# **1.  Introduction**

Health-related expenditures account for nearly one-tenth of all expenditures in the OECD countries, and over one-seventh of GDP in the US alone (OECD, Department of Health and Human Services).<sup>1</sup> Outpacing the 7.7 percent growth in US health care expenditures in 2003 was the growth in health insurance premiums, which increased by 14 percent (Kaiser Family Foundation study, 2004). As a result, many US employers are being forced to cut employee health benefits.<sup>2</sup> According to the US Census Bureau (2004), the proportion of people covered by employer-sponsored health insurance fell 1.3 million from the previous year to 60.4 percent in year 2003. The Institute of Medicine (2004) estimates that about 18,000 Americans die each year from treatable conditions because they cannot afford health care.

The costs of health care and health insurance are significantly higher in the US than in a number of other countries. For example, an inpatient knee surgery, 400,000 of which are performed annually in the US, costs over $10,000 in the US, but less than $1,500 at the best hospitals in Hungary and India.<sup>3</sup> According to the Centers for Medicare and Medicaid Services (2002), over 71 percent of hospital costs are labor related, which helps explain why countries with low labor costs have a significant cost advantage in medical treatments. Large savings could be realized if even a fraction of US patients went abroad for treatment. But very few do so.

Is health care so different from other goods and services that it cannot be regarded as tradable? Consumers certainly value both proximity and quality but that has not prevented them from traveling abroad for a range of treatments, such as cosmetic surgeries, rehabilitative care, alternative medicine, and in some cases, even eye and cardiac surgery. Estimates suggest that in 2003, over 350,000 patients traveled to Cuba, India, Jordan, Malaysia, Singapore and Thailand, specifically to consume health care services. A significant number were patients from industrial countries, traveling to a growing number of overseas medical centers to obtain “first-world treatments at thirdworld prices”.<sup>4</sup> 1 The rapid advances in medical technology, increased market power in the hospital sector, higher prescription drug costs, and an increasingly aging population are often cited as the main cost-drivers fueling the rise in US health spending (see e.g., Alliance for Health Reform, 2004). To a lesser extent, generous malpractice awards and higher administrative costs for insurers also contribute to rising health care costs.

2 A typical employer pays for 73 percent of premiums with the employee paying the rest.

3 The prices outside the US include the cost of travel from the US. The price differentials are even greater for more complicated surgeries such as Coronary Artery Bypass Grafts (CABG), which costs over $35,000 in the US, but under $ 9,000 (inclusive of travel costs) in the best cardiac surgery centers in India and Thailand. Source: CMS hospital reimbursement data and Apollo Hospital, Delhi.

4 In 2003, an estimated 50,000 “medical tourists” traveled overseas from the UK for a variety of check-ups, treatments and surgeries, to Thailand, South Africa, India and Cuba (The Guardian, May 11, 2004).

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