Before beginning his talk, Professor Glaser handed out an overview of health policy options which we will be sending to you as part of the accompanying materials to this seminar series.

William Glaser [WG]: I have distributed this, which will be the basis of discussions here, about how to organize a country. The second half is in Russian, because it was the basis for some of my discussions with the Committee on Health Protection of the Duma, and in addition to this there's a Russian translation about how health insurance works in those countries. I did much the same thing with a group of people in Warsaw.

Now just to start off, maybe much of the time you've been hearing about the United States, how it is organized inn this or that way. When looking at the United States, you have to pick out certain things, and they might be useful to your country. But notice the U.S. really doesn't have a health care financing system. Rather, other developed countries have some sort of a system. And that's really the purpose of this handout. On the first page of this, at the beginning I say that several fundamental questions must be answered in every country. About who is eligible for care under an official system, which people go to what health care providers, relationships among doctors, among hospitals and so on, but above all the flow of money, how you get money from the economy and how you pay the health-care providers.

Now, on pages one through three there is a description of national health insurance. Once every country in Europe had that, including every one of yours. It began at the end of the19th century. There always had been mutual aid associations among workers and some catholic aid associations, and they had paid doctors and hospitals and so on; but at the end of the 19th century, some of these programs were made official by legislation and also by the financing of governments. At that time there was a great deal of sharing across Europe; Germany was the first model, but very quickly the others enacted national health insurance like this, including all of Eastern Europe and including Russia itself.

Now the basic system is just what you have at the bottom of page one. There's parliament, and parliament levies payroll taxes. These programs are always part of social security; it's not health insurance alone. So it's old age pensions, work accidents, unemployment insurance, and health insurance is simply part of the complete package. So payroll taxes levied on employees and employers. And a crucial part of the game is this reference to health insurance carriers. These are mutual aid societies, and in some European countries they go back many many years; for example in Germany the Innungskrankenkassen go back a thousand years, and many of the others go back to the 19th century. And the patient who's covered goes to the doctor, hospital and so on, and the health insurance carrier pays the doctor, hospital and so on. Now parliament lately has been providing some government subsidies from general treasuries, but still most of the money comes through this social security system from payroll taxes, and the money really does not go through government treasuries. Examples of this? Well right now, Germany. The first one, beginning in the 1840s in Prussia, and the national government enacted it in 1883, and it's still very much as it was in 1883. France, Belgium, Holland, Austria, Switzerland, Japan. And at one time, all of Eastern Europe had something like this. Later I'll mention why they changed.

Now at the bottom of page one, the role of government is limited. Government does pass a law, the social security laws, national health insurance law, and here's an example; this is the sozialgesetzbuch of the German national government, and this has the social security law, for pensions, and the health insurance law. And from time to time parliament will enact amendments to the law. For example here's one that was enacted just in 1988 in Germany as amendments to the original law, and another one enacted just two years ago. So government does pass a law which is the framework.

Then see, at the bottom of page one, the law does say what benefits each person will get who's insured--what sort of benefits from doctors, hospitals, whether there's dentistry, pharmaceutical drugs, whether long-term care is included, things like that. Then at the bottom of page one, the who is covered? specifies the occupational groups covered.

On page 2, at the beginning, top, the parliament does pass laws requiring employers and employees to pay payroll taxes. It's a slightly different rate in different countries; of course, taxes are controversial, that's exactly what the French have been fighting over the last couple of weeks, amendments to the tax law for health insurance, plus some other things.

Then page two, subsidies to supplement payroll taxes, to cover those who can pay little. See, in these programs the elderly stay on; in fact, by now a lot of folks were born into a health insurance carrier, they belonged to it while they were adults paying taxes, they stay in it after retirement, but after retirement there has to be some sort of subsidies out of the government treasury, but the unemployed are also covered with government subsidies.

Now, the third thing on page two, the law also sets a general framework for deciding the payment of doctors and the payment of hospitals. This is not left completely for every doctor to decide, for every hospital to decide. Doctors and hospitals would like to charge a great deal, sickness funds would like to pay very little, so the law does set forth a general framework, rules. Also, government is there to settle disputes, because these systems are full of conflicts of interest. The payers want to pay little, the sickness funds would like to pay the doctors and hospitals very little, hospitals and doctors would like to charge a great deal, so there can be strikes, deadlocks, disputes, and government plays a role.

Then that final thing: sets general framework and some guidelines for cost containment. For a long time, the negotiations between sickness funds and, let's say, hospitals were the basis for cost containment, and the insurance carriers tried to cut whatever deal they could. But now all over Europe you have efforts by government to intervene and make sure that spending is limited, because otherwise the payroll taxes would go way up and government would be subject to more pressure for subsidies. And this of course is exactly what France has been fighting about the last three weeks, the Juppe government has intervened to play a bigger role in cost containment, and it's been true all over Europe, the so-called Seehoffer reforms in Germany two years ago included some new limits on payment.

Now on page two there's a paragraph, sequence and coverage; these things don't start as universal programs. They start with industrial workers, the first to be covered. These may be factory workers, miners, and so on. Family coverage for each occupation. See, the payroll taxes cover not only the worker, but the wife and all children.

Elzbieta Matynia: Are you talking about historical sequence in coverage, the very first to be covered were industrial workers, at the beginning when insurance started?

WG: Yes, it always starts this way, for example in Germany the coal miners were the first to be covered, and then in the 1880s the other industrial workers. Now this evolution may take a very long time. Then all other blue collar workers, then white collar workers, maybe top managers, then the self-employed, then the farmers, the aged, the unemployed. This may not be complete; for example, in Germany and the Netherlands, a lot of people are still in the private market, they're not covered under these official programs. But there are other countries, France, Belgium, where everybody is under these programs in some way.

Now toward the bottom of page two, that reference to health-insurance carriers, the German sickness funds, the French, the Dutch, in every country you have these health insurance carriers, they may be mutual aid funds among workers, set up originally by unions or by the Catholic church, or they may be mutual insurance companies that simply get recognized. Now there's a lot of free choice; these sickness funds are central to the health insurance system. Usually, every insured family has free choice of which health insurance carrier they can join. It's been an interesting evolution in Germany -- for a hundred years, workers were assigned automatically to certain insurance carriers if you fell into that occupational group. But under the reforms of the 1980s now, Germans have free choice of health insurance carriers.

EM: That's all in Europe, right, the free choice is European, we're talking about Europe right now, not about America?

WG: No, not about America, this is irrelevant to the United States. America is nothing like this. The Americans could have enacted something like this, which means you wouldn't have the bedlam in this country you now have, but the United States did not, and the result is what you see around you. I am now speaking of NORMAL developed countries [laughter] and the relations among them.

See, the sickness funds get the money, the payroll taxes, and these things redistribute them. Because the rich managers pay in, but high amounts, it's proportion of salary, and the rich manager is usually healthier, and it's the poor who pay in less, and the poor often use health care more and the elderly use health care more. So these big insurance pools, see they're enormous, for example the French must have forty million members in it, so this is a huge pool in which all the money gets mixed together.

Now they pay the doctors and hospitals, pays whatever provider the subscriber chooses. Then they negotiate contracts and fees with the medical associations, and that's quite fundamental. Doctors do not want to be dictated to by government, they will fight governments everywhere; that's a long history of Russia, of doctors evading government regulations and going into private entrepreneurship. Hungary has a long history of that, of doctors not following the rules and seeking under-the-table payments. However, in these countries the idea is that doctors will follow fee schedules, doctors will follow the rules, and the sickness funds will pay the doctors directly. But that means you have to negotiate with them; doctors don't want to have anybody dictating. So in every country in Europe, you now have these negotiating situations. And this is what it looks like. Here's France; every five years, the health insurance carriers negotiate a contract with the medical associations; the medical associations becomes quite fundamental as a representative of the medical profession. So here's a contract, they negotiate every five years or so, and the same thing in many other countries. In Germany, the peak associations, the Bundesverbände der Krankenkassen negotiate this with the Kassenärztliche Bundesvereinigung, that's the national leadership of the sickness funds. But every country has this sort of thing, and this is the fee schedule, and this is negotiated also between the sickness funds and the medical associations, and that's kind of a standing committee. But this becomes a calm, professional negotiation; it's a technical matter, which procedures are in the fee schedule and what their weight should be, what the relative prices should be. And then they negotiate over money, every year; see, this document is virtually permanent. They keep amending it every year or so to update it and to clarify it, but every year they have a big negotiation over money, and it's just over a few numbers, but this is the thing that creates all the heat. This is the sort of thing in France now which is the object of the Juppe government reforms, virtually to freeze this for several years to come, because this sort of thing, plus utilization, the number of people who use care, the amount of care, that's what determines total payments.

Now that is the normal method of dealing with the medical profession, but of course there are conflicts of interest, so there are fights and protests over money, but that's part of the normal way of life. Now on hospital care, hospitals are the biggest item in all health care spending, and that requires a kind of expert investigation, because hospitals are non-profit. Even if a hospital is a private clinic, as in Germany, they really have to break even in their national health insurance work.

EM: Meaning they cannot make money.

WG: They can't earn profits, they can't earn losses, because of this. In a country, every hospital fills out one of these every year. This is the cost report for a particular hospital. In this example it happens to be in Switzerland, but the same thing in France, Germany, Holland, etc. Each hospital fills out one of these every year, and it tells what last year's costs were and what they would like to charge next year. And everyone assumes that much of this is too much, it's been increased excessively. So the task then is to find out if the hospital can do its work with somewhat less money. So in Germany for example these are negotiated between the local sickness funds and each hospital, and a few countries have government rate regulators that decide the rates.

But the idea is to have an amicable scheme which is fair to everybody within the available money; see, guidelines then come down from government about what the system can afford for everybody. Again, the Juppe government among its reforms is to be much tighter in the payment of doctors hospitals. They cannot deny care; the patient has the right to go to the doctor as often as the patient wants, and if the doctor says the patient should go to the hospital, the patient goes to the hospital. That part of it is what they call demand-driven--the patients, the doctors, the hospitals decide that. The restraint is on how much money you pay doctors and hospitals. There have been some attempts at reforms of all this, for example the Juppe reforms will say that the patient must have a primary-care doctor, a gate-keeper, and the patient must use that doctor for referral before the patient goes to the specialist. The Netherlands has had that sort of thing for a while.

Now at the bottom of page 2 I describe that situation; every insured person has free choice of provider. The American managed care now is a very different thing from this. America, now all these insurance companies with managed care have what they call lock-ins, and the patient must go to doctors within the network, but not in Europe. Then closed panels, there are no closed panels in Europe; any licensed doctor has the right to treat patients under the health insurance system.

Going on to page three, you see this reference to doctors' offices and hospitals remain private. These do not have government takeovers. The doctor remains a private businessman who simply has the right to practice under national health insurance. The hospitals may be private non-profit, usually, for example in a few countries like Germany and Holland these hospitals have been there for hundreds of years, managed by the Catholic Church, that used to be quite common all over Eastern Europe, where hospitals were run by the Catholic Church. In several countries, like in France, a lot of the hospitals have been taken over by municipal governments, the city government, but they still are quite independent. See that's another thing that the Juppe reforms, that will go into effect maybe, that there will be much more power, authority, over the hospitals, perhaps inspired by parliament, than there has been in the last few years.

Now on page three there's that list of advantages and disadvantages. Under the advantages is that access by all people are covered; then all social classes are treated alike. These are capitalist countries with great income inequalities, great differences in social way of life, but the health insurance system gives people these standard benefits. It still gives you the right to see a doctor privately; these are not government monopolies, and since these are free societies, you the individual can buy private health insurance and go to the doctor privately, or go to the hospital privately. There are a number of private hospitals in France which depend on this private practice. In the Netherlands there are still thirty percent of the population is not under this official program, so there still is a big private market in Holland.

EM: People who do buy the private insurance, let's say in the Netherlands, are they also, since access by all, do they also have access to that general health insurance system, or if they buy the private are they excluded from that?

WG: Well in France, you are always covered by the full official health insurance system even if you buy private health insurance; see the top managers would do that. The Netherlands is different; 70% under the official scheme which I have described, which leaves thirty percent of the population to operate in the private market, and this would be civil servants and top managers, some self-employed, so they can't call upon the social health insurance system to do that. In Germany, about 15% of the population is still privately insured, or voluntary members of the sickness funds.

Now on page three, among the disadvantages, that business about overutilization. And that is quite a problem in Europe. Because in a number of countries a style developed to go to the doctor very often; for example in Germany, patients go to the doctors more often than in almost any other country. But also overutilization of pharmaceutical drugs, that's the big issue in France, a very large amount of drug prescribing. And this becomes a big source of the increase in costs. Even if the hospital budget is kept low, and even if doctors' fees are kept low, more people are seeing the doctor and maybe more people are going to the hospital.

The cost-containment problem now is very big all over the European Union. Under the Maastricht Treaty of 1992, the social security accounts are counted as part of the full budget of government, and there are several of these countries which are now over the convergence criteria. See the goal in 1999 is a single currency, and a really highly integrated system of central banks, with low inflation for all, which means that every country has to bring down its public budget deficits, and they're all trying to squeeze their health budgets right now, and that's the point of what's going on in France. Now page 4 begins national health services. All countries once had national health insurance. Why did some change it? One reason is just economic crisis. The first one was Russia. Remember the effects of World War I and the civil war, that all of the health insurance carriers were ruined, most of the doctors had been killed, and there were a lot of epidemics, so there was a crisis. So what happened is that the new Soviet government stepped in, Semasko? developed this plan for a national health service, a full government system: not just money, but also managing the doctors and hospitals. See the Americans think that everything way out there on that side of the Atlantic is government running this wonderful private sector, but notice under national health insurance the doctors and hospitals are private, and the health insurance carriers behave very much as if they're private entities. But government does play a role here. Now after Russia, remember after World War II the Red Army moved in, the Communist Party moved in all over Eastern Europe, every one of these countries was Sovietized in some fashion, and all of them developed national health services, really copied from the Soviet system. Now, a few other countries had terrific financing problems, and they adopted a national health service too: Great Britain, 1946. Sweden evolved somewhat in this manner, peacefully. Italy, in 1978, Spain, 1980. But these were countries that had big financing problems, and they figured more government management would be more efficient. So there, page 4, parliament levies taxes. Now parliament therefore is levying taxes for the entire government, not just health, so for example in the Soviet Union heavily dependent on these consumption taxes which were in the prices of manufactured products. But countries can have income taxes nowadays, value-added taxes. And the treasury then sets a budget, and the budget is enacted by parliament and is distributed among the ministries, and health is simply one of the ministries, and it pays to regional divisions. See what was supposed to be a federal system in Russia, the all-union ministry of health would distribute sums, plus rules, to the republic ministries, which would distribute it further on down to the localities.

EM: That's Russia, or the Soviet Union.

WG: Soviet Union. Actually, this is somewhat I guess still in place right now. Private medical services may survive for the rich; they don't want to queue up at the hospitals. For example England still has some private health insurance. But everyone can use the health service. See at the bottom of p. 4, among the advantages, full coverage of the population at once. The day this is enacted, everybody can use it. That was true in Britain; you had a national health insurance system, on July the 3rd, 1948; on July the 4th, 1948 the health service went into full effect, everybody, automatically covered.

Heshan: There was a run on spectacles and dentures immediately.

WG: Because of the question of benefits. See, high benefits for all, no variations by social class. A number of the goals of national insurance are achieved by this method, such as complete access, equal treatment and so on. No financial barriers: usually these countries do not have patient cost-sharing. Bottom of p. 4: cost control, predictable--that's a big advantage. See, Great Britain is a highly developed country, with a pretty good health service, but very low costs because of strict controls by budgets. And bottom of p. 4, simple administration.

Top of p. 5, an advantage is planning and coordination. See the government can redistribute services. That was an important reason for the British national health service. Because its health insurance system was weak, a lot of private money, and what happened was that most of the good hospitals were in London, Liverpool and Oxford, and most of the specialists were in London, Liverpool and Oxford. So a very important reason for the health service was to get a grip on the whole country, to distribute money and build up hospitals outside of London. On p. 5, resources can be reallocated to underserved regions, and that is certainly what happened to Britain; there's a lot of recent, post-war hospital construction all over the country because the health service could put the money where the patients were.

Now on p. 5, you see on disadvantages, some people may say people will not appreciate care because they're not responsible for paying. Notice that this is something you hear nowadays. For a long time, health care policy believed in social protection; the weak were protected by fully publicly-financed systems. Now you have a conservative counterrevolution all over the world; you hear these American advisors are all over Eastern Europe telling about how to introduce market relations into health care--make the patient responsible; that the patient should be given money, or the patient should contribute in part to the cost of his health care, and he will be more careful, he will shop, look for the better doctors, look for the better hospitals, he won't overutilize care. So some critics would say a health service lacks personal, teaches people the wrong philosophy of getting things for free. There is a danger, overutilization by patients, that's believed to be a problem for the health service of Sweden. Underfunding to control costs--disadvantage. See, an advantage of a health service is you can control costs; if the government budget gives a certain amount of money, that's it. But then the disadvantage is underfunding to control costs. Now that of course has been the big issue in Russia--a history of very low funding, priorities to defense and heavy industry, and the question for Russian reformers is how to put more money into the health care system, but also where to find it. That's a common issue all over Eastern Europe; the proportion of gross domestic product in health care in Eastern Europe is low, but the advantage is it's not the same kind of health care as you would get in Western Europe because of the squeeze on technology and the squeeze on pharmaceutical drugs. A further disadvantage is waiting lists, as I say there.

There have been attempts to reform these health services. The health insurance system really doesn't require a big reform unless it's collapsing, like Italy and Spain in the 1970s. But with these health insurance systems, you can clamp on tighter cost controls, like France is doing, or you can give people more choices, or you can change the patient cost-sharing, but these health insurance systems tend to stay, decade after decade, and now there are a few countries which have had these for a hundred years; I think maybe this year Belgium's system is in place for a hundred years, and in Germany it's 112 years old. However, the big problem is in Eastern Europe at the moment, how to find more money or put more money in, or how to have more patient choice, how to make the system more efficient. Almost every Eastern European country now is thinking how to reestablish health insurance. See they once had it, fifty years ago, how to go back. And that's the dilemma that the Russian Duma now faces. They have a framework law, written in 1991, to reestablish some form of health insurance with payroll taxes. See the advantage is it's dedicated funding. Remember in this diagram of a health service, if it's a national health service, the health care sector is at the mercy of the budget officers, and the budget officers may put more money into other fields. But under a health insurance system, you have a trust fund. The payroll taxes go to a trust fund, and you have that amount of money that you can use for health care. And that's one of the attractions that the Russian reformers have looked on, if they can make health insurance work. It may be Czechoslovakia's the country that has gone farthest, I think they have one big major health insurance fund already in existence, with several others.

EM: Meaning the Czech Republic, or also Slovakia?

WG: Czech Republic.

Comment: In Slovakia too.

EM: Slovakia too? So apparently it emerges in Slovakia too.

WG: Also, an interesting thing is you have a prime minister in the Czech Republic who is a great believer in the free market. So he is even pushing for medical savings accounts, which is in the new reform being put through the Congress now. But Clinton will probably never allow that in the United States. In a medical savings account, the government goes into an individual account for each person, and each person can decide how to spend the money -- whether to spend it on doctor's visits, or on pharmaceutical drugs, or so on. So that's prime minister Klaus's favorite schemes lately. But the real problem is how to recreate health insurance carriers if you abolished them decades ago? Because remember, in the health insurance system these carriers, these sickness funds, are fundamental.

Now that's a kind of overview of the big policy options. The United States exists, and it is the great dream world for the world's economists. You have a whole generation of free market economists all over Europe who have heard about the market in America -- they've never really seen it, but they've heard about it -- but a lot of the ideas about free markets and competition and so on are now being passed around in Eastern Europe as possibly an inspiration. However, there are a number of very sophisticated folks in Eastern Europe who don't buy it -- they want to come and look at the facts, and this is one of your opportunities, to settle down here and see how the United States really operates. Now there are selected, detail things about the United States that might be of some value in reform; things like computerization in health care accounts, how to have efficient directories of patients through computerization, utilization review to learn more about the performance of individual doctors, which you can do through computerization. This business of monitoring doctors is an old story; Germany was doing that in the 1920s, but it was all done by hand, very simple records. But now you can do that through computerization.

Also, some features of American managed care can be useful--how to manage a polyclinic, how to manage a network of hospitals, polyclinics in a region. Some of these private managed-care organizations can provide good ideas about that. Graduate medical education in the specialties: the problem now is, health care is so complicated, changes so much, you have to keep on teaching doctors the newest methods. It's not enough for them to do what they learned in medical school, keep doing it for life. And that's particularly true in Eastern Europe, where much undergraduate medical school consists of sitting in large classes. So that a very valuable model in the United States is continuing education, the special workshops given to specialists, so that they cannot keep their specialty credentials unless they have attended workshops in their field, and that way they learn some of the newer methods. But there are also other methods of so-called clinical practice guidelines, recommended methods of health care, given the diagnosis of the patient what sort of steps you should follow; these clinical guidelines are being developed for many fields in American medicine, and some of them are being brought up on computers for doctors to see as they do their work. Financial accounting in hospitals, that's a strong point in the United States. But also ambulatory surgery, that's also quite valuable. The usual model of Eastern Europe was that if the patient needs serious care, they go into the hospital, and the habit was to keep them in for very long times; see the Russian length of stay is very very long. But the Americans have developed ambulatory surgery. If that interests you, you can see many examples here in New York; just go down the street to St. Vincent's hospital. A lot of things can be done for the patient, checks in in the morning, anaesthetic, operation, recuperates in the afternoon, that evening he can go back. And a great deal can be done that way, which was once strictly in-patient.

EM: Doesn't that depend on the equipment possessed by the hospital?

WG: Oh yes. But this means in the United States, a lot of hospitals can be reduced in size for in-patient care. They just are doing a lot of the same care on an out-patient basis, but they don't need so many wards and beds. But this requires great skill, so you have to have a special trained staff to help the doctor do this.

Now another strong point of the United States is home care, caring for the patient at home rather than spending their time . . .see, the elderly patients often fill up Europe's hospital beds, that was true of Germany, that's one of the reforms they've been trying to introduce, more home care in Germany, and that's true of Russia, a lot of the elderly, they can't take care of themselves at home, they stay in the hospital. Some countries have nursing homes, but they are not such pleasant places, and an elderly person would rather be at home. So the United States and England and Holland have been the great inventors of a lot of modern home care. In America now, you have a whole drug industry so that a lot of very complicated things can be done in the patient's home. You can see here in New York many examples, the leading home care agency in the United States is right here in New York City, the Visiting Nurse Association. So there are things to learn from the United States, and it's not a matter of all or nothing.

So if you have any questions, comments . . .

EM: If I may ask a first question, because I want to clarify things for me. I understood from the lecture that we are dealing currently, throughout the world, with roughly speaking three kinds of health systems. The one you described as national health insurance, and you gave us examples of those countries, France, Germany, Holland, Austria, Switzerland, Japan; the second one is national health service, and you also gave us examples of European countries that are following that model: Great Britain, Scandinavia, Spain, Italy. Eastern Europe, the post-communist countries, are somewhere in between I guess. And then the third model is the American managed care system, if that is a system, it's obviously not taking into account all members of the society. My question is, could you give us the main philosophical and practical differences between those three care systems, and the follow up question is, where is Canada?

WG: I didn't mention Canada because Canada is unique. The doctors and hospitals are private, but all the money goes through the government. It's not a health service, and it's not health insurance; it is unique, no other country has anything quite like that.

What would be the labels to give them -- well, a national health service is a full government-run system. It's government financed through the treasury, through general revenue, and it's government managed, and the doctors are government employees, the hospital workers are all government employees. But national health insurance system is like a private system, but with more organization. See these things did evolve out of private systems. It's health insurance, because you do have these health insurance carriers to represent the patients and to manage the money; but it's national because it really depends on national government laws as a framework, but the national government doesn't really control it totally, doesn't manage all the money, the money does not go through the treasury.

EM: And the so-called managed care, I know you didn't spend much time on America, but how one can vaguely define that mess that we have in this country.

WG: Now the United States has, in fact the United States now is what every country was 150 years ago, because the United States never enacted a national health insurance law. So you think about Europe of the 1860s, if it had remained the same you might have something like America. It's a free for all where you have a lot of private insurance companies, you have non-profit insurance companies, and the individual joins because of his employer. Now this is the unique American feature. If you have health insurance, usually you get it from the employer's payment of the insurance companies. Individuals usually do not buy their own health insurance in the United States. This peculiar fact is perhaps the reason the United States never enacted national health insurance. This was supposedly an American invention: employer group insurance. The employers would cover all workers and their families, which meant in theory, someday the whole labor force covered by employer groups. This meant the government would step in only to cover the elderly, who are no longer employed. That's why you had Medicare -- not national health insurance, but just Medicare; and Medicaid, which was a government welfare program for the very poor. So this private insurance system went on for many years, and is now declining; see many more people now uninsured. But a private system has no way of controlling costs; so America now has the highest costs in the world, even though 25% of the people have no health insurance. So the employers were the ones who complained about very high costs, since they had to pay the insurance companies, and the insurance companies were weak in controlling doctors and hospitals. So that' s where managed care came in. Managed care is completely a private invention; it has nothing to do with government. managed care is simply an effort by insurance companies to control doctors and hospitals. So a managed care insurance company would have a network of doctors, and if you are insured by that company you are supposed to go to one of those doctors as the primary care gatekeeper. The primary care doctor is paid by the insurance company, with limited fees. If you have to go to the hospital, your doctor must get permission from the insurance company's office, and the insurance company will try to steer you to the hospital that has an agreement to screen you for admissions, what they call concurrent review, most economical methods of treatment, discharge planning so you come out early. This is supposed to improve quality, as well as control costs. See the Americans are not just interested in money, after all, but the medical profession and its leadership is interested in better quality. So these managed care efforts are trying to do both, improve quality and control costs. But each one is a separate insurance company. You have to go down the list: Aetna, Prudential, Sygna, Metropolitan Life, Travellers, United health care, US Health Care, it's a big long list, they're all private, and they're all trying to get contracts with employers, and it's very very competitive. A big question is whether this will work; see this is all very recent, the last few years. will it really improve quality, will it control costs? Because managed care means you have to have a staff in the headquarters. In the past, the insurance company just paid out cash. Now it has to have managers, so that if the doctor wants a referral, he has to sit at his computer, he communicates with the headquarters of that patient's insurance company, and at the other end of the line is a registered nurse who will go through the rules, whether he's following. And if they get into a dispute they have to bring in a member of the medical staff of the insurance company to settle. Now this is all in flux right now, and there are a number of very unhappy people, and America is a country of complaint, and also notice it's a country of sensational television news, so the 6:30 news that you see in New York is full of complaints. They may run a story about some medical miracle that they read in the New England Journal of Medicine, but then they cover the complaints, like patients who complain about managed care not giving them what they want . . [short gap in tape].

There was a lot of publication about improving keeping care of yourself. These sickness funds I described in Western Europe, each one of them publishes a magazine which they send out to all of their subscribers, and the magazine describes good health care on a whole variety of things: food, exercise, sanitation, etc. etc. Now doctors are not interested in preventive medicine. This has been wishful thinking for a long time. For fifty years everyone has said, how can we encourage doctors to engage in preventive medicine? They don't, because they're trained to deal with acute care, that's their business. So therefore you need some other mechanism to have preventive medicine, to teach people how to take care of themselves, and maybe home visits. See that is what is done in the Netherlands, they have a home care program which also visits the new mother and the newborn child; after every hospital discharge, the local home-care agency makes a home visit to the mother and child, and that becomes important to teach mothers how to take care of children, and also the homecare nurse can spot if there are special problems in the home. See the health care industry has very few chances to see how the patient lives; but if you can make occasional home visits, then you can really see what some of the problems are.

[short pause on tape]

In Europe now, the school system is playing a big role in health education. The best example, if you want, is in France, where the whole school system has a big part of the curriculum devoted to health care, and also the labor union, the trade union is interested in that. So there's a huge effort about health care teaching, and a big effort against drugs. France has a huge narcotic drugs problem, and it has a history of alcoholism too, so there are all these efforts together. See Eastern Europe has a long history of alcoholism too, so it needs this big effort to reach people about good care. But the school system can play a good role.

EM: It's striking the difference if you had come to this country ten years ago or fifteen years ago, how many fewer people are smoking because of an absolutely massive campaign, I think it really started with education, and now it is really, it has a certain social stigma attached to it. So one can see on various levels how it works, not just on the level of telling them you'll die, but even hiring someone like Yul Brynner a month before he died of lung cancer, recorded a video clip, and he said in it, when you will see me speaking to you on television, I will be dead. If I had known forty years ago that I shouldn't have smoked . . . I remember I got so emotional seeing that; he was this icon who, yes, he was famous for smoking all his life, and he had this incredibly interesting voice because he smoked . . .and then what he did made more difference . . .

WG: You think he world is going to steadily improve, but you have to fight this all the time. The Church knows, you have to fight sin all the time [laughter]. But in this whole field of health . . .the United States for decades now has been telling the young, drinking is bad and drugs are bad. In the last couple of years, statistics show that drinking and drugs have been increasing among American adolescents. And a serious problem is the weakness of the educational system and of the community. You really have to have a combined effort of the school system, the community, the families, the mayor to combat things like drugs and cigarette smoking.

Lidia Bialek: Especially if I think of the Eastern European countries in the eighties, there was so much social tension connected with the pressures of everyday life that I think it was very hard to appeal to people to stop smoking. Now there is something instead, you can offer something instead as the quality of life improves . . .

EM: You don't have to escape into cigarettes and vodka.

Heshan: I had a question about the role . . .one of the things that seems to drive up the cost of health care in the United States is the AMA [American Medical Association] making the argument that frankly you have to take out loans of about $150,000 for a medical school degree in order to become a doctor, in order to become board certified, etc. etc. To what extent is that a false argument, or does that actually contribute significantly to the cost of health care?

EM: That medical education is so expensive?

WG: Well the AMA has nothing to do with that, they would like to prevent that. The AMA for years lobbied for government subsidies that would relieve young doctors of these debts. The American Medical Association, that's the big professional association of doctors. Now the United States is different from Europe in that it has a private educational system, and the medical schools are graduate schools in universities. Most of the medical schools are in private universities that charge fees of their students. And even the state universities in the United States with medical schools will charge fees of the medical students. The fees contribute to the budget of the medical school. See American medical schools are quite small, the idea of select students, so they will maybe only have 90 a year, 360 medical students at one time, in a very expensive program, because American medical education is high tech, with very high priced professors. That' s a big source of it, the professor is not there to do good and live in austerity [laughter], not like Eastern Europe, he is there to earn $200,000 a year and up, supplemented by his private practice.

EM: As a professor? $200,000?

WG: Oh yeah. And if he doesn't get that, he goes to some other university. You have a little of that in Germany, the medical school professors force the medical schools to compete for his services. The American medical student therefore goes into medical school knowing he's going to have huge fees, maybe $25,000 a year, which doesn't really cover his full costs either, so he may come out of medical school with debts of $75-$100,000 a year. Now he has to pay off the debt, so you pay it off from your profits. The average American doctor right now in practice earns $150,000 a year, net, and some of them earn much more. Like look here in Manhattan, some of these guys are getting three-quarters of a million dollars a year, net, over practice costs. So they've already paid off their debts.

EM: You mean after taxes?

WG: Before taxes, which they try to evade if possible. The Internal Revenue Service knows that doctors are big tax evaders.

But this becomes a huge problem in the United States, because a lot of these guys now are not going to earn such big incomes in the future. Managed care reduces the number of doctors you need, so some of them may be squeezed. Nevertheless, young people still apply to medical school, since if you can make it, you've hit the jackpot for life. But you also have a challenging occupation. Doctors like money, but they like many other things too. Interesting high-tech work, because these guys basically, or girls too--you have a lot of women in medicine now in the United States, you never did before -- but they're interested in applied science. They're not humanitarians, they don't have the personality profiles of social workers; these are basically applied scientists whose friends are in the business community, and they want to do interesting technical work, clinical work, but they also think a bit like businessmen in wanting money and living standards, and the wife wants money too; that's an important pressure too, besides having to pay off the debts.

EM: You are already an advisor to some of those professional communities in the region who are trying to reform the health care system. If we look just at the core countries of central and eastern Europe, and I'm not talking about Russia, and the reason I'm not talking about Russia is, as you just said, it's still trying to have a national health service, whereas the taxes are being reduced because of the variety of incredible corruption associated with privatization. So I'm asking about the core countries that are trying to make it--Czech Republic, Hungary, Poland, Slovakia, Bulgaria. What choice do they have? What do you think they should do, what would be the best thing in your opinion?

WG: Basically I'm just a source of information, and I can describe policy options, depending on what they want, and that is for them to decide, because these are decided by democratic legislatures. For example, when I met with the committee on health protection of the Duma, they sit at a big table; over here are the Communists, then there are the Party of Women over there, over here is Russia's Choice, and others. Very often the Communists will ask me questions about how England is reorganizing its health service, how to improve the health service with ideas that the Russians could use, while the folks over there from Russia's Choice are interested in how a health insurance system works. There are a couple of technocrats usually up at that end of the table from the Duma, and they're interested in practical design matters. But the big problem for a health service is how to reestablish health insurance carriers if you want them. That was the heart of a discussion I had in Warsaw. Maybe in the short run they should try to improve the national health service, and maybe in the long run they can somehow reestablish health insurance carriers. And it turns out that is finally what they're doing; the two guys who are the principle designers, Wlodarczyk, the former minister of health, and his deputy. So they are now I guess following the timetable of making the health service work better, and maybe slowly building up a health insurance capacity. The Czech republic may be doing that right now, I'd have to go and see. But of course the Czech Republic is unique, it may be the first Eastern European member of the European Union; they were always European, they just rejoined Europe. But the real problem is how to create a health insurance scheme of the sort I've described when it's been abolished. But I don't come out with any proposal of my own, I'm just interested in what they're doing.

In America for a couple of years, everyone was talking about either the Clinton administration scheme or single payer. My solution to that was to laugh at both. The Clinton scheme was a very complicated design using managed care, but it was unnecessary since the private sector would do it. A single payer system, like Canada, is unrealistic for the United States. Some of the Eastern Europeans, some of the Russians have been looking at Canada, but you have to have private doctors, private hospitals, and full public financing. And if you have a budget crisis, the whole thing is squeezed out. The Americans don't want anything like that, and the Canadians have really got a huge problem. I was up there just a few weeks ago conferring with some of the reformers in Canada, and the country is in crisis. The United States can go along borrowing, funny money, because the rest of the world buys American bonds, but Canada cannot, and you cannot, you really have to live within your means. And Canada now is going through this crisis of reducing spending very drastically. So as you develop systems you have to live within your means--how much money do you have for health?

Belinda Cooper: Which system seems to lead to the greatest overall health in a country? Quite practically, is there any kind of measure of that?

WG: Well, a very healthy country is the Netherlands. The Netherlands has a fairly harmonious health insurance system, which works without trouble. But that's because the Dutch--are Dutch. They think in a cooperative manner, without making a big fuss of it. But they also have what may be the longest life expectancy in Europe, and fairly low morbidity.

EM: Which is what, what is the longest life expectancy?

WG: Well, it's in the late 70s for men and early 80s for women, or some number like that?

Belinda: Is that related to the type of health care, or to other factors? Is it a cultural thing?

WG: Well, it may be because so many of them ride bicycles!! All over the country, if a woman wants to go and shop, she'll go by bicycle. In America you go to the supermarket around the block by care. The Dutch also have maybe pretty good health habits, which helps, and maybe good heredity.

Question: What about the Scandinavian countries?

WG: Scandinavia also has a high level of life expectancy, despite the high level of drinking [laughter]. Swedes always refer to themselves as pr? in calmness, there's a word in Swedish to refer to their style of behavior, not to engage in huge fights. Sweden would be a very valuable country for you to visit, because they have always had some of the most intelligent health-care planners in the world. The modern welfare state started with Sweden, and they now have this task of how to reduce its costs, because Sweden was the first European country to face the real problem for deficits. The problem is the decline of your markets; it's the economy. Once that declines, you really have to cut back the budget. And Sweden lost its ship construction to Korea, it lost its automobile market to Germany and then Japan, and it lost many other markets too. But Sweden is a good example of how to run a whole country, because the economy has now revived, but they had this task of making the social sector, the health sector, live within its means. That's going on right now; the new government of Sweden has been submitting several successive budgets. And they have to live within their means, because the international bond market refused to keep buying Swedish bonds a couple of years ago, which meant Sweden had to cut its deficits. But Sweden is a fairly big country, surprisingly, and it has a lot of good lessons for the Russians. I've urged many Russians to go look at Sweden instead of coming over to the United States. The problem is how to advise people what countries to visit and what countries not to visit, and if they insist on visiting the United States, to recognize what is useful here and what is not.

Heshan: The thing you have to factor in with the Netherlands and with Sweden and Denmark and other countries like that is the far more homogeneous income differentiation within the population, and a better universal education system.

WG: Sweden, Holland, several others are great believers in a high quality educational system.

Heshan: And a progressive tax system.

WG: Well, Sweden, for a while, had very very high progressive taxes, and they now realize that this was a disincentive for work. Because if you had unemployment insurance, you might, when you were unemployed, get almost as much as you were earning on the job. And disability pensions, you earned as much as on the job. So the Swedish government had an investigating commission just last year that came out with a detailed report on how to redesign these benefit systems, and also the adverse effects of taxation. This goes back a couple of years, realization that they have to reduce the higher income tax rates to give people more incentives. For a long time it was believed Swedes were willing to cooperate without money incentives, but that doesn't work, they now have gone back to believing in money incentives.

EM: There's one more factor we didn't talk about, and I'm wondering, did any of those planners, either designing the health service, or trying to maintain a national health service, or designing a national health insurance system, take into account or think about influencing the environmental pollution, the situation with the environment? The Netherlands and Sweden, especially Scandinavian countries, those are healthy environments to live in to start with, and obviously a variety of problems people are facing in Central Europe, in Eastern Europe, in the post-Soviet republics, are related to incredible pollution which causes a whole kind of disease, and costs the budget. Up to now there was very weak connection between policing the environment and taking care of the health of the nation. Are there any examples where people are talking to each other?

WG: Well there's of course quite an environmental movement in Europe now. The first country to become worried about the environment was the Netherlands, because the Rhine River, which was so polluted, came right through Holland and polluted the water, and much of Holland had polluted water for this reason. So Holland had to complain to the Germans to clean up their factories up the Rhine river, and at the same time the left in Germany, looking for something other than the Social Democratic party, developed the Green Party, and you have these Green Parties now spreading all over Europe. It may be in the next national election the Greens will become the third party in Germany. They are already the coalition partner in some of the German provinces.

Now the health people usually don't have very much to do with the environmental people, because the field of public health is pretty weak in Europe. That was one of the achievements of the Soviets, that is to combine public health thinking and medical care thinking. But there now is very much of an environmental movement in Europe, and that's a policy of the European Union.

But there's a lot of ferment now going on all over Europe; there's this harmonization effort throughout the European Union, and in the health field there's big associations. Here's something called the European Health Policy Network. It is an association of the leading research centers in Europe that deal with health issues, and this has just been created the last year or so. It has a headquarters at the London School of Economics, and it has conferences to share views, and it runs publications. And presto! Here's a publication about health care reform in the Czech Republic, and there's another publication, health care reforms in Bulgaria. See they would be delighted to have your home bases join up. Because it starts with the European Union members, and they really would like to have other members too.

See that takes the place, in some respects, of the World Health Organizations's European office, which really just conducts conferences and some publications, but this is sort of the new wave of folks with a lot of energy and ambition.

EM: Thank you very much.