Economics & Investments

The Real Cost of Insufficient Coverage ~ Can Medical Tourism Reduce the Damage?

Economics & Investments
Medical Tourism has a window of opportunity within which players in the industry can penetrate the U.S. Business Market with a carefully thought out plan of relationship building.  Included in this communication plan of relationship building should be a well laid out cost benefit analysis, which should identify the true costs to a U.S. employer, of their current healthcare plan.

In the U.S., corporations account for their healthcare and benefit obligations on their balance sheets.  These obligations include the current cost of benefits offered to current, retired and laid off employees.  In addition, and this is a little known fact, these obligations also include retirement benefits promised to current employees.  These obligations are referred to as current, post employment (laid off) and post retirement (retirees) benefits obligations.

As an example, on one balance sheet that my company reviewed while working on a consulting project, the benefits obligation at the end of 2007 for the corporation was more than the company’s total assets.  Granted, these obligations are funded (or promised) by corporations during the period of service of employees.  This is done in order to prepare the corporations for the future obligations.  Regardless, the numbers are still staggering.  It still means the corporation is not worth much when you look at its market value and, in this case, it is because of their benefits obligations.

For that same company, the total liability of all non-pension obligations was almost 19% of all benefits obligations.  Now, we all know that the healthcare costs assume the lion’s share of all benefits packages, so I think it’s safe to assume that corporations are very, very interested in reducing their healthcare obligations.  In my opinion, most companies are not aware of their true healthcare costs.

Many of them account for benefits as they are paid, but few account for the hidden costs of healthcare.  As we’ll see, these hidden costs can add another 20% at least to the actual cost of benefits paid.  It is in this area of overall cost reduction that medical tourism comes into the picture.

Corporations stand to save even more than the actual cost of the medical procedures, when they implement a component of healthcare that introduces overall costs (medical tourism), because they can make more procedures eligible for coverage.  

As we’ll see, the more procedures that are not eligible, the more out of pocket expenses past and current employees are faced with, and the less likely they are to seek treatment for the ineligible ailment.  This cycle triggers hidden costs that are incurred by employer, employee, and insurance carrier.

I contend that corporations are

  1. either not aware of the hidden costs associated with the burden that today’s healthcare plan place on their employees, and/or
  2. they do not account for these costs in the proper manner.  Many corporations do expense accounting without realizing that their inadequate healthcare plans, and the cost they ask their employees to bear, are the root cause of many expenses.

In order to understand the total cost of today’s healthcare coverage, including these hidden costs, let’s look at the following situation.  A 55-year-old employee, married with two children ages 24 and 19.  Both children attend college so they are still considered to be dependents on the employee’s healthcare package, which the employer sponsors.  

Now, let’s say that that said employee has a painful knee, commonly referred to in the U.S. as a “bum knee”.  This ailment causes tremendous pain for which the employee seeks occasional treatment in the form of OTC and prescription painkillers.

Actual Cost of Medical Procedures

Medical tourism can save companies up to 90% of the cost of the procedures themselves, such as heart valve replacement, knee and hip replacements, and heart bypass operations.  For the employee referenced above to seek a knee replacement in the U.S. the employee’s cost for the surgery alone would be $8,000 (20% of the $40,000 cost for a knee replacement procedure in the U.S.), if and only if, the procedure were covered.  

By that, we mean if the procedure was deemed necessary.  In the U.S. before any procedure can be deemed necessary, there has to be considerable consultation with the employee’s primary care physician, numerous referrals to specialists, and an honest to goodness effort at rehabilitation before surgery will be “approved”.

Medical Consultation Costs

According to the American Medical Association’s “Physician Socioeconomic Statistics” publication and some samples from The Minnesota Council of Health Plans, 2005, let’s consider that these doctor and clinic visits would consist of a combination of non-emergency doctor, and emergency hospital, visits.  The cost of a dozen visits over the course of a year could easily total over $1,000 of which the employee pays 20% in a good healthcare coverage plan.

Associated Health Costs

For the depression treatments for the employee, spouse and dependent child, a good employer sponsored plan would cover 35 visits, paid in full.  We can see that we’re adding another $5,000 to the overall costs.  If we add prescription drug costs to the total, we’ll be adding another $1,000.

Absenteeism Costs

In my experience as a supervisor at a corporation, employees with personal problems, such as health issues, are prone to at least one day each week of unexcused absence.  In this example, this absenteeism would be due to unbearable pain.  Plus, said employee suffers from the kind of depression that comes when one has a reduced quality of life due to a physical impairment.  

Needless to say, if said employee suffers from depression, said employee’s wife or husband also suffers from depression.  For the sake of argument, let’s assume that only one of the children suffers severe emotional trauma due to the fact that both parents are depressed.  In any case, we’re looking at absenteeism of at least 20%, for the employee.

By my math, we’re now at $47,000 of total costs.  The employee is paying about 20% or less, the employer is paying about 70% or more, and either the insurance company and the healthcare provider are absorbing the balance through reduced, or negotiated, charges and straight healthcare claim payments.  Remember, we’re not counting the absenteeism, which is costing the corporation at least 20% of the employee’s full time wages.

The employer may also face increased premiums, increased negotiated service costs, or may be faced with the insurance carrier shifting the costs to the employer by increased deductibles and self-insured amounts, where applicable.

Medical Tourism has a window of opportunity within which players in the industry can penetrate the U.S. Business Market with a carefully thought out plan of relationship building.  Included in this communication plan of relationship building should be a well laid out cost benefit analysis, which should identify the true costs to a U.S. employer, of their current healthcare plan.  This communication plan should reference the impact on the company’s balance sheet benefits obligations.  

The industry players, whether they are foreign-based hospitals and clinics, government agencies of those countries wishing to promote international patients to their countries, or medical tourism agencies that actually bring patients to foreign based hospitals and clinics, should know how to present this communications plan to U.S. employers.  I think most corporations would appreciate knowing what their true healthcare and healthcare related costs are.  Their market value depends on it.

Alex photo and bio are in prior issue

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