Bring Free Trade to Healthcare

November 1, 2013 Topic: EconomicsTrade Region: United StatesEurope

Bring Free Trade to Healthcare

The TTIP deal should work to bring Americans more healthcare choices.

As the United States and the European Union negotiate the Transatlantic Trade and Investment Partnership (TTIP), they will be considering whether and how much to liberalize a wide range of goods and services. Many of these are sensitive in terms of their impact on domestic competition. The usual suspects in this regard are sectors such as agriculture and "cultural" industries (like French films). In the TTIP, the United States has the opportunity to add an additional sensitive sector to the mix: healthcare. Despite the controversy this is likely to bring, U.S. trade negotiators should offer to liberalize the U.S. healthcare market as part of the TTIP talks.

Traditionally, trade agreements have focused on trade in goods. Recently, though, trade in services has grown in importance as a share of the economy and services rules are playing an increasingly prominent role in trade talks. In an almost finished trade agreement between Canada and the EU, called the Comprehensive Economic and Trade Agreement (CETA), the extensive services liberalization has been touted as one of the great innovations. According to a Canadian summary, however, while many service sectors have been liberalized—including legal, architectural, and engineering services—healthcare has been excluded from the liberalization commitments on services and investment.

Given the nature of the Canadian healthcare system, it is not surprising that the Canadians did not want to open it to competition. The Canadian system has much more government involvement than does the U.S. system, as the Canadians see healthcare as more of a public service than a market. As a result, the idea of foreign competition was not acceptable to them. In the United States, by contrast, the role of the government is extensive, but private actors still play an important role. There is little interest in the United States in creating a government-run system, and the goal should be to make our healthcare market work better. To this end, instead of excluding healthcare from a trade agreement with the EU, like the Canadians did, the United States should actively promote liberalization in this sector in order to confront the dual problems of rising healthcare costs and uncompetitive health-insurance markets.

Healthcare and health insurance have become hopelessly intertwined in the U.S. system. Unfortunately, trade agreements do not have the power to untangle them. Nevertheless, targeted liberalization of each of these service sectors can provide large benefits to U.S. consumers.

With regard to health insurance, one of the big complaints about the Obamacare exchanges is the limited number of companies operating in particular markets. Without competitive markets, companies have no incentive to lower prices and improve quality. One way to help remedy this would be to encourage foreign participation in the U.S. health-insurance market. There are many European companies who offer general types of insurance, and some European countries even have a private health-insurance market. U.S. consumers would benefit greatly if these companies entered the U.S. market and offered health-insurance policies in competition with existing U.S. companies. The U.S. market is much different than European markets, of course, and these companies could not simply offer their home-market products to Americans. But if they were given access to the vast U.S. market, they would have an incentive to figure out how to sell health-insurance policies here.

As to the provision of medical care, opportunities for trade have multiplied in this era of globalization. Doctors and nurses based in foreign countries can provide some services to Americans online through "telehealth"; U.S. patients may travel abroad for treatment through "medical tourism"; foreign doctors and nurses can be encouraged to come to the United States through liberalized visa rules; and foreign investment in hospital facilities in the United States should be permitted.

The TTIP offers a great opportunity to make these policies concrete through liberalization commitments. One of the goals of trade agreements is to establish a clear and predictable framework for companies to operate in. In order for companies to invest in a particular foreign market, they need to know that their access will not be taken away at the whim of the host country. Making commitments to open up our healthcare market would tell European companies that they are welcome here and that we will treat them just like we treat American companies.

Simon Lester is a trade-policy analyst at the Cato Institute.