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Medical Inflation and the Cost of Expatriate Healthcare

Posted on Apr 29, 2010 by Sergio Ulloa ()

What is the cost of healthcare when an individual gets old? Most expatriates who are not returning to an NHS style system may not anticipate these costs. Individuals living within an NHS system will often have paid 5 - 10% of their annual salaries, up to retirement age, towards the cost of their healthcare - with the understanding that the social support structure will continue to provide assistance, and healthcare, once they have left their jobs. Expatriates on the other hand will typically only pay costs associated with current healthcare issues, and not those that will develop further down the road. With medical inflation advancing faster than ever before, and the costs associated with even basic care becoming almost unattainable, how will you fare both overseas, or in your home country, after you have retired? An expatriate is a person living, or permanently residing in a country other than that of their own culture or upbringing. An expatriate may have legal residence in their chosen home, but it is not their own. The idea of expatriates rose to prominence in the 19th century with the mass emigration of American citizens to Europe, however the roots of the movement have been around for centuries as individuals from all walks of life explore new opportunities and benefits which would not have been available in their home nations. In the modern world, to be an expatriate is no longer to be part of an amusing trend, but to belong to a community of millions covering the planet, occupying every corner of the globe. Historically expatriates have tended towards relocating to poorer nations, deemed to be part of the "third world." However, as the modern age of globalization has shown, outmoded ideas like the "third world" have very little relevance in the 21st century; as a consequence, the destinations of expatriates have grown increasingly varied. A 2009 study by HSBC concluded that the most preferred expatriate destinations were, in order:
Overall Finances Healthcare Education Social
Canada 1 7 10 9 16
Australia 2 1 15 20 8
Thailand 3 11 4 8 2
Singapore 4 6 6 2 10
Bahrain 5 3 14 4 1
South Africa 6 14 7 11 3
France 7 23 1 7 12
USA 8 20 9 12 22
Spain 9 10 8 19 5
Hong Kong 10 2 11 3 4
Malaysia 11 3 18 1 9
Germany 12 13 5 15 13
Switzerland 13 5 3 18 25
Saudi Arabia 14 9 16 6 15
Belgium 15 17 2 10 26
Japan 16 25 19 24 24
Netherlands 17 16 12 5 21
UAE 18 12 17 13 17
Vietnam 19 18 25 16 6
Brazil 20 24 13 26 18
Mexico 21 14 22 25 14
China 22 21 26 12 11
UK 23 19 23 22 19
Russia 24 26 21 14 7
India 25 22 20 21 20
Qatar 26 8 24 23 23
Of the expatriates who have relocated to the countries listed above, more than half have lived overseas for longer than 5 years, with 39% having been outside their home nation for 10 years or more. This is not to say that they will stay in the same country for the duration of their time away from home; only 18% of expatriates will stay in the same location for 10 years or longer. It is typical for the average duration of stay in a single country to last between 7 months and two years. The increasing length of time spent by modern expatriates outside of their home nations can be attributed to the demographic shift of the expatriate population over time. Whereas historically many of those seeking to relocate overseas where doing so for diverse purposes, a trend has emerged whereby most expatriates (a full 51%) are citing employment, or career opportunities as the primary motivator for a transfer abroad. For expatriates seeking a big pay-day, Asia is the top geographical region. Approximately 30% of all foreign nationals living in Russia are earning more than US$ 250,000 a year. 27% of the expat population of Hong Kong is on a similar salary, followed by 26% in Japan, and 25% of expats in India. Comparatively, only 16% of the global expatriate population earns more than US$ 250,000 a year. The index for expatriate financial wellbeing, according to HSBC, is as such:
Overall Income Luxuries Savings Disposable Income
Russia 1 2 15 2 2
Qatar 2 18 7 3 1
Saudi Arabia 3 13 3 1 5
Hong Kong 4 3 4 6 6
UAE 5 5 8 5 4
Singapore 6 4 5 11 7
Japan 7 1 12 23 3
Bahrain 8 14 1 7 9
India 9 9 23 4 10
Malaysia 10 8 6 15 8
China 11 11 21 8 13
Switzerland 12 7 9 13 15
South Africa 13 15 2 10 16
Vietnam 14 17 10 9 14
Thailand 15 16 11 14 12
Mexico 16 12 26 11 10
USA 17 6 20 22 18
Brazil 18 21 24 16 17
UK 19 10 16 24 19
Netherlands 20 23 13 17 20
Canada 21 22 22 20 23
Belgium 22 20 18 19 26
Germany 23 24 17 21 24
Australia 24 26 14 18 25
Spain 25 19 19 25 21
France 26 25 25 26 22
It is important to note that decreased satisfaction with a particular locale's quality of life does not necessarily imply decreased satisfaction with the financial wellbeing of being an expatriate in that location; Russia, for example, ranks 24th out of 26 countries in terms of lifestyle satisfaction, but is listed as being the best in terms of financial benefits. From various surveys conducted on expatriates residing in the Russian federation, it is estimated that approximately 97% of all expats in the country have higher levels of disposable income than they did prior to arrival. In terms of the total amount of disposable income available to expatriates in Russia, only Qatar does better. The general trend which can be gleaned from the above tables is that the modern expatriate can expect significantly higher financial windfalls in places which have been identified as having a lower lifestyle rating (also known as a hardship posting), or where tougher working environments may present themselves. While expatriate remuneration may include increased salary packages over what would be expected had the expat stayed in their home country, often including side benefits such as housing or medical expense contributions from the employer; they, the compensation packages, are often not equal to the long term contributions toward social support networks which the expatriate would have made were they to stay in their country of nationality. Coupled with the increasing amounts of time that many expatriates are choosing to stay overseas, this removal from social welfare networks, such as a National Health Service, can present a significant long term risk to the expatriate in question if, and when, they return home. To put the above in perspective; A British national, residing in the United Kingdom and holding full time employment would pay 11% of their weekly salary towards the National Insurance Contribution if they earned between ?110 (US$168) and ?844 (US$1,289) per week. If that same national earns more than ?844 per week, they would have to contribute an additional 1% of all their earnings over ?844. Assuming that this national had full time employment from the age of 20 until they retired at 65, and they earned ?844 a week, their total life time contribution to the National Insurance Fund would be ?217,245.60 (US$ 331,893). This is equal to an average yearly National Insurance Contribution of ?4,827.68 (US$ 7,375). Approximately 16% (according to the HSBC survey mentioned earlier) of all expatriates around the world will earn an average annual salary of US$ 250,000 (?163,692), which is approximately US$ 4,807.69 (?3,148) per week. If these expatriates had never left their home country (for illustration purposes, the UK), and earned a similar wage during their careers in their home nation as they had while overseas, they would be contributing an average of ?6,025.76 (US$ 9,202) per year, or ?271,159 (US$ 414,126.52) over the course of their entire career. Many expatriates, however, are not on a salary of US$ 250,000 per year. A more reasonable figure would be with regards to the majority of expatriates (approximately 50%) around the world who are earning under US$ 100,000 in annual salary. For this reason we should look at a middle of the road earner with an annual salary of US$ 77,000 per year. If this individual were working in the United Kingdom an annual salary of US$ 77,000 would be equal to ? 50,693.27, which means that this person would have a weekly wage of ? 974.87. With this salary, the worker would have contributed ? 94.14 per week or ? 4895.28 per year to the National Insurance Fund; for a total lifetime contribution of ? 220,287.60 (US$ 334,404.56). If the individual in question had a steady wage of US$ 77,000 over the course of their entire working career (20 - 65), they would have earned US$ 3,465,000. As one can see, the total contribution towards the National Insurance Fund made by this worker is close to 10% of their lifetime salary. There is, however, a tragic sort of irony inherent in the system, as it is evident that the lower wage earner will pay a proportionally larger part of their salary towards the National Insurance scheme. While the individual earning US$ 77,000 a year will contribute a lower overall sum, it actually is equal to a greater percentage of their earnings (close to 10%). The individual with a wage of US$ 250,000 per year will only have to supply an approximate 4% of their salary. As most expatriates earn less than US$ 100,000 per year, were they to remain in their home nations they would feel the burden of the National health infrastructure far more than the bulk of the population. Astute readers will, of course, raise the point that the total lifetime contributions seem outrageously large, and that no person could ever require such a significant amount of healthcare for which they would need to pay such a sum. To illustrate; BUPA, the UK's largest health insurance provider currently charges an annual premium of approximately ?1,900 (US$ 3,000) per year to cover a British family of four, residing domestically. This means that it is expected that the average British national will receive an estimated US$ 3,000 worth of medical treatment each year. If the policy were in force for 45 years (age 20 - 65) the total premiums paid, at current rates, would equal ?88,986 (US$ 135,000); much less than the National Insurance Fund contribution paid during the same period by an employee earning US$ 77,000 annually. The question is then raised as to why the National Insurance Fund requires the contribution of an additional ?131,319.60 (US$ 199,367.1), as the market has already established that average yearly medical costs will equal US$ 3,000. The answer is that the remainder of the national insurance fund contribution is designed to cover the medical costs of the individual after they have reached retirement age. If we can safely assume an average life expectancy of 80 years from birth in the UK, this means it is expected that persons over the age of 65 will spend approximately ? 8,756.64 (US$ 13,291.14) per year on healthcare after they have retired. With no income from employment, very few retirees would be able to afford their medical treatment were it not for the payments they had made previously. Expatriates who have not participated in this scheme would not be eligible for the benefits and would, most likely, have to pay for the expected US$ 13,000 in annual medical fees out of pocket; a daunting prospect. In order to safely assure themselves the ability to obtain comprehensive medical care when they are in their old age it becomes obvious that the expatriate in question would need to have a specialized medical savings account of no less than US$ 200,000. As can be seen by the numbers, ordinary residents of a nation with a National Health style system will contribute large portions of their total lifetime salary towards the system with the understanding that they will have immediate access to a high standard of healthcare. While the actual operating structure of such a system may be suspect, the reality is in the fact that while overseas, expatriates from all walks of life are typically able to avoid contributing to these schemes; a fact which is evident in the increased savings and disposable income noticed by the majority. In addition, the regular contribution of workers in their home country ensures that they will have access to basic healthcare services after they retire; their lifetime contributions will be counted as their payment for medical services after they have reached retirement age and have no further access to regular income. If the national was not a British citizen, but rather from the USA, and was on a similar salary then they would be paying for a private medical insurance policy, rather than contributing towards the National Health Service. For the annual National Insurance Fund contribution which their British counterpart would have made, the American national would be in possession of a top class private medical insurance policy, allowing them instant access to the best doctors and hospitals available. Conversely, the British resident is guaranteed nothing aside from free healthcare (as the costs have already been covered), which will often entail lengthy bureaucratic processes, tedious amounts of paper work, and more often than not, extreme waiting times before actually being able to consult a primary physician. It is important to note, however, that not all medical insurance is the same and that nowhere is this truer than in the USA. Even with a comprehensive health insurance policy, there arises a need to ensure that the coverage provided is able to last as long as the life of the policyholder. In many cases health insurance policies from a number of companies will no longer afford you a renewal option at the age of 65, in which case the policyholder would be left having to fend for themselves. Having had a health insurance policy for the 45 years prior to retirement an individual may not see the need for a medical savings account, assuming that their coverage will be indefinite. However, if the coverage lapses, or there is a renewal limit on the policy, the likelihood that the individual will be unable to afford continuing healthcare becomes very high. For an expatriate who has reached retirement age this type of situation can be extremely daunting. If they have been away from their home country for a year (although in some countries this can be as little as 3 months) they will potentially face costly fees for any medical services they receive upon returning to their home nation. Staying with the example of the United Kingdom, a person who has not been living in the country for the 12 months immediately prior to their seeking treatment, even if they are a UK national, will be subjected to the NHS Overseas Visitor Regulations and deemed to be responsible for paying any costs associated with their healthcare until they achieve residence again; a process that will typically take 12 months. It is important to note treatment in the United Kingdom will never be denied because of doubts towards a patient's ability to pay, but the patient will still be held accountable for the fees if it is found that they classify as a non-resident. No matter if the expatriate had contributed consistently to the National Insurance Fund prior to their departure, they are deemed ineligible for coverage once they have permanently resided outside the UK for longer than 12 months. Heightening this risk of going without social coverage is the issue that older individuals are more likely to develop serious chronic conditions which will require active management and care. Even if the expatriate retiree can resign themselves to completing the 12 month residency requirement, the probability that that they will need some form of medical attention is high, an no matter where in the world you may be obtaining treatment; healthcare is not the cheapest of necessities. Thailand, world renowned as one of the foremost destinations for medical tourism, is regarded by the international medical community as being a cost effective place to receive comprehensive medical treatment. However, even with "low-cost" options, the price of healthcare is hardly affordable. The below table illustrates the costs of various medical procedures in the USA, Thailand, Singapore, and India:
Procedure USA Thailand Singapore India
Heart Valve Replacement 160,000 10,000 12,500 9,000
Heart Bypass 130,000 11,000 18,500 10,000
Spinal Fusion 62,000 7,000 9,000 5,500
Angioplasty 57,000 13,000 13,000 11,000
Hip Replacement 43,000 12,000 12,000 9,000
Knee Replacement 40,000 10,000 13,000 8,500
Hysterectomy 20,000 4,500 6,000 3,000
All Figures in US$ While the cost of treatment in Thailand is significantly lower than those associated with the USA, out-of-pocket payments are still less than affordable; with most treatments often costing expatriates more than a month's average pay. Lower cost options are available, as the canny expat and the growing medical tourism industry have proven, but these are often only attainable in countries where the medical infrastructure is, at best, limited. In addition to this, these average costs only account for present-day fees, and do not take into consideration the looming specter of medical inflation. Medical Inflation is generally 2 - 4 times the rate of general inflation in any given country. Having just emerged from the Global Financial Crisis inflation rates worldwide are running high, consequently industry experts estimate the rate of global medical inflation to be close to 15% at the present. This does not bode well for anyone needing healthcare in the near future as the costs associated with treatment are expected to rise 15% from the levels at which they currently are. A Heart Bypass operation in a respectable Thai hospital costs US$ 11,000 today; with medical inflation at 15% the cost could go up to US$12,650 in 2011, US$14,547 in 2012 and to US$16,729 in 2013. Even with the most stringent attitude towards saving money, many people the world over would be hard pressed to afford even the lowest cost options available. Factoring the USA into the medical inflation equation does not present any more of a pretty picture. Already established as the most expensive place in the world to receive medical care (followed by Hong Kong and Israel respectively), any further increase in the cost of treatment would be prohibitive. This is true for most established economies where the individual is not covered by the national system, such as an expatriate returning to their home nation in Western Europe after an extended stay abroad, where the costs of the established healthcare service is not designed to be affordable to non-covered patients. However, the issues of home nation healthcare are often not of great concern to the modern expatriate. Expats are typically based in locations where "low-cost" alternatives are often within easy grasp, and often supplied with a comprehensive health insurance policy as part of an attractive remuneration package, the issues of how much treatment actually costs, or of dealing with an active illness are often not treated as seriously as they would be were the expat at home having to work within the system, and providing a generous portion of their annual salary to the same. But when retirement age approaches and company supplied benefits are no longer available, having to rely on personal finances, or the often low quality medical services of their adopted home, are only some major issues which expatriates will have to contend with. In the modern age it is no longer sufficient to rely on government services to provide you with the support which you need. Going overseas can present challenges, but with limited income, and the increased propensity for illness as you age, returning to the safety net of your home nation can prove equally difficult. There is no question that global medical costs are high, and that they will get even more expensive in the near term future. With UK nationals over the age of 65 expected to use US$ 13,000 worth of medical services each year, and the cost of those services growing ever more expensive, it is easy to infer that in 10 years time those same 65 year olds could be expected to use US$ 14,950 worth of healthcare each year. The simple fact is that costs can, and will, inevitably go up; and with their rise, all medical related expenses - from insurance to national social network contributions - will also increase. The question stands, then, at what can be done. When residing in their home nation an individual can reasonably assume that having contributed they will be in safe hands when they eventually retire. An expatriate, however, has no such luxury as they have lived overseas and will not, in most cases, have made significant contributions to whatever social healthcare scheme may have been apparent in their home country. Outside of specialized savings accounts, a lifetime renewable insurance policy can offer the protection which they, the expatriate, will need. As demonstrated above, the average cost of an annual insurance policy is still less than the annual contribution that most individuals would make to the UK's medical system. And yes, while it is no secret that the premiums associated with medical insurance will rise, the cost of healthcare as a whole will increase and a larger contribution will still be paid to the social system in question than would have been paid in premiums.
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