The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. I'm Jim Lehrer in Washington.

MS. WARNER: And I'm Margaret Warner in New York. After the News Summary, we look first at the administration's plan to help veterans suffering from Gulf War Syndrome. We have a background report and a Newsmaker interview with the Secretary of Veterans Affairs. Next we hear the pros and cons of controlling health care costs by capping insurance premiums, and we end with essayist Roger Rosenblatt on filmmaker Barry Levinson. NEWS SUMMARY

MR. LEHRER: The House of Representatives came down today in favor of unilaterally lifting the arms embargo on the Bosnian Muslims. The vote was 244 to 178. President Clinton faces lifting the ban but only in concert with the United Nations. Defense and State Department officials, joined by the chairman of the Joint Chiefs of Staff, Gen. Shalikashvili, repeated that position in talks with House members this morning. Supporters of the measure said the embargo had tied the hands of the Muslims who are fighting better armed Serb forces. But opponents said the United States should stick with its allies. Here's a sample of the House debate.

REP. RONALD DELLUMS, [D] California: If we violate the embargo, we infuriate our allies, especially Britain, Canada, and France, who have troops on the ground, unlike us, Mr. Chairman, and who fear this action will cause a resumption of war with their troops stuck in-between. Our allies have clearly warned us for months that we will be blamed for the deaths of their sons if we violate this embargo. We cannot turn a deaf ear to this, Mr. Chairman. We would not, if the shoe were on the other foot, want them to turn a deaf ear to us.

REP. FRANK McCLOSKEY, [D] Indiana: I think Mr. Dellums knows as well as anyone that there is a moral responsibility at certain levels to violate an unjust law. We are saying this arms embargo is unjust, it's illegal, it's immoral. It is really non-binding. It's a matter of humanitarian sense and common sense on its face.

MR. LEHRER: Bosnia was also on the agenda of a NATO foreign ministers meeting in Istanbul, Turkey, today. The issued a communique saying they stood ready to send troops to the former Yugoslav republic once the warring factions reached a permanent truce. Margaret.

MS. WARNER: The Clinton administration said today it will support legislation to compensate veterans suffering from the so-called "Gulf War Syndrome." Thousands of Desert Storm vets have complained about unexplained illnesses, including skin rashes and neurological disorders. At a congressional hearing, Veterans Affairs Secretary Jesse Brown said there was no conclusive evidence linking these illnesses to the war, but he said the administration believes the ailments are real and that the veterans need help now.

JESSE BROWN, Secretary of Veterans Affairs: The Persian Gulf War, in my personal view, was a dirty war, environmentally speaking. Our veterans were exposed to smoke from oil fires, a terribly hot, dusty climate, sand fleas carrying parasitic diseases, or fumes from various sources, depleted uranium, chemical agents resisting coding, and some may have even been exposed to chemical and biological agents. We are also concerned about the inoculations that they received to protect them from these agents. Our soldiers were exposed to these and many other potentially toxic substances. As a result, our old rules about compensation must change. Our solution must fit their problems. Their problems cannot be madeto fit our solutions.

MS. WARNER: The proposed legislation also provides funding for further research into the cause of the veterans' ailments. We'll have more on the story right after the News Summary.

MR. LEHRER: North Korea threatened Japan and South Korea with war today over the issue of economic sanctions. But South Korea continued to push for U.N. sanctions if North Korea does not provide information on its nuclear program. Richard Vaughan of Worldwide Television News narrates this report.

RICHARD VAUGHAN, WTN: Fearing another Korean War, possibly even a wider war, the South rushed its foreign minister to Beijing. Han Sung Joo's mission, to win Chinese backing for U.N. sanctions against North Korea. But China, which has the power to veto U.N. Security Council resolutions, is opposed to sanctions. As Pyongyang's last ideological ally and a major trading partner, Beijing wants the crisis resolved through dialogue.

SPOKESMAN: [speaking through interpreter] Sanctions would only serve to push the parties concerned into confrontations with one another.

RICHARD VAUGHAN: Confrontation is looking ever more likely, with Pyongyang insisting it will regard the imposition of sanctions as an act of war. As in 1953, America would back the South. Any conflict is likely to be long and bloody. The stalemate deepened when the Vienna-based International Atomic Energy Agency announced more than half of its 35 member companies are supporting a draft resolution calling for the immediate suspension of aid. North Korea's response, stronger defiance. Speaking in Ukraine, Pyongyang's foreign minister warned Tokyo it would be punished if it supported punitive sanctions, and Kim Yong Nan said South Korea's fate would be even worse. It faced utter devastation in battle.

MR. LEHRER: Sec. of State Christopher said at the NATO meeting he believed the U.N. would impose sanctions on North Korea. On Capitol Hill today, Assistant Sec. of State Robert Gallucci was asked if Russia and China would veto those U.N. sanctions.

ROBERT GALLUCCI, Assistant Secretary of State: We expect that the Russians in the Security Council to take a position very close to our own, and I do not anticipate that there's any basis to predict a veto. With respect to the Chinese, the situation is more complicated and difficult, but I'm not about to predict a Chinese vote. We certainly hope that based upon our consultations that we will have the Chinese with the rest of us on the Security Council, but I cannot predict that with confidence.

MR. LEHRER: Gallucci said the administration was confident Japan would support the sanctions. He was responding to a report in today's New York Times that the Japanese government was backing away from the idea. Former President Jimmy Carter announced today he was going to North Korea next week. He said the invitation came from the North Korean government, and he considered it a private, unofficial trip.

MS. WARNER: The massacres in Rwanda continue, now with priests as victims. Rebel leaders confirmed today that the Roman Catholic Archbishop of Kigali and 12 other priests were killed by four rebel soldiers assigned to guard them. In another incident, the United Nations said it has reliable reports that nine priests and sixty- three civilians were massacred in the southwest district of the capital. Security concerns have forced the continued suspension of relief flights into Kigali.

MR. LEHRER: There was an earthquake last night in Bolivia. It caused little damage, but it was felt throughout the United States and in parts of Canada. It occurred about 400 miles below the earth's surface some 200 miles northeast of La Paz. In Columbia, the death toll from Monday's quake continued to rise. Government officials said today at least 250 people are now known dead. They said that figure could go to over a thousand. The earthquake set off an avalanche and mudslides which caused much of the damage.

MS. WARNER: Attorney General Janet Reno confirmed today that the Justice Department is investigating whether Agriculture Sec. Mike Espy improperly accepted travel and entertainment from Tyson's Foods, the country's largest poultry processor. Poultry products are regulated by the Agriculture Department. An Espy spokesman said the secretary is cooperating with the review and believes it will exonerate him.

MR. LEHRER: Siamese twin Angela Lakeberg died this morning in Philadelphia. Her sister, Amy, was sacrificed during an operation last August to give Angela the heart and liver they shared. Doctors said both twins would have died without the surgery. Angela never recovered enough to leave the hospital. She was three weeks shy of her first birthday.

MS. WARNER: That ends our summary of the day's top stories. Ahead on the NewsHour, the Gulf War Syndrome, capping insurance premiums, and essayist Roger Rosenblatt. FOCUS - BITTERSWEET VICTORY

MR. LEHRER: Gulf War Syndrome is first tonight. Sec. of Veterans Affairs Jesse Brown today announced the Clinton administration's support of legislation that would provide compensation to those suffering from the wide variety of ailments associated with Gulf War Syndrome. We'll talk to Sec. Brown about it right after this excerpt from a backgrounder we first aired in January. Our medical correspondent Fred De Sam Lazaro of public station KTCA Minneapolis-St. Paul is the reporter.

MR. LAZARO: To most Americans, Desert Storm was a huge military triumph for the allies. But for soldiers, themselves, the Gulf War has a different legacy. Thousands of Gulf War veterans have developed rashes and sores like the ones that cover Willie Hicks's body, along with disabling fatigue, muscle and joint aches, and various other symptoms.

WILLIE HICKS, Veteran: I have a headache. I've had a headache for two years. It's nothing -- I pass out a lot, you know. That's why I try to be around somebody when -- anywhere I go. I wouldn't drive a car right now for -- ain't no way in the world. My memory's bad. I don't sleep. I average about two, three hours' sleep a day.

MR. LAZARO: Willie Hicks was in perfect health until he returned from Saudi Arabia, where he served in an army reserve ammunition unit. His various aliments cost him his job as an assistant manager in an auto parts store. In different combinations and degrees of severity, Hicks's symptoms have been reported by thousands of Gulf veterans. They've confounded doctors, like Robert Roswell, at the VA Hospital in Birmingham, Alabama, where many veterans in the Southeast have sought help.

DR. ROBERT ROSWELL, Birmingham, VA Hospital: Some of the symptoms many of you have experienced simply don't fit a standard medical diagnosis. We have been looking at a large number of possible causes of exposures that may have been associated with service in the Persian Gulf.

MR. LAZARO: Many Gulf veterans have been diagnosed and treated for predictable exposures. The oil fires caused asthma in some, and a desert parasite caused an outbreak of sand fly fever. But among those suffering the non-specific symptoms, only one man, William Tay, has gotten a diagnosis from a VA doctor.

WILLIAM TAY: [in audience listening to Roswell] My diagnosis was Persian Gulf Syndrome and chemical-biological warfare exposure.

DR. ROBERT ROSWELL: The problem that we've had to date is that the symptoms, even though they're very real symptoms, are not a medical diagnosis.

MR. LAZARO: Tay's diagnosis came from doctors at the VA Medical Center in Tuskegee, Alabama.

DR. CALVIN REBER, Tuskegee, VA Hospital: When you look at the usual things you look at when people are ill, you come up blank, and when sufficient of them say they were exposed to chemical- biological warfare, you tend to pay attention to it.

DR. CHARLES JACKSON, Tuskegee, VA Hospital: We felt that the symptoms that they were having were also consistent with some certain biological agents which have been documented as having been used by the Iraqis and which were suspected but not proven by the Russians.

MR. LAZARO: By the Russians?

DR. CHARLES JACKSON: Yes. In Afghanistan.

MR. LAZARO: Dr. Jackson's theory caused a stir in Washington. It contradicted the Pentagon's long insistence there was no evidence of chemical weapons anywhere in the war theater.

REPORTER: Are you confident that Iraq did not use chemical weapons during the war?

LES ASPIN, [Former] Secretary of Defense: We're making no definitive conclusions at this time.

MR. LAZARO: There were no reports of either Iraqi or allied use of chemical agents. Even the destruction of an Iraqi chemical facility was too distant to have caused the kind of symptoms reported by soldiers, Aspin said.

LES ASPIN: [January] Given the known characteristics of the chemical agent involved and given the date and concentrations detected, our findings to date establish no linkage between the detections reported by the Czechs and the illness reported by some of the veterans. At the same time, I want our Desert Storm veterans to know that I personally take these health problems stemming from the war very, very seriously.

MR. LAZARO: But Willie Hicks does not take the secretary seriously. To him, there's an air of deja vu in the Pentagon pronouncements.

WILLIE HICKS: 'Cause I was in Vietnam also, and if you remember correctly, the army said that we was never sprayed with agent orange. We continued to say we was. Respiratory problems, lower problems, all kinds of urine -- there was blood in your urine, blood in your feces, sores all over, but the army continually said that that never happened. Last year, after 22 years, they came up and said it did happen. But what you got to look at is how many guys have died, you know. If we didn't fight right now, the same thing would happen to the guys from Saudi Arabia.

MR. LAZARO: Unlike the agent orange situation, the VA is acknowledging that some environmental toxins may have caused health problems in Persian Gulf veterans. All Desert Storm veterans are being urged to register at VA hospitals and their cases are being tracked by doctors.

MR. LEHRER: Now to a Newsmaker interview with Veterans Affairs Secretary Jesse Brown. Mr. Secretary, welcome.

SEC. BROWN: Thank you so much, Jim. How are you?

MR. LEHRER: Just fine, sir. So, what is Gulf War Syndrome?

SEC. BROWN: Well, we do not know at this point. I think that's one of the reasons why I'm so excited about this legislation. We do know that our veterans are suffering. They're having a hard time. They are having a very difficult time in making that adjustment back from military life to mainstream America. And we believe that the reasons for that difficulty has to do with some problems that develop while they served in the Persian Gulf. And as a result, we believe that we need to make some adjustments in the way we provide compensation, and that is the reason why this administration supports the Montgomery bill that proposed provide compensation to our veterans who are suffering from undiagnosed diseases that may have occurred while they served in the Persian Gulf.

MR. LEHRER: Well, if they are undiagnosed diseases, Mr. Secretary, how can they be diseases? I mean, how do you know there's linkage between what they're suffering from now and what may have happened in the Gulf War?

SEC. BROWN: We do not know. And that's the problem. We do not know. But we do know that they are sick, and we are going to resolve all reasonable doubt in their favor. I think that's the problem here. We have over 20,000 veterans on our register, many of whom are suffering from various types of complaints ranging anywhere from skin disorders to bleeding of the gums, loss of hair, joint discomfort, short-term memory loss, fatigue. I'm not just talking about general fatigue.

MR. LEHRER: Sure.

SEC. BROWN: I'm talking about fatigue of a nature that some of them are unable to engage in substantial gainful employment. And while we are unable to document and define these disabilities or these problems or manifestations, however we wish to characterize them, nevertheless, we believe that they are there, and they are having an adverse impact on our veterans' ability to engage in substantial employment and to move on with their lives. And as a result, we believe that this is the right course to take by compensating them.

MR. LEHRER: So as a practical matter, Mr. Secretary, there could be several causes of this. In other words, is it not a fair statement to say it's very unlikely that what might cause a person's hair to fall out might not be the same person that would cause them to suffer from fatigue, is that correct?

SEC. BROWN: I would agree. I would be very surprised if there's a single pathological entity that's responsible for all of the problems our veterans are suffering from. And that's one of the reasons why from the very beginning, the VA has made it very clear that we are placing everything on the table. We're going to look at leash baniasis. We're going to look at depleted uranium. We're going to look at chemical and biological agents. We are going to look at carp, which is a kind of paint that was used. We're going to look at the inoculation process, and we are going to look at the problems that can result from environmental hazards, such as the burning of oil wells and using oil on sand in order to keep down the dust. So all these things are very, very important, and we're going to move forward to try to find scientific answers to these questions, because that is the ultimate goal, to find answers to these questions so that we can bring about some relief on the pain that our veterans are suffering from.

MR. LEHRER: The clip that we ran a moment ago, of then Secretary of Defense Aspin was in January. Has there -- have you at the Veterans Affairs, Department of Veterans Affairs, been updated in any way by the Pentagon as to what their current belief is about whether or not Iraq used chemical or biological warfare?

SEC. BROWN: We -- they are still looking at all of their information. I am in close contact, am working very closely with the Department of Defense to include HHS, and we think, however, that we at the VA have a fiduciary responsibility to move forward and to look at every possible problem that could have developed while veterans were serving in the Persian Gulf, and we are going to carry out that challenge.

MR. LEHRER: But is it still not correct to say that at this point in time, as you and I are speaking now, there is no conclusive evidence that Iraq used chemical or biological warfare, is that correct?

SEC. BROWN: No, there isn't. The only evidence that we have thus far is that the Department of Defense has concluded that the Czechs' report may have some validity and that some of our veterans may have been exposed to low concentrations of chemical agents. And we don't know exactly what that means. That's one of the reasons why the VA was very pro-active in how we responded to it. The first thing that we did, we developed a protocol in Birmingham, Alabama, so that we can look at all of -- a number of veterans who felt that they were exposed to some type of chemical or biological agents to determine if there were any deficits that we could identify that could be traced to that type of exposure. That process is ongoing, and we are going to not only continue that process, but we are also going to be looking at the same issue once we set our own research centers in place. And we plan on doing that, at least three of them, by the end of this summer.

MR. LEHRER: All right, finally then, as a practical matter, what happens now? While all of this research continues and all these investigations continue about the possible causes, there are -- you said there are over 20,000 veterans that have thus far come forward, is that right?

SEC. BROWN: That's correct. We have over 20,000 who requested for various reasons to be placed on our register.

MR. LEHRER: Now what happens to them?

SEC. BROWN: Well, what's going to happen is that -- and hopefully I would hope that the Congress would move forward expeditiously on this legislation, and once they, once it becomes a bill, becomes enacted, and I believe that it will, we are going to contact all 20,000 veterans and invite them to file a claim for disability compensation. We have already taken action to provide them with unlimited medical care. All they have to do is to go to any of our VA facilities, all 172 of them, and simply request medical care for a condition that they believe that may have occurred concurrent with their active duty serving in the Gulf.

MR. LEHRER: What kind of burden of proof is on them as far as making the connection between their ailment and what happened in the war?

SEC. BROWN: Well, that's one of the features that I think that will be in their best interest in this bill. It is referred to as a presumptive period. All they will have to do is to show that they are suffering from an undiagnosed condition within one year. Now, however, today I asked the subcommittee to expand that, not from one year, to two years, because many of the problems that do not manifest themselves in the first year, they manifest themselves in the second year. So what I want to be able to do is to catch all of the veterans that may be suffering from problems that developed while they were in the Persian Gulf -- and I believe that the two year presumptive period will be able to accomplish that. The point is, is that all they would have to do is to show that they are suffering from an undiagnosed condition within two years after they have left -- they left the Gulf. And if that is the case, we would be able to provide them compensation.

MR. LEHRER: Based on what you know up to this point, do you expect the number to stay at around twenty, twenty-two thousand, or grow?

SEC. BROWN: No. No, Jim. I expect -- that number has been growing at the rate of about a thousand a month, and at this point, we have not seen any evidence that it will -- that it is tapering off. So we continue to monitor it, and we encourage that. The bottom line is, is this administration accepts the responsibility that the problems that we are seeing, in our view, is a continuation of the cost of war and as a result, we are trying to make the system responsive to veterans that may be suffering from problems that developed while they were in the service, and we want to make it easy for them to be able to get compensated for it. We want to make it easy for them to also be able to get medical care.

MR. LEHRER: Speaking of cost, what do you think this is going to cost?

SEC. BROWN: We -- our best estimate at this point, the life of the legislation as it is proposed is for three years. And the best estimate that we could arrive at at this point would be about $45 million.

MR. LEHRER: And is that money already available?

SEC. BROWN: Yes. We believe that we will be able to take care, find those resources. But here again, I think that's one of the principles that kind of bothers me. We have to operate under the budget constraints that have already been enacted, which is a pay- as-you-go on entitlement increases. And so this falls within this - that category. But I happen to believe very strongly, is that we should be very careful when we start talking about resources that are available to pay for young men and women who were injured in carrying out the policies of this nation. And so I believe that we are going to do the right thing. I know that we are going to do the right thing, because that is our mandate. That is our -- that's what we have to do in order to make sure that we are responding to, to those who have carried out the policies of our country.

MR. LEHRER: All right, sir. I hear you, and thank you very much.

SEC. BROWN: Thank you so very much.

MS. WARNER: Still ahead, a debate over caps on health insurance premiums and essayist Roger Rosenblatt on a filmmaker's career. FOCUS - CURBING COSTS

MS. WARNER: How to get health reform at the right price is next tonight. President Clinton's health reform plan had two major goals: To ensure all Americans and to slow down the rapid rise in health care costs. So far, most of the debate has focused on the first goal, how to achieve universal coverage. But as congressional committees begin writing specific legislation, the cost control issue is coming to the fore. Yesterday, the Senate Labor and Human Resources Committee endorsed the Clinton solution to put caps on how much insurance premiums can rise each year. We'll sample the congressional debate over premium caps in a moment, but first, this backgrounder from Medical Correspondent Fred De Sam Lazaro on why medical costs keep rising so fast.

MR. LAZARO: For someone who's had severe rheumatoid arthritis for 12 years, Esther Peterson's ability to get around is remarkable, a testament to modern medical technology. Hers is also a textbook case to explain why costs in health care go up so much faster than the general rate of inflation. Not many years ago the best medicine could offer patients with rheumatoid arthritis was drugs to control pain, mostly aspirin. In severe cases, patients would lose the use of affected joints, often resulting in paralysis.

ESTHER PETERSON: Just standing, you know, my knee just gives out when I stand.

MR. LAZARO: Mrs. Peterson came to the Duluth clinic this week to prepare for surgery next Monday in which she'll be fitted with a new knee. It will her third artificial joint.

ESTHER PETERSON: I had a hip replacement in November of '90 -- '89. And then I had a shoulder replacement or partial shoulder replacement last May in '93. And now I'm in for a knee replacement. I'm going to be a bionic woman, I guess.

MR. LAZARO: Mrs. Peterson has continued to hold down a full-time job, and she certainly is more active than she would have been on aspirin, but the price tag for all her high-technology care will exceed $30,000 after her knee operation. What's especially inflationary is the way in which this technology is offered to her. Mrs. Peterson will have her surgery performed at St. Mary's Medical Center in Duluth, which has a metropolitan population of about 130,000. It's a small community by any yardstick, yet, St. Mary's must compete with two other hospitals within walking distance, one just two blocks south, the other three blocks east. All offer the same surgical facilities. That kind of redundancy has been pervasive in American medicine according to Duluth clinic administrator Dr. Terry Clark.

DR. TERRY CLARK: Gearing up an operating room to perform orthopedic surgery is an expensive undertaking. There's not only the appliances, but there are whole sets of tools that go with those appliances, and each brand of -- for instance, there's more than one brand of total knee equipment, for instance, and each, each brand requires a whole set of special tools to go with it. So that kind of inventory is very expensive. One of the problems in Duluth and many communities is that each hospital wants to be the best, wants to offer the most services, and there has not in the past been much collaboration which would allow hospitals to say, listen, why don't you do this part, and I'll do this part, and someone else does another part.

MR. LAZARO: The only way to pay for expensive facilities is to use them, to keep the volume of services up. Historically, that's never been a problem because medicine is a unique business. Doctors serve as both providers and consumers. It is their decisions which result in most of the consumption. It's another recipe for high inflation according to Bernard McDonagh, health care analyst with the brokerage firm Piper Jaffrey.

BERNARD McDONAGH, Health Care Analyst: We had a health care system that was really free to go about doing whatever it wanted, charge whatever it wanted, and do much of what it wanted, without anybody sort of looking over their shoulder and saying, is that necessary.

MR. LAZARO: Certainly not patients. They have largely been insulated from the real cost of care and have little incentive to be conscious of it. Like most working Americans, Esther Peterson's insurance premium is paid by her employer. Her out-of-pocket costs are minimal.

ESTHER PETERSON: If I didn't have good insurance, I don't know what I'd do. I -- I imagine it would be -- I'd probably be living on aspirin, that's probably what I'd be doing.

MR. LAZARO: In addition to her surgery, Mrs. Peterson relies on insurance to buy a battery of drugs far more expensive than aspirin. These control pain in her hands for which surgery is not a viable alternative, at least not yet.

DR. COLLEEN COUNIHAN, Rheumatologist: The medications that you've been on for rheumatoid arthritis, do you recall what they were?

ESTHER PETERSON: Well, I think I've been on Indocin, Motrin, Pheldene, and Naprocyn.

MR. LAZARO: Drugs which are ever more effective and ever more expensive according to Mrs. Peterson's rheumatologist, Colleen Counihan.

DR. COLLEEN COUNIHAN: There's a lot of cost involved that we can't control, because we have to monitor them by doing laboratory studies, looking for side effects on medications, so anybody that's on a number of medications needs monitoring periodically. We're talking every four to six weeks that they have to come in and get a blood count and certain chemistry studies.

SPOKESPERSON: Have a seat. I'll be a few minutes.

ESTHER PETERSON: Okay.

MR. LAZARO: Not counting the lab work and doctor visits, Esther Peterson's drug bill averages about $150 each month, and at least part of the vigilance against side effects reflects the doctor's fear of being sued for malpractice.

DR. TERRY CLARK: While the cost of malpractice insurance is not insignificant, it's -- doctors spend a lot of money every time they write an order with their pens and pencils, and it's in the ordering of extra tests that, that is very expensive, and that's - - the effect on health care inflation of that style is far, far greater than the cost of the insurance, itself, the malpractice insurance.

MR. LAZARO: The much bigger insurance worry for doctors is that which covers the patients. There are some 1500 insurance companies. Each has its own system of payment which providers must figure out. Each company in turn picks and chooses whom it does and does not want to insure.

DR. TERRY CLARK: So there's not much simplification, and if there could be simplification, there would be savings.

MR. LAZARO: But how do you get those savings? Each year, America's health care bill continues to climb, more slowly in the last couple of years, but still well above the general rate of inflation. Granted, no one would deny Mrs. Peterson the very best care, but that care carries a very high price tag. Doctors like Mrs. Peterson's orthopedic surgeon are the highest paid specialists in America, and American doctors, in general, are the highest paid in the world. On top of that, American drug costs far exceed those of any other country, as does the cost of administering the whole health care system. President Clinton has proposed capping insurance premiums. By tightening the belt on insurance companies, the theory goes, those companies will find it in their best interest to police costs across the board, drug prices, doctor bills, the number of tests performed, and the length of hospital stays.

MS. WARNER: Two members of the Senate Labor Committee which voted along party lines to include premium caps in its bill join us now. They are Sen. Paul Simon, Democrat of Illinois, and Sen. David Durenberger, Republican of Minnesota. They're joined by two health care experts. James McLane is head of Aetna Health Plans, the health care division of Aetna Life & Casualty, one of the five largest insurers in America. Stuart Altman is professor of health policy at the Heller Graduate School of Brandeis University. He's advised the White House on health reform, and he chairs an independent commission that analyzes Medicare for Congress. Sen. Simon, let's start by looking at the basic premise of premium caps or another artificial cost controlling mechanism. Last year, health care inflation was at its lowest level in 20 years, and health care reform is supposed to bring those costs down even further, or that inflation down. Why do we need any kind of government-imposed artificial constraint on those costs?

SEN. SIMON: Well, first of all, the costs have come down, because we have, in part, achieved some of the things that the Clinton plan or the Kennedy plan or whatever plan you want to talk about is talking about, and that is managed competition. Second, whenever there has been talk about some type of governmental restraint of costs, the industry gets ahold of itself. Back in 1979 and in 1980, when Jimmy Carter was talking about doing something to restrain hospital costs for a couple of years we had real restraint. But when we're talking about capping premium costs, what we're talking about is a kind of life preserver, that you simply can't let the insurance industry or these costs go out of line. Managed competition in the state of Washington, for example, this year is bringing the cost -- cost increase down to about zero percent. We think it will work, but we can't be sure. And we want to have those -- the premium caps there as -- as a life preserver. We need health security, but we also need cost security.

MS. WARNER: And so, in other words, Congress or some board would set the amount of the increase, and you basically leave it up to the insurance companies then to police everyone else?

SEN. SIMON: The National Health Board would say these are the caps, that you can't go beyond this, but, but we believe that generally those caps will not be reached.

MS. WARNER: Sen. Durenberger, you voted against this proposal. Why?

SEN. DURENBERGER: Well, simply because the fact is that in the last three or four years we have seen the increase in costs come down. It's because of a lot of activity on our behalf of a lot of people by employers and employer coalitions and so forth, but they're swimming against a tide, because all the rules in the system, as you pointed out in your, in your piece, work against efficient provision of health care. So there is some competition going on, and there is more consumer choice than we ever had before. But what the administration proposes and what the Labor Committee proposes is, in effect, government-regulated competition. That's an oxymoron. It cannot be done. And the reason they're doing it basically is to try to capture in advance the savings that come from competition and use those for universal coverage, rather than using reform of the coverage rules, which are also distorting the market in order to get to their goal.

MS. WARNER: Well, Mr. Altman, you advise the White House on all of this. Why did you feel it is necessary to have some kind of artificial constraint, and why did you choose the insurance premium cap route as the way to go?

MR. ALTMAN: Well, first, let me be clear. I was with them in early stages, and it was -- as Sen. Simon indicated, we are -- and I'm impressed by what's going on in the market place, but you do need that safety valve in there. We've had too many situations in the past where health care costs were brought down for a few years and then once people stopped looking, the pressures are enormous. It's not the insurance company's fault. It's not the government's fault. The pressures are there, and to put a serious budget constraint behind this market we felt, and I feel it is important to make sure that this competition stays on track.

MS. WARNER: Well, Mr. McLane, I'm sure you don't support insurance premium caps, but what about the point that Mr. Altman just made, that even when you get in a period in which health care costs seem to abate, they always go back up again?

MR. McLANE: I think the reason health care costs have abated to the degree they abated over the last five years is because more and more people are now in managed care types of networks. Just ten years ago only 13 percent of Americans were in a managed care type of environment. 73 percent of Americans are now in some type of program where there is an intervention that checks cost and quality of care. When you talk about premium caps, you're really talking about price controls. When you talk about price controls, you're talking about government intervention in the process between the patient and the doctor and the hospital. It's the hospitals and the doctors and the aging of the population and medical technology, as was pointed out in your piece earlier, that's creating the underlying cost increases. So that if there is medical technological improvement and, in fact, you have some premium cap, or you have government regulators rating it, how are you going to determine -- is the government going to say, you can have that procedure or not have that procedure? We think that's wrong. We think coordinated systems of care where the medical community and the patients and the payors are linked together is the best way to provide that. And I think the inflation rate is beginning to show that.

MS. WARNER: But, for instance, insurance premium costs have in the last six years gone up, anywhere from 8 to 18 percent. I mean, even last year, when health care inflation was down to 5 percent, your premiums were still up 8 percent. How much -- why is the first question -- how much longer, how high do you think they should be allowed to continue to go up?

MR. McLANE: Well, I'm not going to sit here and try to represent an entire industry. I can tell you that our premiums went up at a very, very modest rate because we're a managed health care company and that we recognize that in order to be competitive in the markets that you have to be today -- you have to deal with the cost of care, you have to deal with the quality of care, and increasingly, you have to deal with customer satisfaction. These are elements that are now coming into the health care world that did not exist before.

MS. WARNER: Sen. Simon, what about the point Mr. McLane made, which is that -- and it's a point that was in our taped piece -- that medical technology is bringing advances that, in fact, we want our people to have, and that the aging of the population also is going to drive health care costs higher?

SEN. SIMON: Well, there is no question, we want the technology, and we want to move ahead, and we give flexibility to do that. But there is no question also you showed three Duluth hospitals next to each other. I don't know whether all three have MRI's or other things. These are things that we really can do to not in any way discourage quality delivery of services but cut costs down. Again, with managed competition -- and the state of Washington is the most recent example -- you have zero percent increase. The gentleman from Aetna talks about managed competition working. These caps on premiums are there just for emergencies so no one gets out of line.

MS. WARNER: And the proposal you voted for yesterday was to hold the increases to simply the Consumer Price Index. Do you really think that they can stay within that?

SEN. SIMON: First of all, I think they can stay within that, but it really -- we -- the first year, 1996, they can go 1 1/2 percent above that; 1997, 1 percent; 1998, 1/2 percent; and then after that they're held to the Consumer Price Index.

MS. WARNER: Sen. Durenberger, do you think that with market forces at work health care cost increases can be held to the Consumer Price index, to the rate of inflation?

SEN. DURENBERGER: Margaret, the best way to put it is this way. If we do nothing 10 years from now, we in America will spend 2 trillion, 200 billion dollars in the year 2003 on health care. That's 20 percent of our GDP.That comes from CBO. If we do the Clinton, Kennedy, or Simon plan, we will be at 2 trillion, 70 billion, which is 19 percent of the GDP. Margaret, that's ridiculous. We don't have to settle for that high an inflation index when we can -- by changing the way in which we practice medicine and deliver care and use technology, changing the concept of insurance just the way Aetna has changed just in the last few years -- we can change this whole system. I think it could be less than 14 percent of the GDP today. Look at those Duluth hospitals. In Duluth, Medicare pays $274 a month on the average reimbursement for care. On Long Island in New York, they pay $650 a month. I could go through all -- they're trying to do things differently already in Duluth. They would integrate that Duluth community. They would change that hospital and that system. And the Duluth clinic could do it already if it weren't for the fact that anti- competitive antitrust rules in the state of Minnesota make it impossible for them to do that. We've got to take down the rules that penalize people for doing things smart and have some national rules that are pro-competitive, pro-consumer choice, and you'll see integration of systems, you'll see shared risk, you'll see a lot of creative things take place in Duluth and all over America.

SEN. SIMON: You can do that and still have premium caps to protect the public.

SEN. DURENBERGER: You can't do it, because as soon as you put on a premium cap, even if it's a fallback, everybody knows that if it's in the hand of the government, the government is going to, going to have the fallback. So everybody prices right to the cap immediately. The doctors and the hospitals go out and make their money by just prescribing more services to make up for the money they lose from the cap, and you're back again to 19 percent of the GDP.

MS. WARNER: Let me ask --

SEN. SIMON: And the experience in the state of Washington shows that's not what happens.

MS. WARNER: Let me ask Mr. Altman here. Do you see any way to bridge this gap here between these two?

MR. ALTMAN: I do, actually I do. I think Sen. Durenberger has a lot to say about these changes in the market place. I would not put a hard cap which is out there. You really do need negotiations to go on. I think you do need some kind of a budget restriction, and those dollars need to be allocated by area. But a much better way to deal with it is to have the plans compete in terms of the premiums they're going to charge, and then try as Mr. McLane indicated, to get consumer choice. But at some point, at some point they should not be allowed to raise their premium above, and if Sen. Durenberger's right, which I hope he is, they'll never come close to the cap. But I'm opposed personally to a hard number like the CPI. I think it's an artificial number. I think you're much better off letting the marketplace work but under some kind of a budget constraint.

MS. WARNER: So are you talking about some kind of a trigger that --

MR. ALTMAN: Absolutely. And you need to do it at a regional level. Now, you need some overall national numbers, and the fear that the people have in the administration and in the Congress is the CBO won't give them credit for it. I think the CBO needs to change its way of thinking a little bit, and I think there is a way that Sen. Durenberger's comments could be taken into account, but if you just leave the budget unchecked at all, there is this real possibility at some point in the future of flying right through it.

MS. WARNER: Well, Mr. McLane, if you believe in themarket, then what's wrong with the trigger idea, i.e., go ahead and let health care reform take effect, and if these market forces work, if you're right, the premium caps could never take effect, if they don't work, then they would kick in?

MR. McLANE: The problem with triggers, Margaret, is a trigger is the same thing as a price control. It's sitting in the closet, but with a club in the closet you're not going to get the capital flowing into the health care companies that you really need in today's world in order to help get your costs down.

MS. WARNER: Explain that.

MR. McLANE: We're spending --

MS. WARNER: Why do you need more capital?

MR. McLANE: -- hundreds of millions of dollars, hundreds of millions of dollars in order to work on outcomes measurement. So, remember, I talked about cost, and I talked about quality of care. Everybody's beginning to talk about, well, how do you measure the quality of care? You don't just do that, you know, quickly. You've got to spend a lot of funds on that. We're spending a lot of funds on improving our managed care capabilities. We're spending a lot of funds on electronic connectivity to that hospital in Duluth, two doctors offices, to get paper out of the system. When you talk about premium caps, it reminds me -- I actually ran the wage and price controls program in this country from 1972 to 1974. And you get these very different pricing that goes on in local markets. I will never forget Sen. Fullbright calling me up and telling me about the tomatoes that were rotting in the streets of Little Rock, and I said, why, and he said, because the price cap that you had in Little Rock wasn't enough for them to make any profit to bring their tomatoes to market, and, therefore, they let 'em rot.

MS. WARNER: You're shaking your head, Mr. Altman.

MR. ALTMAN: Well, I was with J.D. back in 1971 -- and this is not price controls at all. I mean, I agree with him. If we were to try to regulate prices at the aspirin level and at the MRI level, we would have all hell to pay. But that's not what we're talking about. You're talking about restraining the available total dollars, getting it down below that two trillion level and trying to put a budget constraint so that his firm and others will compete against the budget. Understand something. Health care can never be a true market, because we as consumers don't want it. That's why his company is in business. His company is in business to provide us insurance, to protect us against the money that that woman had to pay. That's why we want him. We wouldn't need Aetna Insurance Company if we were prepared to pay bills. Once you do that, you have made this an artificial market. Let them compete but recognize it's a budget constraint as there is in other industries, and yes, that has to be an artificial number because this market is not real. But we do need to make it more real. And there I agree totally with Sen. Durenberger. It's too distorted now. Can we make it better? I think we can, but I do believe we not only need it in the closet, but it needs to be out in front so that everybody knows they're playing against the budget constraints.

MS. WARNER: Sen. Durenberger, what about that point, what is wrong with having a club in the closet? I mean, after all, you all on the Hill did that with Gramm-Rudman on your budget deliberations. You kept that club in the closet.

SEN. DURENBERGER: I think Jim McLane had the answer to it, and it comes from experience and history. The good news probably is that Chairman Moynihan, Pat Moynihan of the Finance Committeehad us together this afternoon at 4 o'clock in a closed session and let us look at his idea of where we ought to begin in the Finance Committee. And on this particular issue, rather than having premium caps or controls, as we've been discussing, he had what you might call premium or price targets. And this is a subject that all of us are somewhat familiar with. Try to set some expenditure targets or goals for various markets out in the future, and then this National Health Board or whatever the entity is we will create would measure the performance of a Duluth market against Long Island or various parts of the country against those goals and from time to time make recommendations to the Congress as to how policy might be changed to facilitate the folks that aren't doing so well learning from those who are.

MS. WARNER: Could you live with the idea of targets, Mr. McLane?

MR. McLANE: I think if you have targets, the way the Senator was talking about 'em in the context of very local because the difference between Long Island and Buffalo is tremendous, and one of the things that is amazing is that once you turn 55 and over, you spend three and a half times the dollars on medical care than you do when you're under 55. So obviously you have aging and demographics that you have to bring to bear. You have the availability of service in rural areas and in urban areas. I think if there set as goals and that a health board evaluates these and that the market is truly allowed to operate competitively. In Chicago, for example, Sen. Simon, I know that our plans are actually -- have a decrease in premiums this year compared to last year, so it's not only no increase, it's a decrease in premiums. And competition's forcing that, not the government.

MS. WARNER: Mr. Altman.

MR. ALTMAN: I would support targets, but please don't make universal coverage hostage to those numbers. If, in fact, you're going to go to targets, you need to have a financing mechanism to agree on universal coverage. The problem I have is that the people that want targets are not willing to come up with the money. Now, Sen. Durenberger's been way ahead on this supporting the coverage. But we need to move them together. If you just have targets and they say, well, if you don't meet the targets, and we can't have universal coverage, then who are you holding hostage? You're holding the uninsured hostage to this.

MS. WARNER: Before we go, let me ask you two Senators to give us your political prognosis. There are five committees, all going to come up with different bills, several votes on the floor. Sen. Simon, where do you think this cost control issue will end up?

SEN. SIMON: We will have some kind of restraint. Exactly what form it will take, I'm not sure. We had a very close vote last night in our committee. But we will have universal coverage. We will have some kind of cost control.

MS. WARNER: But not necessarily premium caps?

SEN. SIMON: Well, not necessarily. There will be something there. Whether you call them premium caps or what, I personally favor premium caps. And I think that they're not only desirable. I think something like that is necessary.

MS. WARNER: And Sen. Durenberger, your prognosis.

SEN. DURENBERGER: Well, first we're going to get a bill out by the second week in August, and secondly, that the only way you can get the universal coverage is through genuine cost containment. As I said earlier, any form of regulation of competition apart from antitrust rules and that sort of thing doesn't get you the cost containment you need, and so you're notgoing to see price caps, premium controls or any kind of regulation in this bill.

MS. WARNER: Well, thank you, Senators and Mr. McLane and Mr. Altman, thanks very much. ESSAY - NOWHERE BUT UP

MR. LEHRER: Finally tonight, essayist Roger Rosenblatt looks at a movie you probably cannot see.

[Scenes from "Jimmy Hollywood"]

ROGER ROSENBLATT: A movie review of Barry Levinson's latest and now mostly disappeared new film, "Jimmy Hollywood" begins with the following assessment. "After the bankrupt 'Toys' director Barry Levinson could have filed for an artistic equivalent of Chapter 11. With his reputation entirely liquidated, he had nowhere to go but up." A talk show host in New York recently told Levinson much the same thing. Reputation entirely liquidated? Nowhere to go but up? If one did not know better, those remarks would seem to describe an artistic failure, a dud, rather than a man who directed such first class successes as "Diner" and "Tinman" and "Good Morning, Vietnam," "Rainman," and "The Natural."

ACTOR IN SCENE FROM MOVIE: I came to America in 1940. It was the most beautiful place you've ever seen.

ROGER ROSENBLATT: About Levinson's autobiographical movie "Avalon" opinion was divided between those who merely liked it and those who adored it. But the point is that before "Toys" and "Jimmy Hollywood" came work that in a rational world ought to have established Levinson solidly as a movie artist of the first rank. Not a chance. Everyone takes it for granted that having committed one commercial and critical error, Levinson was as good as dead. This attitude is, as far as I know, a wholly American invention. Call it the "nowhere to go but up syndrome." Critics, and by extension the public, when they view an artist's production look only at what he or she has done most recently. There is no account taken of what used to be called one's body of work, even though an examination of that body of work would show as in the case of Levinson a great chain of achievements, slightly adulterated by a flop or two. In movies of the 30's and 40's, if you didn't like a particular film of Betty Davis or Cary Grant, the career still remained intact -- with other artists too. Who cared if Hemingway or Fitzgerald or Faulkner had a flop or two or three? Even the flops are questionable. When one is dealing with a proven first class artist, flops are to be studied for what they attempted. Falling short is beside the point. Not here, not in America. In America, there is no such thing as an interesting failure. You're either up, or you have nowhere to go but up. Where this attitude comes from is hard to pin down. Puritan non- forgiveness maybe. Once you sin, you're a sinner. That's that. Or the rules of business may have something to do with it because business always asks, "What have you done for me lately?" The free market economy may form the attitude too since success is judged by how much money something makes. No one said after "Jurassic Park" and before "Schindler's List" that Steven Spielberg had nowhere to go but up because, terrible though it was, "Jurassic Park" made hundreds of millions. A commercial success may not always be deemed an artistic success, but the artist, himself, is never judged a failure if he has made money. If a work loses both money and critics, however, the artist is sunk. He or she must start from scratch with each new piece as if the past were obliterated. Think of poor Levinson, when he was making "Tinman."

[SCENE FROM "TINMAN"]

ROGER ROSENBLATT: He had this wonderful idea of returning to the kids in his diner but as grown-ups to show the progression of touching, funny, and lonely lives. He probably thought that he was building something and that it would be seen that way and that his life and work would be judged as a whole. Now, look at him as the talk show host asks if he felt that he needed something of a comeback film after "Toys." Nowhere to go but up. I'm Roger Rosenblatt. RECAP

MR. LEHRER: Again, the major stories of this Thursday, the House of Representatives passed a measure calling for the United States to unilaterally lift the arms embargo on the Bosnian Muslims. The move was opposed by President Clinton, who favors lifting the ban in concert with the United Nations. And North Korea threatened Japan and South Korea with war if the U.N. imposes economic sanctions. Good night, Margaret.

MS. WARNER: Good night, Jim. That's it for the NewsHour tonight. We'll see you tomorrow evening. I'm Margaret Warner. Good night.