Five reasons why medical care is more affordable abroad
The medical tourism industry is booming. Every year, over 1.2 million Americans take advantage of the low cost, high quality medical care available abroad and save a lot of money in the process.
But how is it that medical care abroad can be both low cost and high quality? There are many reasons. We’ll outline five big ones here: 1. Lower cost of labor
Doctors and medical staff overall are paid much more in the US than they are in the countries we focus on. These labor cost savings are passed on to consumers in the form of lower prices for medical care.
2. Lower insurance rates.
The US has a very active medical litigation industry. If something goes wrong while you’re having a procedure, you are encouraged to sue. Damages can run in the millions of dollars. There is therefore an equally active medical insurance industry in the US to cover these damages, and medical staff and practices are required to hold very substantial insurance policies, driving up costs. This is not the case in the countries we focus on. As a result, professional liability insurance premiums are a fraction of what they are in the US.
3. Greater simplicity and transparency
The financial workings of the US healthcare system are incredibly complex and bloated. You (as a patient) rarely pay directly for the service. Most often, there’s an insurance company acting as an intermediary. Medical practices and insurance companies negotiate to agree to costs. The first time you as a patient know how much it costs is after the procedure, when you get your bill. Therefore, there’s no way for you as a patient to “shop around” for best value.
For international patients, the process is much more straightforward abroad. Medical care is largely paid for directly by the patient. This introduces a greater degree of competition between medical practices which in turn puts downward pressure on prices.
4. Greater supply relative demand
There are many medical care supply restrictions in the US that contribute to high prices. From a paper on the topic by University of Chicago Economics professor John Cochrane:
A small example: in Illinois as in 35 other states, every new hospital, or even major purchase, requires a “certificate of need.” This certificate is issued by our “hospital equalization board,” appointed by the governor and, like much of Illinois politics, is regularly in the newspapers for various scandals. The board has an explicit mandate to defend the profitability of existing hospitals. It holds hearings at which they can complain that a new entrant would hurt their bottom line.
Specialized practices that deliver single kinds of service or targeted groups of customers cheaply face additional hurdles, as they undermine the cross-subsidization provided by “full service” hospitals. For example, the Institute for Justice is bringing a major suit by a speciality colonoscopy practice in Virginia, which local “full service” hospitals managed to ban. This is exactly the form of regulation put in place by the Civil Aeronautics Board until the late 1970s, which produced airline prices much higher than they are today.
In contrast, new medical tourism initiatives have been announced by the governments of India, South Korea, Malaysia, UAE, Puerto Rico, and others to aggressively expand total hospital capacity.
5. Favorable currency exchange rates
Finally, American patients benefit from the purchasing power of the US dollar relative the currencies of the countries they’re visiting -- say, the Costa Rican colón. This, combined with the other reasons listed above, makes a big difference.










