Treat Health Insurance Like Auto Insurance and Hold People Accountable
Vanderbilt Health and Business Expert Gives His Take on How to Fix the Health Care Crisis
Senior Public Affairs Officer
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Mar 18, 2009
The keys to fixing the U.S. health care system are to hold people accountable for their actions; treat health insurance like auto insurance and tax individual’s health care benefits said Larry Van Horn, a leading expert and researcher on health care management and economics.
“People need to consume less health care, period,” said Van Horn, associate professor of management and faculty director of health care programs at the Vanderbilt Owen Graduate School of Management.
“One problem that we have is that I’m a balding, middle-aged fat guy and I have the same family health care plan as co-workers who jog everyday and eat much healthier than I do. There’s no individual accountability because there’s no individual underwriting. My rates are not based on my underlying lifestyle choices, which are the primary determiner of how much health care I’m going to consume. We need to get to a world where I’m held individually accountable for the decisions that I make,” said Van Horn.
Van Horn believes health insurance should be handled in a similar fashion to auto or life insurance. How a person takes care of him or herself should come back to that person in terms of underlying health insurance risk and corresponding rates, just like with auto and life insurance. Van Horn said this treatment of health care could result in lowering rates by separating a person’s day-to-day health care needs, such as check-ups, from serious health emergencies.
“There’s a fundamental difference between health insurance and pre-paid health care. Insurance is for high consequence, low probability events. Much of what we consume in our health plans does not satisfy that definition. As a result of that we put all these things in our health insurance plan that make it very expensive,” said Van Horn.
Instead, Van Horn thinks basic health “maintenance” should be included in a separate pre-paid health plan. “It would be like if you put in your auto insurance policy, oil changes, tire rotations, tune-ups. And if those elements were part of your auto insurance policy, your auto insurance policy would be much more expensive,” said Van Horn.
Van Horn believes that taxing people’s health care benefits would not only save the government an estimated $250 billion, eliminating this exemption might encourage people to make different decisions on which benefits they’re willing to purchase, thus lowering the burden on the health care industry.
Van Horn proposes a government-led or single payer “safety net” combined with a thriving and robust private health care sector that would allow people to buy additional health care for their plan.
“We need to have a public safety net, a base level of coverage that anyone with a pulse would get. At the end of the day the conversation will be, how luxurious will that base level of care be? And it will be defined by our capacity to fund that level of care,” said Van Horn. “For those who have the means and desire to consume more health care, they’ll spend up.”
Van Horn thinks the current Medicare system simply doesn’t work because people have never contributed enough to it.
“People think, ‘Well I contributed to Medicare. I’ve been paying Medicare taxes for 42 years, so I funded this.’ The reality is you didn’t come close to funding it. You didn’t come close to funding half a knee replacement with 42 years of contribution,” said Van Horn.
Just like the pension system shifted to individual retirement accounts, Van Horn believes the health care system should shift to consumer-directed plans where employers make a contribution to a plan for which the employee is ultimately accountable.
“I think there needs to be a balance between what we want to do to provide access and care to people and what we can actually afford and you have to have the ‘what can we afford’ conversation in play. Looking at the unfunded liability associated with Medicare is paramount to addressing the fundamental health care problem. You cannot divorce the two.”
Vanderbilt Owen Graduate School of Management is ranked as a top institution by BusinessWeek, the Wall Street Journal, U.S. News & World Report, Financial Times and Forbes. For more information about Owen, visit www.owen.vanderbilt.edu.