As food and oil prices rocket all over the world, consumers are getting a crash course in economics: When demand increases, prices increase. Although food and oil dominate the headlines, life’s other essentials also obey this cast-iron law, including healthcare, which is threatening to bust government budgets all over the world. As with food, part of the solution lies in opening up trade and competition.
The Organization of Economic Community and Development estimates that world average healthcare expenditure last year accounted for 9 percent of GDP, up from just over 5 percent in 1970. The US now spends more than US$2 trillion per year on healthcare, eight times the amount in 1980. US healthcare costs are currently increasing by twice general inflation, a general trend in rich countries.
As populations grow older and more demanding, these inflationary pressures will increase. Politicians are finding cashed-strapped voters increasingly unwilling to stump up the large amounts of tax needed to fund government health systems, forcing them to deny treatments to patients in a bid to constrain costs. In the US, healthcare costs have become a major issue in the presidential election.
The last decade, by contrast, has seen very low inflation for other goods, partly because of a massive increase in global trade. The arrival of China and India as major new exporters has meant that most countries have been able to import goods cheaply, keeping prices down.
While the role of free trade in driving down prices and driving up quality has long been accepted by economists (and, to an extent, politicians), healthcare has been one area in which there has been almost no international trade. It is time for this to change.
Communications technology makes it increasingly easy for hospitals to outsource services such as diagnostics to laboratories overseas, cutting costs and treatment time.
Patients can get treatment overseas where costs are lower. Open-heart surgery in India costs only one-sixth of the price in the US, including travel, accommodation and medicines. If only 10 percent of US patients went abroad for 15 types of treatment, they and insurance firms could save US$1.5 billion a year, including travel.
Patients are already voting with their feet. In 2006 alone, Singapore treated 500,000 foreign patients, India treated 600,000 and Thailand around 1.2 million. Other favorite destinations include Malaysia, South Africa and Cuba. Taiwan’s Council for Economic Planning and Development believes it could bring in NT$7 billion (US$230.4 million) a year.
While the benefits of free trade in health are clear for rich countries, developing countries also stand to gain. Most obviously, there are opportunities for much-needed investment of foreign capital.
These financial opportunities would also give developing countries’ medical staff a far greater incentive to remain at home, reducing the debilitating “brain drain.” As more money came into the health sector, some of the burden on government healthcare would be removed.
Despite the significant benefits, only two developed countries have ratified a WTO agreement on trade in healthcare — Iceland and Norway. While developing countries such as Gambia, Jamaica, Malawi and South Africa are prepared to liberalize, wealthier countries seem bent on protectionism.
This reluctance is largely down to lobbying by interest groups in developed countries. Public sector unions seek to protect their members and industries from competition. Non-governmental organizations ideologically oppose trade in healthcare, claiming that only governments can ensure “equity” and “universal” treatment — even though public healthcare in most of the world fails patients miserably.
This is a massive wasted opportunity. Free trade in healthcare could help rich countries keep the lid on healthcare inflation while helping poorer countries attract investment and skills and retain valuable medical professionals.
For this to happen, developed countries must encourage insurers to cover overseas treatment and open up their medical sectors to international competition. Developing countries need to standardize their qualification and licensing requirements in order to attract customers and improve skills.
Healthcare doesn’t have to go the same way as food prices. Rich and poor countries should ignore calls for protectionism and liberalize their healthcare for the good of patients everywhere. Health tourism can be healthy for everyone.
Fredrik Erixon is director and Lucy Davis a trade policy analyst of the Europe Centre for International Political Economy, a think tank based in Brussels.
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