Thursday, September 27, 2007

Comparing Two Neighbors: Panama and Colombia (Part I)

If we look at a comparison between health care expenditures (per capita) and GDP (adjusted for purchasing power parity) in Latin American countries, we find some peculiar disparities. I thought I might have to exclude Brazil from this model, since it dwarfs all other countries in terms of GDP. It has the highest purchasing power, but its health care expenditures were roughly the same as Uruguay's. Mexico has the highest expenditure on health services, and its purchasing power is the second-highest the region, behind Brazil, and followed by Argentina and then Colombia. Yet Brazil's GDP per capita is slightly more than Colombia's.

One of the most disparate comparisons is between Colombia and Panama. Whereas Panama, Belize, Brazil, and Colombia have roughly the same GDP per capita -- Panama's health expenditures are much higher. I would hesitate to label Panama as an "outlier". It is simply that, among all the countries who GDP in US dollars is of 20 billion, Panama is the highest spender in health services. I have come up with several reasons as to why this is the case.


1) Panama's economy is largely service-based.

Any economy that is service-based is likely to have a higher demand for government services like health care, like environmental quality, etc. Economist and Nobel Prize winner Simon Kuznets once detailed the relationship between rising income and demand for quality environmental services. The same sort of argument could be made for health services. As a service-based economy is much more in tune with global health practice, and is constantly exposed to healthy foreigners, it will most likely also begin demanding better health services. The sort of infrastructure that a service-based economy has provides the structure for a vibrant and healthy population. Service-economies must have higher-valued human capital than non-service economies.

2) Panama owns a key geographic location.

This is an argument for its economic growth, which is a necessary (but not sufficient) condition for health care expenditures to increase. The Panama Canal is a key, strategic location, and is home to the Colon Free Trade Zone, and has nearly 2,000 firms importing and exporting throughout the region and the world. Colombia is in fact the largest purchaser of Colon Free Trade goods.

3) Panama developed an extensive social security program.

This is perhaps the most obvious reason why Panama has high expenditures in health services. The United States Social Security Administration website provides an outline of the program in Panama, which includes coverage for all foreign workers, except those working less than two months. There are no maximum earnings for contribution purposes, and unlike most countries, it covers sickness, work injuries and maternity as well as survivors and old-age benefits. Benefits for dependents are also generous, including specialist care, surgery, hospitalization, laboratory services, medicines, and dental care.

4) Immigration

More interesting, however, is the fact that many Americans are moving to Panama to retire, in fact, due to inexpensive health care and medical insurance, but also the tropical environment. A heart stent, for example, costs 52,000 in the United States. In Panama it costs $11,000. Health insurance companies in Panama also do not deny coverage to those with existing illnesses.

Roger Gallo, publisher of, a site for international relocation, says in a New York Times article that Argentina and Belize have become attractive to American retirees in recent years. But Panama remains among the highest. This would explain why, in terms of sheer numbers, Panamanians would be spending much more on health care per capita than most countries of its GDP per capita size. As more American retirees flee to Panama, the amount expected to be spent on health care services should increase. American retirees in Panama may be surprised that they are still expected to pay income taxes in the United States, however.

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