A self-funded employer is a company that directly assumes the costs of its employee’s medical care instead of paying insurance premiums to an insurance carrier. In most cases the employer will design a plan that is similar to that offered by traditional insurance carriers that includes deductibles, co pays and exclusions. According to recent survey by the Kaiser Family Foundation, employer-sponsored health insurance covers approximately 149 million nonelderly people in the U.S. Of these, sixty-one percent are in a self-funded plan. Therefore, the self-funded market in the U.S. covers roughly 90 million lives.
Medical tourism can be described as an activity where patients travel to other countries or regions for medical services. This includes domestic medical tourism (patients traveling within the same county) our international medical tourism (patients traveling across borders for care).
There are a number of factors that make medical tourism attractive to employers:
Many medical tourism destinations offer significantly lower costs for medical procedures compared to the U.S. Table 1. Below includes comparison costs for procedures provided by the Medical Tourism Association.
|Medical procedure||USA||Costa Rica||Colombia||India||Jordan||
|Heart Valve Replacement||$170,000||$30,000||$10,450||$9,500||$14,400||$39,900||$28,200|
|Lasik (both eyes)||$4,000||$2,400||$2,400||$1,000||$4,900||$1,700||$1,900|
|Cornea (per eye)||$17,500||$9,800||N/A||$2,800||$5,000||N/A||N/A|
|Cataract surgery (per eye)||$3,500||$1,700||$1,600||$1,500||$2,400||N/A||$2,100|
As can be seen, costs in some of these destinations can be as much as 90 percent lower than the U.S.
According to a 2012 study by The Commonwealth Fund, the United States spends more on health care than 12 other industrialized countries yet does not provide “notably superior” care.  Health expenditures in the United States neared $2.6 trillion in 2010, over ten times the $256 billion spent in 1980. Addressing this growing burden continues to be a major policy priority for the government.
Since 2002, employer-sponsored health coverage for family premiums have increased by 97%, placing increasing cost burdens on employers and workers. Nearly two-thirds of employers expect to see a cost hike in their health plans when the Affordable Care Act goes into effect in 2015, and a quarter say they will have to make changes to their coverage to avoid penalties, according to a recent survey by the Mercer consulting firm.
The challenge for businesses then has been to get some kind of grip on skyrocketing healthcare charges. The Affordable Care Act did much to improve healthcare coverage, however, most of the insurance reforms, such as eliminating pre-existing conditions and prohibiting lifetime caps on coverage, are increasing premiums for employers.
Self-funded employers who choose medical tourism can access savings of up to 70 percent even when the cost of travel and lodging is included for a patient and companion. Recently, large employers such as Lowes and PepsiCo have made headlines, whereby their employees travel out of state to large hospitals such as the Cleveland Clinic and Johns Hopkins Medical Institutions to undergo elective surgical procedures (e.g. joint replacements, cardiac procedures). A North Carolina company was recently featured on ABC Nightline news for sending its employees to Costa Rica for orthopedic and bariatric procedures.
Fixed package pricing
Not only are skyrocketing healthcare costs squeezing employers, but variations in price and performance among U.S. hospitals are also astounding. Back in 2004 the Wall Street Journal reported on the case of an uninsured patient who was charged nearly five times the rate the hospital charged insurers. Unfortunately, this case is typical of what many Americans experience after a hospital stay.
Asked by a Wall Street Journal reporter to explain how U.S. hospitals price their services, William McGowan, chief financial officer of the University of California, Davis, Health System and thirty-year veteran of hospital financing, responded: “There is no method to this madness. As we went through the years, we had these cockamamie formulas. We multiplied our costs to set our charges.”
Medical tourism destinations, on the other hand, are usually fixed bundled packages that include all medical related costs (doctors, hospital, anesthesia, pre-ops, etc…), and in some cases may include ground transfers and lodging. Hospitals benefit from getting paid on the front end while employers benefit by having access to fixed costs which allow them to accurately forecast their healthcare expenditures.
Although this last factor may surprise some people, the fact is certain destinations inside and outside the U.S. offer superior medical procedure outcomes due to their experience with certain types of procedures. Sometimes referred to as “centers of excellence” these are hospitals that perform a high volume of certain procedures and have therefore lower complication rates and improved outcomes. Some well-known hospitals that fit this category are the Cleveland Clinic (USA), Fortis Hospital Group (India), MD Anderson Cancer Center (USA), Johns Hopkins Hospital (USA), Apollo Hospitals (India) the Mayo Clinic (USA) and Wooridul Spine Hospital (South Korea). Referring employees to a center of excellence has been shown to reduce medical complications, surgical reinterventions and recovery times, allowing employees to return to work quicker.
What are the benefits of medical tourism for employees?
- Waiving of deductible, coinsurance, out of pocket expenses and travel expenses for the patient and companion
- In some cases receiving cash incentives
- Often experiencing a higher level of personalized care by nurses, doctors and hospital staff
- Being able to engage in tourism activities or take a vacation they otherwise would not be able to afford
One of the major questions about the Affordable Care Act (ACA) was whether or not more employers would drop coverage in anticipation of the law going into effect in 2014. The latest U.S. Census Bureau data shows that companies were not dropping coverage in 2012, ahead of health reform. Some 54.9% of Americans had employment-based plans, not statistically changed from a year earlier.
While potential liability issues or how to reliably measure quality across different destinations are still concerns for some, if self-funded employers continue to feel squeezed by the Affordable Care Act then it is expected that more companies will begin to look at medical tourism as a viable solution to lower healthcare costs.
 Employer Health Benefits 2013 Annual Survey. The Kaiser Family Foundation and Health Research & Educational Trust. Retrieved 10/21/13
 D. Squires, Explaining High Health Care Spending in the United States: An International Comparison of Supply, Utilization, Prices, and Quality, The Commonwealth Fund, May 2012.
 Kaiser Family Foundation and Health Research and Educational Trust. http://ehbs.kff.org/. September 2012.
 Anatomy of a Hospital Bill. Lucette Lagnado, http://webreprints.djreprints.com/1073641266651.html. retrieved 10/20/2014
 The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy, Reinhardt. http://content.healthaffairs.org/content/25/1/57.full. Retrieved 10/20/2014
 U.S. Census Bureau: Income, Poverty and Health Insurance Coverage in the United States: 2012, September 17th, 2013. Retrieved 11/19/2013