Medical Device Daily Washington Editor

WASHINGTON — In an election year, any gathering dealing with healthcare policy is certain to include yet another vetting of the health plans offered by various candidates for office. And this doesn't rule out a discussion of an approach to healthcare financing, concerning demand as well as supply.

Thus, on the first day of the 2008 World Healthcare Congress. George P. Schultz, secretary of state during the Reagan Administration, offered his own approach to universal healthcare coverage and cost containment

With John Shoven, PhD, professor of economics at Stanford University (Stanford, California), Schultz has co-authored a new book on the subject, with emphasis on a more concerted effort to keep Baby Boomers on the job, even after they become eligible for Medicare and Social Security.

Schultz made clear that the thesis of this book, Putting Our House in Order, is that while Social Security and Medicare are distinct sources of pressure on the U.S. economy, they require parallel efforts at reform. He said healthcare is the bigger problem, but "healthcare people have a big stake in getting Social Security fixed."

Schultz said he and Shoven put their ideas forward because "we were not satisfied at the way these discussions were going." He said the financial pinch presented by Boomers "is a big iceberg, but there are ways we can deal with this effectively."

One approach hinges on the country's labor/economy interrelationships, he said. "Improved labor force participation can make [the economy] bigger," a difference that he said can total as much as $1 trillion a year for each year longer, on average, that Boomers stay on the job.

The ways that Social Security and Medicare are currently structured "fail to encourage work," he said, and that he can't understand "why nobody is talking about this."

"The reason the [Social Security] system is not solvent is known clearly," he said, and that available fixes do not have to reduce beneficiary incomes, and could even boost the income of those at the low end of the Social Security scale.

He called U.S. healthcare, in its current form, a two-legged stool: providers and those who provide the money — namely employers and insurers of various types — calling this "not a stable stool and needing "another leg, a consumer leg."

He cited some hopeful signs of change, such as cost savings via the use of small clinics "that provide a variety of services ... at a low cost. The way to the future is to [further] build that consumer leg." And consumers must have "a bigger stake in what's going on" in order to bring them into the system.

Co-author Shoven was then on deck, saying, "if you're worried about Social Security and healthcare, you should worry also about how vibrant the economy is," and that "division is always easier if the pie is large."

Like Schulz, Shoven discussed the need for policies that "encourage workers to stay in the workforce longer."

He said the original math for Social Security was based on fewer retirement years than is now commonplace, and financed by 35 years of earnings. Today, "the most common age at which men experience 35 years of earnings is 52, but any additional earnings have little effect on benefits," thus offering an incentive to retire.

"This struck us as an almost absurd age at which to tell people 'You can keep working, but your benefits are locked in,'" Shoven said.

Shoven and Schultz propose that Social Security and Medicare be restructured to give workers an incentive to work for 40 years. Shoven said, beyond that, "you achieve a new category called 'paid up,'" meaning the worker would not be taxed for Social Security or for Medicare. Working beyond the 40th year would also provide no further retirement benefits.

Shoven said that as matters now stand, anyone who qualifies for Medicare at 65 gets a national health plan unless he or she is employed, choking off any incentive to hire the older employee.

"We think that should be replaced with Medicare as a primary payer," Shoven said. "Think how attractive 65-year-old workers would be" given that employers can avoid paying their healthcare benefits and a matching share of their Social Security and Medicare taxes. "The number of 65- and 66-year-old workers would at least triple," Shoven said, resulting "in more GDP."

Social Security problems have been recognized as an issue for some time, while "the frustrating thing about Social Security is that there are solutions." And he called healthcare "tougher," because there is no "simply wrapped-up package of solutions."

Shoven said that "one thing that has been frustrating in this presidential campaign ... it hasn't focused on runaway costs."

"Risk-adjusted vouchers might be a way forward," Shoven said, noting that the value of vouchers would depend on age, gender, and health history to ensure that payers have an incentive to take on all comers.
"Believe it or not, Milton Friedman advocated universal healthcare based on this voucher plan," Shoven said in reference to the deceased Libertarian thinker. "We think it's a good idea, maybe a little radical," adding that he and Schultz recommend "gradually converting Medicare and Medicaid to a voucher system."

Referring to the disparities in healthcare outlays between regions in the U.S., Shoven said that these disparities support the notion of "more national competition" among payers, rather than the current system of state-bound insurance.

Another advantage of vouchers is that "people are a lot more careful when they spend their own money than when they're spending someone else's money."

Of Medicare Part D, he said, "a lot of people thought this was going to be an incredible mess," but that with one-quarter cost sharing by subscribers, the government "made some pretty wise decisions," with costs well under the estimates."