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Economics & Investments

Baby Boomers Causing a Strain on the US Healthcare System

Economics & Investments

The retirement of Baby Boomers and the elderly in the US will have far-reaching effects for the medical tourism industry and those effects will be very positive. The Baby Boomers are anyone born after the end of World War II, and they are swiftly reaching retirement age.  The oldest were born in 1946 and the youngest were born in 1964, according to the US Census Bureau.

Their aging and concurrent retirement will present many challenges to the US Healthcare system, and in turn, will make medical tourism a much more viable prospect for many. Baby boomers affect on medical tourism will be seen three factors: a new trend of Americans retiring overseas, the huge demand baby boomers are putting on the US healthcare system, and the depleted savings many Americans have because of the economic crisis.

Baby Boomers will have a huge effect on medical tourism because in the near future they will be placing a huge demand and burden on the US healthcare system and many will be retiring overseas. Still others will travel for medical tourism because of depleted savings and the inability to afford healthcare in the US.  The American Health Association released a report in 2007 entitled, “When I’m 64: How Boomers Will Change Healthcare.”  

The report found that the number of Americans age 65 and older will double by 2050, the number of people age 85 or older will quadruple by 2050, and by 2030 over half of all American adults will be over age 50. More than six out of every ten Baby Boomers will be dealing with more than one chronic condition, more than one out of every three will be obese and one out of four will be living with diabetes.

By 2020, visits to the Doctor will exceed one billion and four out of ten of these visits will be made by Baby Boomers. The report also clearly stated, “increase in longevity of Boomers, combined with advances in medicine, less invasive treatments and diagnostic testing, will greatly increase the demand for cardiology.”

We are also seeing that most Americans are not saving now and do not have ample savings to cover basic medical expenses and long-term care when they retire. Most Americans have essentially nothing in savings and 54% stated the total value of their savings and investments was less than $25,000, according to The Employee Benefits Research Institute 2010 Retirement Confidence Survey.  Also, twenty-seven percent have less than $1,000 in total assets.

Why are Americans choosing to retire abroad and how is this positive for medical tourism?  For one, it’s less expensive to live comfortably in other countries than the US and the quality of care in many countries is great.  There are also many tax benefits to living abroad, as countries offer these as incentives to lure expatriates and retirees.

According to an MSN Money article , the US State Department of estimates approximately four million Americans were living abroad in 2004, excluding military personnel and foreign service officers, and about a quarter of these were estimated to be retirees.  

That number has since increased to more than six million and is growing consistently growing in number. Although it is unclear exactly how accurate this number is due to collection and reporting issues, it is clear that these Americans are definitely going to have a big impact on medical tourism in a major way.

The healthcare system in America will be forever changed by the demand placed on it by our aging population. The very face of healthcare in the US will see monumental changes, and as such, Americans will travel overseas to seek treatment to either avoid wait times or to receive high quality healthcare.

Of those seniors that do need medical treatment or surgery, many will consider traveling overseas for healthcare due to rising costs of healthcare in the US and an inability to afford treatment.  Healthcare Reform will exacerbate the problem because of the potential for thirty two million Americans entering into the health insurance system and putting an even greater burden on a healthcare system already with a shortage of doctors and nurses.

Negative Savings

Baby Boomers, many with a negative or subpar savings, will soon face a serious predicament: stay in the US and receive adequate care with potentially long waiting times if the doctor shortage continues, or travel to a foreign country and receive excellent care at a fraction of the cost.

How much does the average American even have in savings?  Well, back in 2006, the savings rate was negative, as people were forced to dip into their savings or had to charge expenses.   Looking at the current rate of savings, we do not see a huge difference.  The average American had about $64,200 in savings in a 401K, according to Fidelity Investments fourth quarter statistics .

In contrast to this positive outlook, Time Magazine stated that “Forty-four percent of all Americans are in danger of going broke in their post-work years. Essentially, this article argues that although there was an increase in 401K accounts the last quarter of 2009, many still suffered insurmountable losses during 2007 through most of 2009, either because they chose to retire or were mandated to retire during these years.

Savings Amount For Different Age Groups

For the first time since the Great Depression, working Americans have almost no savings to speak of. To illustrate this point, take a look at this figure: 69% of workers had saved for retirement in 2010, down from 75% in 2009 .

In June 2009, the Harvard Business Review found that almost half of all Americans reported that they could not produce $2,000 in 30 days in the event of an unforeseen financial event, even if they withdrew from a savings account or borrowed money from a bank, friends or family.

Harris Interactive 2009 Consumer Financial Literacy Survey reported that 42 percent of American adults don’t follow a budget, 26 percent don’t pay all their bills on time and 29 percent of adults can only respond to financial emergencies by using a credit card.

The highest savings rates were actually seen in World War II when few goods were available, and these rates surpassed 25% of earned, after-tax income. Fast forward to the present day and we see less than 1% of income being put away into savings, or approximately $190/year, according to an AP slideshow, “On Borrowed Time: Living Beyond Our Means.”

Retirement, Retirement Communities & Assisted Living Facilities

Many baby Boomers will being to retire in large numbers to exotic locations, such as Panama, Costa Rica, Nicaragua and other countries, where medical care is much more affordable and the standard of living and quality of life is much greater than they could have received in the US.   It will be about affordability and quality for the average American who is retiring.

There are now many Assisted Living and Retirement Communities being built all over the world, and now they have all integrated healthcare facilities within the project. Americans are retiring to Central America, Mexico and other locations.

Europeans are retiring to the Canary Islands and other various places in Europe. People are beginning to realize that if they retire to other countries, they can live a much higher quality of life. All of this will create significant growth in these countries as retirees will prefer to receive their medical care in the country they have retired to rather than travel back home.

Some patients will need to travel overseas for major surgery simply because of the inability to pay for the cost of care in the US.  Thirty-three percent of Americans, (74 million people), have not set aside any savings towards retirement, according to the 2009 Consumer Financial Literacy Survey from Harris Interactive.

So, exactly how much money is needed for the average American to retire? Well, everything is relative, especially now as we face a monumental Social Security crisis, where we will see only about 30% of the average retiree’s annual financial needs covered, according to the Center for Retirement Research at Boston College. The remaining 70% will be up to the individual to cover.

Currently in America, there is a lack of employer-sponsored retirement plans (about 50% of people do not currently have access to these), and 401K plans have replaced traditional plans. The major problem with 401K plans is it places control in the hands of the employee and most people do not have the willpower or the capability to manage their own money, much less do it well.

Also, many people are heading into retirement with loads of debt, unlike previous American generations. They are carrying debt from credit cards, existing mortgages, car payments, and college tuition from children’s college expenses.

According to the New Retirement Illustrator by Merrill Lynch , the following factors will affect how much a person will need as a “nest egg” once they hit retirement: a person’s age, how much they would like to receive/year after they retire, living expenses covered by current income and age you plan to work until and when you plan to cease working altogether. If you ask a financial planner, most will agree that you will need at least 70% of your current income to retire comfortably.

The average costs of long-term care will have far-reaching effects on medical tourism as well, as many Americans will not have enough to cover the costs of care when they are older. Rising medical costs in the US will present the perfect opportunity for medical tourism to provide affordable answers to these problems.   There is a whole new industry emerging of retirement communities and assisted living facilities being developed overseas with integrated healthcare facilities for Americans.

The Employee Benefit Research Institute 2010 Retirement Confidence Survey  found that men age 65 retiring in 2009 will need $134,000 to 378,000 if they prefer a 90 percent chance of paying for health insurance premiums and out-of-pocket expenses in retirement.  

In contrast, women will continue to experience greater longevity and therefore a woman retiring at age 65 in 2009 will need anywhere from $164,000 to 450,000 for a 90 percent chance in savings to cover health insurance premiums and out-of-pocket expenses in retirement .  The study found that a couple age 65 could need $635,000 in savings on average for retirement to cover health insurance premiums and out-of-pocket expenses.  

Amazingly these costs do not include long-term care insurance or care, or daily living expenses!  Only 13% of Americans are very confident they will be able to pay for long-term care when retired.    AARP Reported  that it costs on average $5,566 a month for a semi-private room in a nursing home, $6,266 a month for a private room in a nursing home, $2,968 a month for care in an assisted living unit, and $19 per hour for a home health aide.

If we are going to look at these costs, we must also consider end-of-life costs as well, for these can be significantly higher, in fact, exponentially higher. A report issued in 2008 by Dartmouth University researchers stated that total Medicare spending in the last two years of life ranged anywhere from $93,800-$53,400, and these were at the nation’s top-rated medical centers.  With Medicare cutbacks associated with the Healthcare Reform Bill, will the American people be fronting these costs, and if so, with what retirement money?

Mayo Clinic

In yet another example of the potential effect of outbound medical tourism for the baby boomers and others in the US is the primary care Mayo Clinic in Arizona which made a decision that could possibly affect the entire US healthcare system, and not necessarily in a positive way.

President Obama has praised the Mayo Clinic as a national model for efficient healthcare, according to and when they recently pulled out of Medicare at two of their primary care clinics and are treating Medicare patients as out of network on a trial wait-and-see basis due to a cost-efficiency matter, many industry experts called this merely the beginning.

If such a prestigious organization as the Mayo Clinic has done this, what makes anyone believe this will not beginning happening all over the country, forcing many seniors to consider lower quality care at other hospitals? Those who still wish to receive care here will have the option of paying cash for treatment, which may be up to $1500 for an annual physical and in times like these, many cannot afford that rate and thus will be forced to travel elsewhere for care.

If they wish for the same high quality of treatment at the same price they are used to paying, they will more than likely look out of the country.  It will be increasingly difficult for them to afford this same level of care in the US.

According to David Olmos, of, doctors at this particular clinic and at various other hospitals are saying that it does not make financial sense for them to continue to accept Medicare when only about 50% of their costs are being covered.   In fact, many other hospitals in the Phoenix area and beyond are considering dropping Medicare, for the same reasons as the Mayo Clinic.  

The Medicare Chief Actuary reported that Healthcare Reform’s reduction and Medicare spending cuts could cause twenty perfect of hospitals in the US to become unprofitable potentially causing large numbers of US hospitals to stop accepting Medicare.

As these and the above mentioned reasons state, it will be difficult to fix these problems and we will be facing ever-increasing problems as people continue to live longer lives.  Healthcare is the primary reason why retirement plans get disrupted and force people back into the workforce after retirement, says Stacy Hammond of Schwab.  

Thus, more and more Americans will consider alternative ways of obtaining healthcare and many will travel to do so. Medical tourism serves to benefit greatly from this trend and very well may be the long-term solution.

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