Mr. ROSTENKOWSKI. Mr. Pike will inquire.

Mr. PIKE. Mr. Chairman, this is going to come as a shock to you, but I have no additional questions. I would simply like to say that I think this panel has been excellent in presenting the background and perspective and I am very glad that we got them here first so now we can let those hard line professionals who are out in the front lines of medicine come in and attack everything that these people in their ivory towers have stood for. [Laughter.]

Mr. ROSTENKOWSKI. Mr. Martin will inquire.
Mr. MARTIN. Yes, Mr. Chairman.

In response to a general question that I had asked earlier about major deficiencies in the present system, as I recall only Dr. Reinhardt indicated a major defect in the present system was the catastrophic costs of long-term care and acute surgery.

The others generally disregarded this in your perspective of the highest priorities with the exception, of course, of Dr. Fein, who consistently rejected it as a target or focus of legislative attention.

Now, it happens that I have introduced a bill dealing with catastrophic coverage so you can understand how I felt that Dr. Fein's characterization of catastrophic as being truly catastrophic was somewhat obnoxious.

I am kidding, of course.

Of course, I had gotten mileage out of the same play on words by describing the risk of starting with that catastrophic coverage which might evolve into a comprehensive program. In my view a comprehensive program would indeed be catastrophic through the device of paying for all your bills for all your ills with a 250- or 350-page resolution to describe how to go about it and the tens of thousands of administrators necssary to explain what is meant 10 years from now by lines 19 and 20 on page 274, or whatever.

Also because it would then ultimately shift the decisionmaking out of the dichotomy that Dr. Fein set out, not from the doctor to the patient, not from the producer to the consumer, but from the doctor to the clerk or from the physician to the bureaucrat.

In what I felt was typical of the entire panel, in his eloquent analysis, Dr. Reinhardt set out three features for this, one, it should be easily administered, and three, there should be a cost-sharing feature to it, deductible feature and copayments.

Dr. Fein, on the other hand, fears any scheme that addresses these rare and unusual costs that do not happen to many people should be avoided because one, it will direct our resources to the long-term care and the acute surgery and bias the system in favor of those, if I recall your answer to Mr. Pike's question.

Second, you made the point that only the person wealthy enough to carry through to the high deductible threshold would benefit from a catastrophic program.

And three, it would be administratively expensive.

What would happen if instead of a complex legislation comprehensively dealing with all of the problems, if we provided that the Government would insure 85 percent of your medical expenses in excess of 15 percent of your adjusted gross income? Here you would have a sliding scale, not an arbitrary level that would be too high for people without substantial wealth. It would have a sliding scale so that for people with $10,000 with adjusted gross it would be $1,500.

There would thus be a deductible feature relative to what your income was. It would be 15 percent of your adjusted gross income. Then to provide something of a copayments feature the particular formulation that Senator Brock and I have would say that you would have to copay or coinsure for 15 percent of the remaining cost above 15 percent of your adjusted gross income with the Government paying the other 85 percent. It would be simple and not expensive to write such a clause into the contract.

The bill only runs eight pages, and only six deal with the legislative change. Thus if you average about 10 bureaucrats per page, you only need just a few dozen to employ to administer the interpretations in addition to those who would write the checks from the Internal Revenue System.

It would involve a reimbursible tax credit. You could take the credit for previous years' income so if you need the money now you file an amendment to your previous year's tax return. It would seem from appearances to be very simple and I would of course be grateful for any immediate comments that any of you may have, and I will be very grateful to any of you who would send a more detailed response to this.

That sort of leaves not really a question but an opportunity if anyone has an immediate reaction to that.

Mr. FEIN. It may be worth in addition to submitting something for the record, to comment now on some of this and the characteristics of that proposal.

I will be glad to, but maybe you want to begin.

Mr. REINHARDT. Well, evidently here we would have a bill that institutes for cost sharing. Cost sharing is really the goal of the bill, and the desire for cost sharing is predicated on the theory that consumers play a significant role in determining the overall utilization of health services. Or, if consumers do not really have this much power over these decisions, an alternate theory is that a physician acting as the consumer's agent in putting together the treatment package is conscious of his patient's budget constraints, acts as if he were the patient, tries to minimize the cost of the treatment, I think that this really is the philosophy behind it and indeed is the theory proposed by those economists who are in favor of coinsurance and deductibles.

The Martin bill has this attractive feature—at least attractive to those who believe that coinsurance has a role to play in national insur

ance.

Having just looked at it briefly, I think that there are some problems, however.

As the bill now reads, the amount of risk exposure suffered by insured persons is not insignificant. It will in theory not be finite, and in practice to can go very, very high indeed; this, it would burden the American citizen with precisely the uncertainty that I think our national health insurance should not impose upon the citizen. You really wouldn't know what would happen to you in a given year. Indeed, if your income were $12,000-your adjusted gross income, that is you could easily become ill enough to incur expenses of $3,000 to $1,000, of which you would have to pay $1,500 to $1,800.

I think a family trying to make it on $12.000 a year would find it enormously difficult to absorb such a shock if they were to incur such expenses 2 or 3 years in a row.

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.