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Monday, August 21, 2006 10:05 AM


Healthcare Fiasco


In Medical Tourism on July 22 I noted that heart care surgery which costs in the region of USD $30,000 in USA can cost as low as USD $8,000 in India.

A asked a couple of simple questions at that time:

  1. Why have routine (and not so routine) medical and dental services performed in the US when you can have them done cheaper elsewhere and get a free vacation out of it to boot?
  2. How much longer will it be before some HMOs require someone to fly to India or Thailand for treatment?
It did not take long to get an answer to those questions.

Healthcare Heads to India

The LA Times reported on July 30th U.S. Employers Look Offshore for Healthcare.
As costs rise, workers are being sent abroad to get operations that cost tens of thousands more in the U.S.

After going overseas to outsource everything from manufacturing to customer services, American businesses — pressed by rising healthcare costs — are looking offshore for medical benefits as well.

A growing number of employers that fund their own health insurance plans are looking into sending ailing employees abroad for surgeries that in the U.S. cost tens of thousands of dollars more.

Carl Garrett of Leicester, N.C., will fly to a state-of-the-art New Delhi hospital in September for surgeries to remove gallstones and to fix an overworn rotator cuff. His employer, Blue Ridge Paper Products Inc. of Canton, N.C., will pay for it all, including airfare for Garrett and his fiancée. The company also will give Garrett a share of the expected savings, up to $10,000, when he returns.

Blue Ridge, which employs 2,000 and funds its own health plan, began studying the idea out of frustration with rising rates at local hospitals, company officials said. Blue Ridge's healthcare costs have doubled in the last five years, to about $9,500 a year per employee.

"The hospitals have a monopoly. They don't care, because where else are patients going to go?" said benefits director Bonnie Blackley. "Well, we are going to go to India."

Every year, tens of thousands of Americans travel abroad for cheaper tummy tucks and angioplasties. This "medical tourism" has typically been reserved for uninsured procedures or uninsured patients.

No major insurer offers such travel, but several employers that fund their own benefit programs have expressed interest, according to consultants and medical tourism agencies.

Bumrungrad Hospital in Bangkok, Thailand, and Apollo Hospitals in India, for example, are internationally recognized institutions. Despite the Third World conditions outside, the hospitals resemble five-star hotels and are equipped with the latest technology, American patients have reported. Many of the doctors are trained in the U.S., and visiting Americans are pampered around the clock, they have said.

A coronary artery bypass surgery costs about $6,500 at Apollo Hospitals in India, Milstein estimated.

The average price in California is $60,400.

"This is not the solution," said California Hospital Assn. spokeswoman Jan Emerson. "In fact, this could make problems worse."
Is India a solution?

It seems to me a better question is "Why isn't India a solution?" The market (via India) is providing a wonderful solution to highly priced and over-rated US health care services.

If I was a major medical provider in the US I would start offering lower rates to anyone willing to travel. I would also be contracting for services in India, Bermuda, and Mexico. Why fly to India when flights to Mexico would be cheaper?

$6,500 for a coronary artery bypass surgery sounds reasonable enough. Add in another $3,500 for plane fares and other miscellaneous expenses and the cost is still less than 1/6th the price of the same operation in California. Without the leeway it is 1/10th the cost.

The price of medical services as with the price of houses, have outstripped people's ability to pay for them. The market is finally weighing in on the situation. It has decided that a coronary bypass operation should cost $6,500 (plus travel expenses). I agree. Given enough time, the market will gravitate to the low cost provider if quality remains constant. In this case, medical care in India may actually be of higher quality. It just takes time for the masses to learn about those options and the education process is now underway.

So far, it seems that it is mainly self insured companies that are taking the "Medical Tourism" route. At those savings, how long will it be before some major bank like Citycorp, or some company like Exxon Mobil decides to do the same with their health care plan?

The US has the highest health care costs in the world. What are we getting for it? Our laws (essentially written by pharmaceutical companies) ensure US costs will always be highest. We can not import drugs from Canada or other places. That will change simply because it has to.

Something like 70% of all health care costs are incurred in the last year of someone's life. That too can not last. By definition if something can't last it won't, but the path from here to there is likely to be a long one.

The Huffington Post is reporting Cuba Has Better Medical Care Than the U.S.
Figures from the World Health Organization clearly show that The United States lags behind 36 other countries in overall health system performance ranging from infant mortality, to adult mortality, to life expectancy.

20 countries in Europe and four countries in Asia have a better life expectancy than the U.S. If you are a male between the ages of 15 and 59, your chances of dying are higher in the U.S. (140 per thousand) than in Canada, 95, Costa Rica 127, Chile 134, and Cuba, 138.

The U.S. Health system looks especially dysfunctional when you consider how much money we spend per capita on healthcare -- $6,000 plus per year, twice as much as any other country -- and how little we get for it.

Canada spends $2,163 and boasts a life expectancy of 79.8 years, two and a half years longer than the US. Their infant mortality rate per thousand is also better than ours, as is their adult mortality rate.

Switzerland spends about 11% of its Gross Domestic Product on universal health care for all its citizens, while the U.S. (with 50 million uninsured this year) spends 15% of GDP with embarrassing results.

One grand irony, Cuba whose economy has been bankrupt for the last decade -- food shortages, drug shortages, chronic unemployment, etc. -- and which annually spends a miserly $185 per person on health care, has better infant and adult mortality rates than the US, and has a life expectancy nearly equal to ours.

Why has our vaunted free enterprise system -- which has produced such great benefits in delivery of most goods and services -- failed so completely with regard to this most fundamental need?

Simple, buyers don't shop for health care. Sick people don't negotiate with doctors or hospitals or drug companies. They don't care what it costs; insurance or the government will pay. This vulnerability has been exploited and hijacked by greedy doctors, drug companies, insurers, personal injury lawyers, HMOs, and hospitals. About 50% of health care funds never even get to doctors or hospitals -- which themselves run bloated operations.

Maybe we have finally reached the "Tipping Point". Not because people are needlessly dying, but because big business is being crippled by astronomical health costs.

US companies -- with employer funded health plans -- are having a hard time competing in world markets. General Motors spends more on worker health care ($1,400 per vehicle) than they spend on steel for each car they produce. "The three big auto makers are "HMOs on wheels" says Goldman Sachs analyst Gary Lapidus.
Who benefits from the current mess?

Please consider the article How Humana and other insurance companies rigged the Medicare prescription drug plan.
Last week saw the news that Humana, one of the country’s largest health insurance companies, experienced much better second-quarter earnings than had been expected. The announcement amounted to confirmation that the Medicare drug benefit is working exactly as planned -- not for the people enrolled in it, but for the insurers who drafted it.

Humana’s profits jumped 10 percent, much better than Wall Street had anticipated, helped by a surge in seniors enrolling in Humana’s Medicare drug and HMO plans. Membership in their drug program now stands at 3.46 million, up a million and a half in the last three months. This increase in enrollment brought Humana $801 million in new revenue. Humana has also doubled its Medicare HMO membership in the past year, bringing it to almost a million. The company took in $2.1 billion in premiums from HMO members in the last three months, almost double what the firm received a year ago.

Simply put, the Medicare drug program has been good news for Humana. But for seniors who had hoped that the Medicare drug plan, which began in January, would relieve them of worries about drug costs, things are not so rosy. About one-fifth of seniors in the Medicare program, concentrated especially among the poor who had been on Medicaid, report that they now pay more for their medicines than they had before. Since insurers can decide which drugs they cover and which they won’t, many seniors are finding that new medicines they need are not paid for by their plan. And millions of enrollees are now approaching the level of total drug expenses that will provoke a cutoff from any further Medicare help with costs -- the now-infamous "donut hole."

Humana executives devised a clever game plan for seniors. They would offer inexpensive drug-only coverage and then try to steer these enrollees into Humana’s more profitable HMO. Humana’s CEO, Michael McCallister, admitted to investors last October that it was offering the cheap drug plans as a way of “capturing as much market share as possible at a modest profit, to ultimately migrate those customers.” Humana enticed their sales representatives to sign up seniors for the HMO program with large commissions. In fact, salesmen were paid twice as much for HMO enrollees as they received for seniors signed up for drug-only plans.

Humana was not only involved in drafting the bill, they also had several former officials in top posts within the Bush administration as the program went into effect. The top Medicare official in charge of selling the program to seniors was Julie Goon, who had set up Humana’s Washington office in 1990. When the bill was going through Congress, Goon was in charge of legislative affairs for the health insurance trade group, then named American Association of Health Plans. This June she became President Bush’s senior health policy adviser. Goon replaced Roy Ramthun in that post. Ramthun was a top Humana official for eight years, including the time when Congress drafted and passed the Medicare bill.

Humana is optimistic that it will continue to benefit from the Medicare program. McCallister told analysts last week that the Medicare business was “a long-term growth engine” for the company. Indeed, Humana and UnitedHealth/PacifiCare together cover nearly half the seniors who have enrolled in drug plans.
Plan Restrictions

If that was not enough, the article failed to mention the fact that plan providers can change benefits on 60 days notice but plan participants can not switch for a year. This means that participants can be enticed to join a plan because it covers the drugs they need, only to find out that those drugs have been dropped. Of course those participants are then stuck for a full year regardless of price.

It's time to cut out the middleman. If we are going to have our laws written by lobbyists, let's hire lobbyists directly as opposed to Senators and Congressmen who are supposed to represent us. At least the system would be more honest. As for now, if you want great healthcare for cheap you head for India. If you want low priced drugs you head for Canada or Mexico. If you live in the US, you are screwed.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

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