B-School Profs: Fixing the Deficit

Bloomberg BusinessWeek
Aug 8, 2011

…Others agree that healthcare expenses are crippling the U.S. economy. Larry Van Horn, executive director for Health Affairs and associate professor of economics and management at Vanderbilt University's Owen Graduate School of Management, says it is mathematically impossible to keep up with the ever-growing costs of Medicare and Medicaid. In addition, he would tax the health insurance that companies provide to employees, which he estimates could bring in $2.5 trillion over the next 10 years. "We have an insatiable appetite for healthcare, but we have a limited willingness to fund it," he says. "We've kicked the can down this road for the last 25 years, and we've run out of time."

Instead, Medicare and Medicaid should cover catastrophic services as opposed to unlimited services, says Van Horn. For example, he says that a year's worth of Medicare payroll deductions for 17 taxpayers would be needed to pay for one knee or hip replacement, which costs about $20,000. Multiply that by the 400,000 replacements that happen each year in the United States, he adds, and you need more than 6.5 million taxpayers to cover those expenses. "You can spend what you bring in," says Van Horn. "But if you can't bring in the money, you can't keep spending." …