Why Won’t Medicare Pay for Medical Tourism?

In a working paper published by the Mercatus Institute at George Mason University, Marc D. Joffe notes that Aetna, Blue Shield, and HealthNet offer health insurance in California that gives beneficiaries access to Mexican providers. The U.S. insurers rent a provider network from a Mexican insurer.

The costs of health care in Mexico are 60 percent to 80 percent lower than in the United States. Cash-paying Americans travel to Mexico for many medical procedures. Joffe cites estimates of around half a million Americans annually visiting Mexico for medical care (although the number travelling only to fill prescriptions is not reported).

Joffe notes that 25,000 Americans living in Mexico in 2011 were receiving Social Security deposits. Unlike half a million other Americans who travel to Mexico for treatment, these retirees and their spouses return to the United States for treatment. The reason is that Medicare does not pay for their treatment out of country.

Joffe doesn’t estimate how much money Medicare would save if it paid for their treatment in Mexico, but a back of the envelope estimate is not hard to figure out.

Let’s focus just on in-patient hospital spending, which totaled $120 billion in 2012 (according the Medicare Payment Advisory Commission). This amounted to $3,263 per beneficiary. However, only 28.9 percent of beneficiaries required in-patient hospitalization in 2012. So, the cost per admitted patient was $11,291.

If Medicare could cut that cost by 60 percent, it would save $4,516 per patient. Scaling that to the 25,000 American retirees in Mexico, that could amount to as much $33 million.

Those savings amount to peanuts within the Medicare budget, and would happen only if every retiree took advantage of the option. But it’s a start. And increasing numbers of Americans are planning to retire abroad, not only to Mexico, but to Costa Rica and other low-cost countries.

It’s a growing opportunity for Medicare savings. And the federal government wouldn’t even have to establish provider networks: It could just ask Aetna, Blue Shield, or HealthNet to share theirs.

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