That could be in excess of what we would call a catastrophe.

In addition, you really are taking a fully hands-off posture from the health delivery system, you would have absolutely no control over on the fee schedule at all. All the health-care provider system would know is that some amount of the transfer from the consumer to the providers would somehow be underwitten by the Government.

I really don't see how you could then use national health insurance to provide financial incentives toward a rationalization of the system. Most of us agree that, whatever the nature of the national health insurance legislation, there has to be, somewhere, some sense of a financial bottom line. The national health insurance system should be constrained to a budget within which allocative decisions must be made. You have to know roughly how much things will cost you some 12 months ahead of time.

In the case of this bill, you wouldn't have any such fiscal information ahead of time.

Mr. MARTIN. With regard to the first problem that you raised, the risk exposure not being finite, wouldn't it be possible to actuarily share that risk exposure by simply paying the premium on the insurance policy related to this tax credit formula?

Mr. REINHARDT. Yes; you certainly could.

Mr. MARTIN. And it would be no worse than what we have now as far as those folks who have income who do insure themselves.

Mr. REINHARDT. But you would wind up with failures of the insurance system that Dr. Fein cataloged and on which indeed I stand corrected. I do want to mention that. There are indeed the problems of adverse risk selection on behalf of insurance companies. Persons seeking insurance who are high risks would find the premium unbelievably high, and you would not have solved that problem, because the people whom the insurance companies deem to be high risks would be the people that would be most exposed and they couldn't get insurance at prices they could afford. That is one of the fears we have.

Or you have to get into the business of subsidizing their premium. Mr. MARTIN. On that point it would be helpful to get somebody from the insurance industry to handle that.

Thank you, Mr. Chairman.

Mr. FEIN. May I comment on that question, please?

Mr. ROSTENKOWSKI. Professor Fein.

Mr. FEIN. Let me say that I find more attractive the concept of percentage of income as a deductible than I do the older concept of a flat amount. Clearly the percentage of income is more equitable than saying $3,000 or $5,000 which may mean much to some people and may mean much less to others. So in that sense the use of the percentage is desirable.

I find even more attractive, however, the maximum liability concept as embodied in other legislative proposals, the CHIP proposal, the Mills-Kennedy proposal, because there the upper line is set: you will not spend more than a certain sum of dollars-it would be even better to say a certain percentage of income-in any given year.

In the proposal you make there is the 15 percent cost sharing after the deductible with the sky being the limit although I agree one could insure against that.

That, however, is complex.

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You and I are in very substantial agreement on the concept of a percent of income. Our point of difference is the number that you chose and the number that I would choose.

The number is important. Martin Feldstein, who once made a similar proposal of a percentage of income, said in proposing 8 percent of income, "But the 8 percent is only used as an illustrative figure."

Well, it is very difficult to discuss a bill where a number is chosen for illustration.

If I take the 15 percent as a serious number, I would conclude it is very high for people of average income in the United States.

If I take it as illustrative, then perhaps we could negotiate. The figure that I would use is zero. The figure that you would use is 15. The question is where do we end up in between?

Mr. MARTIN. And subsequently.

Mr. FEIN. And subsequently.

Dr. WYNDER. If I can comment on that. It seems to me that in any society, whatever the figure budgeted that is at least the amount that the society will spend. In Germany the average person spends about 10 percent of his income for health insurance. The emphasis should be on what incentives we are going to provide the system to reduce costs not only in terms of preventive care, but in terms we do with therapeutic care as well.

We have certain groups that are experience rated and there are certain amounts of incentives which usually are not great enough to reduce the utilization of health care, or perhaps have a better life style. But most of us are part of the great average. Whenever I heard the word "average" I think of Walter Heller who said average is when a man stands with one foot on the hot coals and one on dry ice and on the average is comfortable. At present there is little incentive given fiscally, medically and preventively to reduce health care costs.

I am surprised we have not mentioned this afternoon IMOs. It is an issue raised particularly by the administration. It has fared not as well as the fathers of this HMO concept had hoped. In part I believe it is because the medical profession really doesn't have its heart behind the HMO concept.

In principle it is good. You have a fixed fee for the system and, thereby, the physician is encouraged to not unnecessarily put a patient in the hospital and practice better preventive care.

We have in some areas, of course, clearly experience-rated phenomenon; for instance, in fire insurance. If I were going to build a house with a straw roof, I am sure my insurance company would have me pay a higher premium than if I used a stone roof. How far do we go? I understand one of your staff fell with her bicycle and hurt her knee cap. Should bicyclists pay a higher health insurance premium than nonbicyclists? What about the people who go skiing every weekend? There are many areas into which you can carry this point. We ought to be aware of course that our entire life style and other factors affect our own health care expenditures.

The point I would like to make is that in addition to worrying about how we are going to pay for health care, all of you who have great fiscal responsibility, should be concerned as to how we can get a better health care system at a lower cost. Members of Congress can perhaps

put more teeth into that aspect of national health insurance than people who are part of the health care scene itself.

Mr. MARTIN. I have no quarrel with what you say and that was really not related to my question. I am not trying to solve the necessities, which you have brought up, with this particular bill. I propose it as a component of one of the building blocks in relation to Mr. Vanik's proposal. I think there is a lot of merit to what you say but certainly the question of what your average percentage is my point is the Government would not get involved until your expenses, including insurance premiums, until expenses are of a proportionately higher level. Not before then would the Government get involved with the financing.

Thank you all for your response to that. If you could share further thoughts, you could file that for the record.

Mr. ROSTENKOWSKI. You summarized the historical roots and approach to medical education in the United States, Dr. Freymann. I take it you believe changes in our present system are now required. What changes in your view are needed and how shall we go about choosing such changes?

Dr. FREYMANN. My answer to the first is, "Yes, I think changes are needed."

I tried to show that you cannot blame the current state of our health care system on hospitals alone, you cannot blame it on financing alone, and you cannot blame it on the schools alone. Together, these three created the system, and the essence of our current problem is that most doctors are interested in taking care of acutely sick people, preferably if they are in hospitals or can be seen in offices close to hospitals.

You cannot untie this knot simply by changing the educational system, but I think it is crucial that student physicians and graduate students (residents) be given an opportunity to learn primary care in authentic environments.

An authentic environment cannot be created by taking a section of a major teaching hospital and saying, "This is our family practice clinic and you are going to go in there and learn how to take care of families," because the students are too smart. They know where the prestige and kudos are in the institution. I know of one medical school in this country that has really developed a system for teaching students primary care in an authentic environment. That is the University of Illinois at Rockford. There may be others. But at Rockford they are using doctors' offices, many built by the Sears Foundation, which communities around the city were never able to fill. These are being staffed by faculty who are family practitioners and by students and residents. These students do not go to these offices for 3 or 4 weeks of interesting exposure to primary care. From the day they enroll until the day they leave these students spend a certain number of days each week in this environment. They get to know the people of their town as they take care of them. It makes sense to me that this is the way to learn the gratifications of that kind of medical care.

As Dr. Wynder has said, what we were taught in medical school makes primary care look dull. But it isn't. When you talk to these students, they are excited by it. It is fun. It is gratifying.

This is the kind of change I think must be brought into medical education.

Mr. ROSTENKOWSKI. Dr. Freymann, the problems are in the inner cities. I know Rockford. That is not a bad place to live. But when you get to Chicago, or Los Angeles, or New York, in the inner cities, this is where the real problem is with respect to the patient and the general practitioner.

I don't see any incentive for the student to become involved in the ghetto except for something like combat pay. It is just that bad. This is going to be a real problem within the larger urban areas.

Professor Fein?

Mr. FEIN. Some of these areas that are unattractive to physicians are unattractive to other people, including schoolteachers. But schoolteachers are found in that inner-city environment because while they would like to come to Newton, there are no jobs. So they go to the inner city, not because they love the inner city but because the job opportunities are there and not in the suburbs. If an individual is a violinist and would like to play with the Boston Symphony Orchestra, but the Boston Symphony Orchestra refuses to employ him because it doesn't need any more violinists, he does not come to the Congress of the United States and say, "My freedom is being interfered with."

There is an employment market and Americans recognize that they as Americans must choose, to live in Pittsfield, Mass., and not be a maritime engineer, or to be a maritime engineer and give up Pittsfield, Mass., because if you want to be in Pittsfield, Mass., because you grew up there and you want to be in maritime engineering because it is attractive and there are no jobs in Pittsfield, Mass., you must choose. That is true of most of the economic system..

I would like to teach at Princeton, but they won't offer me a job. I don't say my freedom has been abridged.

It is in medicine and it is because of the payment mechanisms in medicine and because of the power of the physician to do good that we have a system in which physician individual decisions can be validated. An individual who sets up a candy store does worry about how many other candy stores there are, what is the competition going to be like and will I make a go of it? A physician does not consider that whether he decides to go into a specialty and select a place. He can validate that decision by offering more care, more neurosurgery than the population needs, if you will, more appendectomies than the population needs; he can generate demand for his product.

There are limits, of course, and I am not suggesting that if we had 10 times as many physicians in the United States we would still be having the same maldistribution that we now have. But within present numbers and within the kinds of numbers that we are generating, the demand for services can be increased by any physician in an area where he is. That is from whence comes the term "overdoctoring." You can have too many doctors in Scarsdale and they will all make a good living. That's why, knowing that, they don't go to the inner city.

With the growth of HMO's for example, that situation is likely to change. The Harvard Community Health Plan, a prepaid group practice does not hire neurosurgeons just because they would like to practice in the Harvard Community Health Plan. The beauty of it is that there is a bottom line figure. There is premium income in the plan and they have to ask whether they need another neurosurgeon. Why pay him if we don't need him?

Now an effective budgeting mechanism that puts money into local areas, that requires a local area to consider what it needs, may not induce physicians to go to Roxbury, but may induce the local area to say we need three more primary care practitioners; we don't need any

more neurosurgeons.

I think that what we are wrapped up in, of course, is a very complex problem because our pattern of thought is the market. We like the market, we like to use the market. It is a convenient device. But the market in health care is a very peculiar market. We're also in difficulty because physicians have used words like "freedom" in very unusual ways, ways that you and I don't normally use that word. We know that we must make choices. We don't respond to every candy store that goes bankrupt saying, gee whiz, your freedom has been abridged. But the physician has used the word "freedom" to mean he shall be permitted to choose where to practice as well as what to practice and not to be subject to market forces because third parties ought to pay for whatever he does.

You have got to break that chain somewhere and I would suggest that yes it is important that you hear from the fellows in the firing lines, from physicians, but I would also comment that the physician is not trained, equipped, educated to see the system as a system and I would also suggest most respectfully that what we may need in American medicine is civilian control.

Dr. WYNDER. Mr. Chairman, you brought up a key point, namely, what kind of medical care delivery system shall we have in the inner city. The point to be stressed here: preventive medicine is a job of all society. Overcrowding, bad housing, malnutrition are the key medical problems that face our inner cities. They are by and large not medical problems, they are societal problems. It is easily shown there is more TB, more cancer of the cervix and greater infant mortality, et cetera, et certera, primarily because of their social situation. Unless we can upgrade the housing and the nutrition factors in these inner city areas the medical profession has no chance to have its effect and, therefore, in terms of a national health posture, in terms of our health schedule delivery system, we need to recognize, Mr. Chairman, that if we are going to advance the health state of our country, the medical profession cannot do it alone but we must consider all of these other factors that I mentioned.

Mr. ROSTENKOWSKI. Dr. Freymann?

Dr. FREYMANN. Following up Professor Fein's statement, I would like to address two points:

First: As he said at the beginning of his comments, the usual rules of economics don't apply to the health care system. I will not argue the virtue or the evilness of this. It just seems to be a fact.

Second: What he says is perfectly true; we can't get the docs to go to the boondocks, particularly the inner city. But this is not an exclusively American problem. It is just as much of a problem in every other country in the world except China (as I explained earlier) and possibly Britain.

If I may, I will use an anecdote to make my point. Dr. James Watt was for many years the Chairman of the American Delegation to the World Health Organization. In this capacity, he developed friendship with the Chairman of the U.S.S.R. Delegation to WHO, who was a