If you're an American considering the idea of retiring overseas, your Medicare won’t travel with you. The United States generally prohibits Medicare from paying for medical services for retirees outside the country and its territories. The more than half a million retired Americans living overseas and the millions more who travel extensively abroad must either go without care until they return to the United States or pay out-of-pocket for the care they need.
Many retired Americans who have paid into Medicare their entire working lives and then choose to move overseas find this situation to be unfair. This restriction on Medicare coverage also ignores the potential cost savings to Medicare offered by lower-cost health care options abroad.
Currently about 50 million Americans receive Medicare benefits. In less than a generation, that number will increase to 80 million. In 2012, Medicare spending was $560 billion, about 15 percent of the total federal budget. By 2022, Medicare spending is expected to reach $1.1 trillion, or more than 19 percent of the federal budget. The Medicare Part A trust fund is expected to be exhausted by 2024.
As policy-makers grapple with this financial crisis, may people believe that more of the cost of health care will be shifted to Medicare beneficiaries in a mix of higher deductibles, co-pays and reduced benefits. While allowing seniors to receive Medicare coverage abroad is not a cure-all to this fiscal crisis, the potential savings could be significant. Health care costs for a procedure overseas can be less than half of the cost of the exact same procedure performed in the United States, saving both Medicare and the retiree money.
For example, if a Medicare beneficiary could get a hip replacement performed in Costa Rica, Panama or Israel by a highly-trained (often U.S.-educated) surgeon at an internationally accredited hospital for half of the cost of the same procedure at a U.S. hospital, the Medicare system would realize significant savings.
Studies indicate that the age of retirees living abroad peaks at about 72. One reason that older retirees are less likely to live abroad is that, as healthcare needs and concerns increase with age, they are returning to the United States where Medicare covers them.
The current Medicare rules create a disincentive for Americans seeking a lower cost of living (and lower health care costs) abroad. Medicare-eligible Americans living abroad, even part time, must continue to pay their Medicare premiums but either forgo health care while abroad or pay out of pocket for it. If they pay out of pocket, they are in effect paying twice for health care coverage. If they do not continue their Medicare premium payments, they are penalized upon their return to the United States and enrollment or re-enrollment in Medicare.
This disincentive may also be causing unnecessary costs to Medicare and poorer health outcomes for some Americans. Because of the double cost, retired Americans often choose to forgo health care while abroad, even skipping routine doctor visits until their condition has festered into one requiring extensive and costly treatment. Then they return to the United States to receive Medicare coverage.
A non-partisan group called the Center for Medicare Portability, formed in 2011 and based in Washington, D.C., is working to try to change Medicare’s rules for overseas retirees. The objective of the CMP is to make it possible for retired Americans who live overseas to have access to the Medicare benefits they have paid for throughout their lives.
International health care coverage for American retirees is not new. In fact, it's fairly common. The federal government already provides health care coverage abroad for retired military and their families, retired federal employees, some veterans and even some Medicare beneficiaries. The CMP hopes that Congress will see that the global health care market offers part of the solution to the Medicare spending crisis.
The CMP does not advocate any one mechanism for Medicare portability, but has proposed several ideas. One option, which could be administratively feasible in countries with large and growing U.S. expatriate retiree communities, would be to set up a traditional Medicare system, including Medicare Part A (mainly inpatient care), Part B (mainly outpatient care) and perhaps Part D (prescription drug coverage).
A Medicare-contracted insurance intermediary (for example, a U.S. insurer that already operates in the specified foreign country and that has a network of providers and administrative capabilities in that country) could manage beneficiary enrollments and relationships, oversee provider accreditation and certification issues, negotiate reimbursement rates (based on usual and customary costs in that country and with Medicare approval), administer billing and payments and manage fraud and abuse.
Another option could be a capitated care system in which a network of providers would agree to provide care to a beneficiary for a set price. That price would be based on the expected actuarial cost of care for the beneficiary in the foreign country, based on age, pre-existing conditions and other factors, just as Medicare Advantage does in the United States.
A third option, possibly the simplest one, would be to create a voucher system for retirees who live abroad. A voucher could be provided to Medicare beneficiaries who agree to receive their care abroad, valued, for example, at 75 percent of the expected cost of care for the beneficiary in the United States. This would immediately save Medicare 25 percent of the cost of covered benefits for that beneficiary, and the beneficiary could use the voucher to purchase a health insurance policy from a private insurer in the country where he or she retires.
Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 28 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter. Her newest book, How To Buy Real Estate Overseas, published by Wiley & Sons, is the culmination of decades of personal experience living and investing around the world.