (HCFA), which oversaw Medicare payments, was required. Today, HCFA is known as the Centers for Medicare and Medicaid Services (CMS).

Dr. Warner's work suggested that if medical procedures could be performed in countries with lower administrative costs, salaries and medical malpractice insurance costs than the U.S., Medicare portability might offer a solution to the program's skyrocketing costs.

One country well positioned to benefit from such a change to US law would be Panama. The country is already a leading "medical tourism" destination with its first-world medical infrastructure and a close relationship with the United States.

With a growing number of American ex-pat retirees, Panama could easily capitalize on a wave of "retirement outsourcing" by expanding health care treatment opportunities for retirees from the United States. Retirement outsourcing is premised on the belief by economists and demographers that a large number of baby boomers from the U.S., Canada and Europe will seek to retire in countries with a more affordable cost of living. The precedent is already well-established in Central American countries like Panama, Costa Rica, and Mexico, which are capitalizing on the trend by offering retirees generous incentive packages, mild climate and affordable real estate.

Estimates of the ex-pat community here in Panama vary from 20,000 to 50,000, but that number could be dwarfed in the years ahead with two innovative "outsourcing" approaches to retiree health care. One is already occurring organically -- Panama's growing leadership in expanding affordable health care options for overseas patients through a burgeoning medical tourism industry that by some estimates will be a $40 billion industry worldwide by 2010. The other is Medicare portability.

Today, companies like Panama's Pana-Health offer a real-time snapshot of what Medicare portability could mean for Medicare savings. Pana-Health costs for a hip or knee replacement are $12,000 according to information on the company's website, while similar procedures in the U.S. would cost $20,000 or more.

A thoughtful approach to Medicare portability could guarantee that ex-pats would still receive top-quality and affordable health-care through accreditation by U.S. CMS or the Joint Commission on International Accreditation of Healthcare Organizations of overseas facilities such as Panama's Johns Hopkins-affiliated Punta Pacifica Hospital. Countries with accredited Medicare-eligible facilities would likely see large increases in ex-pat retirees, who tend to be both larger consumers of health care services as well as more price-sensitive health-care consumers.

Indeed, a Migration Policy Institute study this past summer on U.S. retirement migration to Mexico and Panama suggested that Medicare portability across borders would likely have strong effects on the future flow of U.S. retirees abroad.

It's time for Panama to think creatively about the next big phase of retirement outsourcing -- retiree health care services. Panama has a once-in-a-lifetime first-mover advantage because of its role as a first class provider of health care services and its physical proximity to the U.S., the largest consumer of health care services in the world.

The author is a Managing Director of Latin American Venture Partners, a real estate investment firm founded in Washington, DC in 2005 and based in the Republic of Panama.


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