The MacNeil/Lehrer NewsHour

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

MS. FARNSWORTH: And I'm Elizabeth Farnsworth in New York. After our summary of today's news, we have excerpts from the Senate debate over President Clinton's surgeon general nominee, then former Federal Reserve Chairman Paul Volcker talks about reading the Fed's tea leaves, Fred De Sam Lazaro reports on the move to enroll Medicare recipients in HMO's, and Charlayne Hunter-Gault has another in her series of conversations on new ideas about welfare. NEWS SUMMARY

MR. LEHRER: Dr. Henry Foster's nomination for surgeon general failed its first Senate test today. Sixty votes were needed to bring the nomination to the floor for an up or down vote. Fifty- seven Senators voted for it, 43 against. A filibuster has been threatened by Republican presidential candidate and Texas Senator Phil Gramm. Before today's vote, Senators debated the merits of the nomination.

SEN. JAMES EXON, [D] Nebraska: I may be wrong, but it is the opinion of this Senator that Dr. Foster is being crucified on the altar of presidential politics pure and simple. That is not what all of the opponents of Dr. Foster are thinking in my mind. But it is to a considerable extent of some who are providing leadership.

SEN. ROBERT DOLE, Majority Leader: Now I assume when people refer to presidential politics, they may have me in that category, and everything around here is presidential politics up here, but not downtown. Oh, it's all statesmanship in the White House. It would never occur to them to have any presidential politics. And when this nomination was made, that was presidential politics to try to drive a wedge between Republicans on the issue of abortion. That's what it's all about.

MR. LEHRER: There will be a second vote tomorrow on ending debate. If that fails, Majority Leader Dole said he will remove the nomination from the floor. President Clinton appeared with Dr. Foster in the Rose Garden this afternoon. He again called on Senators to allow a vote.

PRESIDENT CLINTON: The Senators who voted to deny Dr. Foster an up or down vote did a disservice to a good man. They also did a disservice to our whole system of democracy, and make no mistake about it, this was not a vote about the right of the President to choose a surgeon general. This was really a vote about every American woman's right to choose. This man got 57 votes. Forty-three people say no because they are in the grip of people who don't question my right to choose him but question American women's right to choose.

MR. LEHRER: We'll have extended excerpts from the Senate debate right after this News Summary. Elizabeth.

MS. FARNSWORTH: In economic news today, the U.S. trade deficit rose to a record $11.4 billion in April. The Commerce Department said the gap increased by 16 percent as imports jumped to the highest level ever and exports fell. Federal Reserve Chairman Alan Greenspan said the risk of a mild recession in the near future seems to be increasing, but he added that he does not expect a severe downturn later. The Fed chairman presented his assessment of the economy to a business group in New York last night. We'll have more on this story later in the program.

MR. LEHRER: The Russian parliament said in a vote today it had no confidence in the government of President Boris Yeltsin. It followed days of criticism over Prime Minister Chernomyrdin's handling of the Chechen hostage crisis. We have more in this report from Laurence McDonnell of Independent Television News.

LAURENCE McDONNELL, ITN: The Russian parliament's vote of no confidence in the government was originally put forward to show its dissatisfaction with the management of the economy, but in the end, it was the mishandling of the siege in Budyonnovsk which convinced many MP's to reject the cabinet. In the dock, Viktor Chernomyrdin, the prime minister who gave into the Chechen rebels' demands. Before the vote, he claimed he was ready to step down. After it, he argued no one else could do the job, and the hostage takers would be tracked down.

VIKTOR CHERNOMYRDIN, Prime Minister, Russia: [speaking through interpreter] No criminal will be left free. Revenge will be cruel and believe me, we will take revenge. They'll get what they deserve. We're not going to forgive anyone.

MR. McDONNELL: Under the Russian constitution, the vote is not binding, but Mr. Yeltsin's opponents say they're sending a clear message to the electorate. After their week-long ordeal, the last of the volunteers who'd agreed to go with the Chechens arrived home in Budyonnovsk. Like the MP's in Moscow, many here blame their own government for the disastrous operation to free them. Today the burnt out shell of the hospital stands as a reminder of the ordeal that cost this town so many lives. Although President Yeltsin can effectively ignore the Russian parliament's vote of no confidence in his government, the result reflects a national mood in this country which is undermining the chances of him or his prime minister winning in next year's presidential elections.

MR. LEHRER: There's been another incident involving UN peacekeepers in Bosnia. This time, 652 Canadian soldiers are being confined to their base in Central Bosnia by the Muslim-led government. The government has threatened to shell the base if the UN soldiers move. An aid convoy arrived in Sarajevo today, delivering flour and other staples. It was the first time in a month a relief caravan has gotten through to the capital city. Food warehouses there are almost empty, and aid officials called the situation critical.

MS. FARNSWORTH: Japanese police stormed a hijacked plane in Northern Japan today. The hijacker threatened to blow up the All- Nippon computer fight with 365 people on board. He originally demanded authorities release cult leader Shoko Asahara from prison. Asahara has been charged in the March gas attack on the Tokyo subway which killed 11 people and sickened more than 5,000. Later, the hijacker asked to be returned to Tokyo, where the flight originated. The hijacker was captured. Five people were injured. No explosives were found on board the plane.

MR. LEHRER: Two firefighting planes collided in midair over Southern California today. They had been fighting a brush fire in the desert near San Diego. Three crew members were killed. The planes crashed into one house and set a second house on fire. And that's it for the News Summary tonight. Now it's on to the Foster debate, Fed-speak, Medicare HMO's, and a welfare conversation. FOCUS - UPHILL BATTLE

MR. LEHRER: We go first tonight to the Foster vote. Sixty votes were needed in the Senate to bring the surgeon general nomination of Dr. Henry Foster to an up or down majority vote. There were only 57. We have extended excerpts from this morning's Senate debate. They start with the words of Nancy Kassebaum, chairman of the committee that oversaw the Foster nomination.

SEN. NANCY KASSEBAUM, Chairman, Labor & Human Resources: I have weighed the full record and concluded that I cannot support Dr. Foster's nomination. Given the troubled term of Dr. Joycelyn Elders, it was clear to me and it should, I think, have been clear to the administration that the next surgeon general needed to be someone who immediately could reestablish the credibility and non- political authority of this office. But political it has become, and many Americans, including me, wonder why we need a surgeon general if he or she is going to be caught up in pointless rhetorical controversies that do nothing to address the critical issues of health that are facing our nation. The surgeon general's main role is to speak to the entire nation on health issues in ways that both enlighten and challenge us. I believe that Dr. Foster cannot effectively perform that role largely because his own credibility and authority was undermined at the very start of the nomination process. Despite his many strengths, I believe that Dr. Foster is the wrong person to step into this badly damaged office at this time.

SEN. EDWARD KENNEDY, [D] Massachusetts: The Senate, in its own way, ought to have the opportunity to express itself. And quite frankly, the fact that we're going to vote for cloture in order to be able to get to the nomination I don't think is the way that we ought to be considering the nomination, and I don't think that that is fair to Dr. Foster and it isn't fair to the American people who want to have an outstanding doctor as the surgeon general. I think that those that have pointed out that there are other forces at work here are correct, that this really is an issue that involves, I believe, the woman's right to choose and the issues of privacy, questions of whether the, the idea that a doctor that is going to be surgeon general is going to face a litmus test on the issue of abortion before being able to be confirmed. I mean, when all is said and done, Mr. President, that is really the issue that is out there. Dr. Foster is entitled to a vote. He is entitled to a vote up and down, and the American people are entitled to a surgeon general who understands and respects the right of privacy, the constitutional right of a woman's right to choose.

SEN. PHIL GRAMM, [R] Texas: Dr. Foster has held two important positions in his career that have been pointed out as his qualifications for this office. No. 1, Dr. Foster was the head of the department at a medical school in America. During his tenure as chairman of that department, that department lost its accreditation. I do not believe that that is a strong recommendation for a person who will sit on the supervisory board for medical training funded by the American taxpayer. No. 2, Dr. Foster served as director of the "I Have a Future" program. We have heard repeatedly Dr. Foster's leadership in this program stated as a qualification for being surgeon general. Now, on two occasions, and only two occasions that I am aware of, there were evaluations of this program, and in both evaluations, the 1992 evaluation and the 1994 evaluation, evidence was clearly presented, in no way challenged by the people who were running this program, that the program had failed to produce any change in adolescent pregnancy among the people who were involved in the program as compared to the people who were not involved. Now, some people have said this is a debate about abortion, and to some extent it is a debate about abortion. But it is a debate about radical views on abortion that were held by Joycelyn Elders and that are held totally and completely by Dr. Foster, the view that No. 1, we should not have parental notification for minors, a view that the vast majority of American people do not share, a view that abortion on demand should everywhere be the rule and the guiding principle even in late abortions, even in those cases where states today are trying to exercise their legitimate rights under the Webster decision. I do not believe those views represent traditional American values. I do not believe they represent the will of the American people.

SEN. CHRISTOPHER DODD, [D] Connecticut: This isn't about Dr. Foster. We're engaged here in presidential politics. That's what it's about. This isn't really a question of whether or not Dr. Foster deserves to be confirmed as the surgeon general of the United States. This is a game of one upmanship in my view, and that's what it comes down to, and frankly, he's being used as a pawn in this process to advance the particular political agenda of candidates for an office that won't be decided for 18 months in this country, and anyone who suggests otherwise I think hasn't been around here in the last number of weeks. This is a highly qualified individual, Mr. President. No one denies the fact that the White House didn't handle this terribly well, but it's not the White House that's up for confirmation this morning. It's Dr. Henry Foster. Be angry at the White House if you want to, suggest they might do the process or handle the process in a more efficient manner, but don't make Dr. Foster the victim of that, of that criticism, however legitimate it may be.

SEN. DON NICKLES, [R] Oklahoma: Mr. President, I say Dr. Foster is the wrong person to be surgeon general. He should not be confirmed, and it doesn't have anything to do with presidential politics. He shouldn't be confirmed. Why? I don't think we can trust him. I think time and time again he's made statements that have proven not to be truthful. I don't think he's been honest. I don't think he's leveled with the Congress. I don't think he's leveled with the American people, and I don't think that somebody should be confirmed if they can't tell the truth. That doesn't mean he's not a nice guy in many areas. It doesn't mean he hasn't done some good things. But if a person doesn't tell the truth, then they shouldn't be confirmed to a high level office.

SEN. BARBARA BOXER, [D] California: This is about politics, politics of the worst sort. This is about pressure, pressure of the worst sort. This is about sacrificing a decent man on the altar of right wing politics in America. And I hope that if we do not win this vote today on cloture, that the American people will rise up, that they will phone their Senators because they have a chance to reconsider if we don't win this today. I am appalled at what I have heard here. I am appalled that people who claim to stand for family values, for decency in society, would attack a decent man in such a personal way. And I share the views of my friend from Connecticut, when he says, who in their right mind will put themselves through this and get caught up, caught up in presidential politics like this? A man is an OB-GYN, an obstetrician-gynecologist, delivered 10,000 babies -- 0.3 percent of his practice involved abortion most of the time to save the life of the mother, and this is how he gets treated.

SEN. ROBERT DOLE, Majority Leader: He should not be the Democrats' doctor or the Republicans' doctor. He should not be the liberals' doctor or the conservatives' doctor. The idea of the qualifications and experience should be so apparent that they would be confirmed by an overwhelming vote, and this is most assuredly not the case here. The bottom line is that Dr. Foster unite the American people. Would his public pronouncements and speeches be regarded as medical and scientific fact, rather than political rhetoric? Would he be regarded as America's doctor? That's the question we need to answer. As I said, he may be a fine person, but, in my view, he's the wrong person for this job.

MR. LEHRER: Still to come on the NewsHour tonight, how to talk Fed, Medicare HMO's, and a welfare conversation. FOCUS - THE FED MYSTIQUE

MS. FARNSWORTH: Next tonight, interpreting the oracle that is the Federal Reserve Board chairman. Last night, Alan Greenspan, chairman since 1987, spoke to a business group in New York, but this morning, the major newspapers ran very different stories about what the chairman said. While the Washington Post reported that Greenspan had signalled a cut in interest rates, the Wall Street Journal and New York Times reported the opposite. This is what he actually said.

ALAN GREENSPAN, Chairman, Federal Reserve Board: As I have indicated over the past several weeks, incoming information on the forces involved does suggest some increased risk of a modest, near- term recession. But the early onset of this process of moderation also indicates markedly reduced prospects for a more severe inventory-induced downturn later. A complex business cycle process is underway whose outcome is yet to be determined. For the Federal Reserve, it is a time for intensifying our normal surveillance and analysis of ongoing developments to gauge whether policy still is appropriately positioned to foster sustained economic expansion. Of one thing I am certain: Our Federal Open Market Committee meeting in a couple of weeks will be most engaging.

MS. FARNSWORTH: Two weeks ago when Greenspan spoke in Seattle, the New York Times heard him predict a recession. The Wall Street Journal heard the opposite. Greenspan isn't the first Fed chief to generate such differing interpretations. In fact, though the media and the markets hang on every word, the Federal Reserve Board Chairman may be the most difficult public official to understand. To help us learn why, we turn to Paul Volcker, chairman of the Federal Reserve Board from 1979 to 1987. I spoke to him earlier today.

MS. FARNSWORTH: Thank you very much for being with us, Mr. Volcker. Reporters and financial analysts read what the Federal Reserve Board chairman says like soothsayers used to read tea leaves or even entrails, and yet, they come up with such widely differing analysis of what he said. Why would there be such different reports in two different newspapers?

PAUL VOLCKER, Former Chairman, Federal Reserve Board: Well, I think for several reasons. It's inherently a complicated subject. You try to give a balanced statement. A reporter can pick out one side or the other of the balance that you made, and frankly, arrive at his own interpretations and there's always an insistence to make a complicated story short and brief. You arrive at some theme for the headline, two different editors arrive at two different themes, and you get contrasting stories.

MS. FARNSWORTH: Well, do you think some of this is intentional? Did Mr. Greenspan intend to obfuscate a little bit?

MR. VOLCKER: I think, you know, he gets accused of obfuscating. I have a lot of experience of being accused of obfuscating. Sometimes you may try to obfuscate because you're not ready to say something, or you're uncertain, but many times, the situation is just complicated, and you try to explain the complications, and people think you're obfuscating. A lot of things in monetary policy simply aren't subject to simple, short, declarative sentences, yes or no. It all depends is a very convenient phrase.

MS. FARNSWORTH: Did it happen to you? Did newspapers take two differing, make two differing interpretations?

MR. VOLCKER: I can remember one time testifying at one of the so called Humphrey Hawkings hearings where you're supposed to set down policy intentions and describing as carefully as I could what the policy situation was and what the policy intentions were and one headline was "Fed Eases;" another headline was "Fed Tightens," in simple declarative sentences, and in that case, they were choosing two different interpretations of how you read Federal Reserve policies. Some people look at the money supply, they say the money supply is going up, the Federal Reserve is easing. Other people judge monetary policy by interest rates, and if you have interest rates going up and the money supply going up, you can get two different headlines.

MS. FARNSWORTH: Did you feel like people were studying your words for hidden meanings?

MR. VOLCKER: Yes.

MS. FARNSWORTH: I mean, did people look at your words and debate them?

MR. VOLCKER: Yes. I didn't just feel that; it happened. It happens to any Federal Reserve chairman.

MS. FARNSWORTH: Has it always been this way, or has it, has it increased lately?

MR. VOLCKER: I think it's probably increased over the years. The Federal Reserve has gotten more attention. Central banks in general have more attention in recent years. The financial markets probably react more quickly, more strongly, and that is a big inhibiting factor on a Federal Reserve Chairman -- they want to be -- or the Federal Reserve, anybody -- they want to be careful about what they say so that markets aren't misled and react in ways people make money or lose money or it affects the economy. If you want to affect markets, you do it quite deliberately, but you don't want to do every time you open up your mouth.

MS. FARNSWORTH: Do they move more quickly because of the computer, everything that's happened in modern communications?

MR. VOLCKER: Well, data processing, not just the computer but the speed of communication where what a Federal Reserve chairman says today in Washington or last night in New York is instantaneously available in trading rooms, in Tokyo that are open when he's speaking, and that's a little different. I don't think it's fundamentally changed. The thing happens faster, but markets are always sensitive and move in response to expectations. You're dealing with expectations as much as current reality.

MS. FARNSWORTH: Well, Mr. Greenspan actually referred to this. He said that because of the movement of international capital and because the dollar is somewhat vulnerable now anyway he had to be very careful. Is that more true now than it used to be, do you think?

MR. VOLCKER: It's -- may be more true but it's been true for some time. The amounts are bigger. The reactions are probably faster, but international markets were always sensitive. There are fewer controls now. There used to be more controls which slowed down some of these movements. So it's -- it's a difference in degree. I'm not sure it's a difference in kind.

MS. FARNSWORTH: How did you handle it? Did you just have to plan very carefully everything you said, or did you not speak to the press much?

MR. VOLCKER: Well, you do both. I used to try to avoid speaking to the press on the record or casually because you didn't know how it was going to be interpreted. On the other hand, you wanted them to understand what you're doing, so you sometimes spoke on, on background and hoped you were helping the educational process. But I -- I -- read frankly the first few pages of Mr. Greenspan's speech coming over here this afternoon. He thought he gave a perfectly clear, straightforward, balanced assessment of the economy and the various considerations bearing on Federal Reserve policy. He didn't say what they're going to do two weeks from now. He didn't know what they're going to do two weeks from now, I suspect. We're going to have a big debate in the Open Market Committee, decide whether to make a change or not make a change, and there are varying considerations which he, I thought, laid out quite clearly.

MS. FARNSWORTH: So you wouldn't -- if you'd written a headline, the headline wouldn't have said either that he's going to cut or he isn't going to cut?

MR. VOLCKER: I think either headline is misleading in the context of what I read.

MS. FARNSWORTH: He was just laying out both sides?

MR. VOLCKER: He was laying out the considerations. And that is irritating to people who want the answer and say, he speak with fork tongue. He's not speaking with fork tongue; he's speaking to reflect the complexities of the situation.

MS. FARNSWORTH: Just how powerful is the Federal Reserve chairman? You know that the press reports sometimes say it's the second most powerful post in the nation. Do you think that's true?

MR. VOLCKER: Well, I think the Federal Reserve isimportant. The chairman is only one person in the Federal Reserve. He's obviously normally the most influential person in the Federal Reserve. But he has committees; he has a board, votes on certain aspects of policy, the Open Market Committee is the most important policy making body, people express their opinion, you try to get a consensus. It depends upon the time, circumstances, nature of the cabinet, nature of the other members, but it's not all the chairman. He works within the construct of those committees. He works -- the Federal Reserve has to work within some frame work of what's acceptable and unacceptable in terms of at least informed opinion in the country generally. And they don't go off half- cocked, so to speak, outside the range of what some kind of broad consensus is about the nature of policy.

MS. FARNSWORTH: In speaking with Senate Banking Chairman Alfonse D'Amato yesterday or Alfonse D'Amato asked what economic indicators the Fed will examine, he asked Mr. Greenspan this, to decide whether to lower rates, and Mr. Greenspan joked.

MR. VOLCKER: I bet he got a long list. What did Mr. Greenspan say?

MS. FARNSWORTH: He said, "If I say something which you understand fully in this regard, I've probably made a mistake."

MR. VOLCKER: That's --

MS. FARNSWORTH: Can you tell us what indicators he might be looking at that we could understand?

MR. VOLCKER: Well, I mean, he really spelled them out in the part of the speech I read last night. He discussed the slowdown in economic activity, which is evident, the risks that that might culminate in something called a recession. He, I think, suggested that was not the most probable course of events, but it was possible, probably wouldn't be very deep. And he reminded everybody that a continuing objective of the Federal Reserve toward price stability and anything they had to do had to be viewed in that context and develop the complications you referred to earlier about the international dimension, the importance of maintaining continuity of policy and responsible policies in terms of the position of the dollar in the world, which bears back on the domestic economy. All those things are relevant.

MS. FARNSWORTH: And I would imagine there are hundreds of indicators that are being looked at. Can you just give us specifically some of the things that are being looked at, car sales, I mean, all that.

MR. VOLCKER: They look at all that stuff. They haven't got any secrets that they're looking at that aren't published in the daily press. They may put it through some manipulation and analysis as other people do, but I think what you're always looking for is indicators of what's happening in the future, and there's a lot of concentration on what last quarter's GNP was. Last quarter's, last quarter -- there's one thing the Federal Reserve can't affect, and that's last quarter economic activity, so you may find some clues there as to balances, changes in the economy. He did a lot of talking about inventories last night.

MS. FARNSWORTH: But the inventories are what indicate that it's part of the cause of the recession, right, not quite recession, but economic slowdown?

MR. VOLCKER: Simple principle of inventories are very high, businesses want to cut inventories, they cut production, that cuts income.

MS. FARNSWORTH: Which has led to the current economic slowdown.

MR. VOLCKER: Economic activity goes down. And you can get some clues to that by looking at last month's figure or last quarter's figure. But you look for indicators like new orders. You look at things in the monetary areas, is bank credit growing rapidly, is the money supply, itself -- gotten a lot of attention in recent years -- is it growing rapidly or not? There's evidence that there is significance there for what happens in the economy next month, next quarter, even next year. So you keep a pretty close eye on, on those indicators. But is there a one-to-one relationship? No.

MS. FARNSWORTH: What about political pressure? Mr. Greenspan was asked a question last night about whether the White House was pressuring him to reduce the interest rates, presumably so that there won't be a downturn as we get closer to the elections. Is it something that the Federal Reserve chairman has to deal with, political pressures? I mean, I'd be surprised if it wasn't the case.

MR. VOLCKER: I mean, that varies. I mean, there are obviously political pressures. I'm not part of this administration, part of this Federal Reserve. I'm an outside observer like everybody else.

MS. FARNSWORTH: How about when you were?

MR. VOLCKER: And I -- let me say I think this administration by and large has been pretty careful not to give the impression they were pressuring the Federal Reserve. In my experience, it varied quite a lot by administrations, by presidents, by secretaries of the Treasury. I think generally from the viewpoint of the Federal Reserve, from the viewpoint of the chairman of the Federal Reserve, it's counterproductive, because it may muddy the waters in conveying the message that you want to convey about what's going on and what your policy intentions are. And anything that detracts from the clarity and credibility of what you say is not a very happy circumstance if you're chairman of the Federal Reserve, and I think it diminishes the effectiveness of policy.

MS. FARNSWORTH: Mr. Volcker, thank you very much for being with us.

MR. VOLCKER: Thank you. FOCUS - MANAGING CARE

MR. LEHRER: Now, managed care for the elderly. Today House Speaker Newt Gingrinch told a group of health care people he's exploring the idea of HMO's for Medicare recipients. He said it could reduce the rate of growth of Medicare spending. We look at the pros and cons of that approach in this report by medical correspondent Fred De Sam Lazaro of public station KTCA-St. Paul- Minneapolis.

MAN IN COMMERCIAL: I enroll people to Secure Horizons.

WOMAN IN COMMERCIAL: I said, yes, I was born in August of '92, 1892.

MAN IN COMMERCIAL: When I asked her what took her so long to join, she said she didn't think our plan would take her.

FRED DE SAM LAZARO, KTCA-St. Paul-Minneapolis: It would seem unlikely commerce, health insurers going after business among the elderly, arguably the least healthy, medically most expensive demographic group in America.

SPOKESMAN ON COMMERCIAL: For more information about Secure Horizons, the health plan for people with Medicare, call --

MR. LAZARO: But HMO plans like Secure Horizons have been part of a managed care wave that swept the seniors market for the past five years, just as it has the rest of American health care. Medicare HMO's are among the fastest growing sectors of the insurance business. Allan Hoops, CEO of Secure Horizons' parent company, says in a half dozen cities where it offers them, Medicare HMO's are enrolling more than 10,000 new members each month.

ALAN HOOPS, HMO Executive: There is certainly truth to the stereotype that says that seniors are set in their ways and change reluctantly. But it's not as, as deeply seated as I think most people think it is. The seniors are very intelligent in their purchasing patterns, probably for all things, but certainly for health care.

NANCY: [TV Commercial] Hi, I'm Nancy from Secure Horizons. I know a lot of you have questions about which health plan to choose, and hopefully, I can help.

MR. LAZARO: Seniors may not like the restricted choice of doctors in managed care, but as the marketing campaigns are quick to exploit, there are significant cost advantages in HMO's to offset those reservations. Traditional fee-for-service Medicare exacts hefty deductibles from seniors, among the major ones, $700 each time they are hospitalized, more for longer hospital stays, 20 percent of doctor and clinic bills, and all prescription costs. Many people buy supplemental insurance to cover these co-payments called Medi-Gap policies, all of which become unnecessary in HMO's, according to Hoops.

ALAN HOOPS: They don't understand how they can join a Secure Horizons, have all their deductibles met, get vision, dental, prescription drugs, and some other benefits, preventive benefits, and pay nothing. It doesn't make sense.

MR. LAZARO: It does make sense for the insurance companies. The federal government pays them a flat fee of capitated payment for each person enrolled in their Medicare HMO's. It doesn't matter how much medical care the enrollee needs, if the cost of that care is lower than the government payment, the HMO makes a profit. If the cost exceeds the government premium, the HMO is supposed to eat the loss. In practice, most insurance companies report handsome profits from their Medicare HMO plans. The point of contention, one heard frequently in the debate over managed care in general, is whether this comes at the expense of quality. Diane Archer runs an advocacy group called Medicare Beneficiaries' Defense Fund.

DIANE ARCHER, HMO Advocate: I think there's a concern that in the HMO's that a lot of care that is necessary but is high priced is not being delivered, and certainly, you're right. Studies have shown that, mm, hospital stays are shorter if you're enrolled in a Medicare HMO, that fewer people are going into the hospital if they're in a Medicare HMO relative to the proportion going in if they're in fee-for-service Medicare.

MR. LAZARO: Alan Hoops freely admits that reduced hospital use is the chief source of profits for HMO's, but he insists less hospitalization means better health care, not worse.

ALAN HOOPS: There have been study after study that have identified everything from bypass surgeries to hysterectomies, to C-sections, to lab tests, to X-rays, that are done in, in excess, anywhere from 25 to 60 percent of services are judged to be either unnecessary, unnecessary or of equivocal justification. And that's a function of a fee-for-service system that rewards services that may be less than necessary.

MR. LAZARO: One way Secure Horizons officials say they keep down hospital costs is by preventing great illness in the first place. They point to the example of members like Harry Francisco and his wife, Irene.

IRENE FRANCISCO: They also have very good emphasis on education. I mean, Harry was discovered to have terrible triglycerides and high cholesterol and they said, let's have you go to the cholesterol class. Well, there we learned that we needed to, you know, to adjust our diet and cut our fat and do these things that would bring the numbers down dietarily rather than with medication. I was originally on blood pressure medication. Now I exercise, and I'm off it.

MR. LAZARO: The Franciscos get free use of a health club as part of their HMO membership. In this group, there's praise for SecureHorizons, notably for the savings in supplemental insurance that's often needed in fee-for-service Medicare.

BOB HUFF: I would say the average medical supplement is about $1500 a year, judging by what my wife pays. My wife doesn't belong to Secure Horizons.

VICTOR ADLER: I'm satisfied with it -- no paper work and only some bi-payment, I mean, extra payment which you pay, you know, when you come for a -- that's all. As I say, they, they under service you, the HMO, and the other doctors over service you, so nicest would be right in the middle.

BOB HUFF: The main thing, you have to know the system and have to be willing to work within the system. You can't expect a lot of different things when you don't need them.

MR. LAZARO: It's that kind of astute consumerism, knowing what you're getting into, that consumer advocates say is key to successfully using an HMO. Medicare beneficiary advocates, however, say many seniors don't fully understand managed care plans. This office has received many complaints about deceptive marketing by some plans. George Powell was sold an HMO policy while visiting his mother in Florida. He lives in New York and found out only months later and after their bills started being rejected that he couldn't use his doctors in New York.

GEORGE POWELL: I was told that I would be provided the best health care, and if there was a problem, that I could get out or I could use this plan traveling, if I were to go out of state. And I told 'em that I lived in New York, and they said, I could use my own physicians in New York.

MR. LAZARO: There are also complaints about quality. This woman lost her mother to cancer, the disease's course hastened, she feels, by an HMO's failure to respond early to her mother's complaint of abdominal pains.

WOMAN: In the HMO, there's an incentive to keep costs down. Sonograms cost money. The only corollary I have is that when I've complained, I've been sent for a sonogram rather promptly. In Mother's case, that was not an option that was presented to her.

AGNES CLAY: You're told to pick a primary physician who will take care of you. Okay. So I did that, and I found her to be very unprofessional and very uncaring.

MR. LAZARO: Agnes Clay also had difficulty seeing specialists, for which HMO's require a primary care physician's referral. But aside from anecdotal reports, Archer says there's no definitive data yet on HMO's. She, in fact, recommends them for seniors in good health.

DIANE ARCHER, HMO Advocate: They get preventive care covered and other benefits covered under their Medicare HMO's that they don't get covered under traditional Medicare. But for the sicker, older, frailer, Medicare patients, the ones with cancer and multiple sclerosis, the ones who really need intensive health care. I wouldn't advise enrolling in a Medicare HMO. Nobody has done a hard look at what the outcomes are in the HMO's versus in traditional Medicare.

MR. LAZARO: Archer says another fact many seniors don't realize that if they're ever dissatisfied, they can opt out of HMO's and back into regular fee-for-service Medicare. For seniors aware of this opt out provision, HMO's are a "no lose" proposition. The same would seem true for the insurance companies as well. But ironically when it comes to saving the government money, a priority for many congressional leaders, there's no evidence HMO's are saving the government any money. In fact, there's some evidence that it could be costing more.

DIANE ARCHER: Because the very sick are the ones who tend to dis- enroll most frequently from the HMO's, the taxpayers are paying a higher price as a result of their ability to dis-enroll.

MR. LAZARO: And because people who do enroll and stay in HMO's tend to be healthier, their medical care costs are lower, possibly much lower than the 5 percent discount the government gets off regular Medicare costs. The Health & Human Services official in charge of Medicare agrees that government may not be getting a bargain.

BRUCE VLADECK, Medicare Administrator: We need a substantially better payment method. We don't adjust for health status. We don't adjust for history of prior illness. We don't adjust for some other predictors of whether a person's going to use a lot of services or not.

MR. LAZARO: But Bruce Vladeck opposes the call for government to demand a bigger discount for insurance companies for their Medicare HMO enrollees. Many congressional leaders consider these savings key to trimming the federal budget deficit, but Vladeck says cutting such premiums without more study is ill- advised.

BRUCE VLADECK: If, for example, Congress were to say you have to cut what you're paying Medicare HMO's by 10 percent or 15 percent and then said that they were going to essentially force some beneficiaries to go into HMO's, which are proposals that are floating around, you would attract some of the -- you would drive out of the business some of the better HMO's that are now there which don't think they can afford to provide high quality services with those rate reductions and don't want unhappy, unwilling customers enrolling in their plans.

MR. LAZARO: Vladeck hopes to provide better consumer satisfaction and quality surveys, also to introduce preferred provider HMO's that are popular in the private sector. PPO members can go out of their physician network at extra cost but don't have to completely dis-enroll as Medicare now requires. Meanwhile, Republican congressional leaders who are committed to a balanced federal budget by 2002 are counting on a substantial increase in senior HMO enrollment to cut Medicare's inflation rate and thereby shave anywhere from 250 to 300 billion dollars off future government spending on Medicare.

SERIES - RETHINKING WELFARE

MS. FARNSWORTH: Next, the third in our series on rethinking welfare. Republican congressional proposals are challenging some of the system's most fundamental assumptions. Recommendations include ending so-called welfare entitlements for all who qualify and shifting responsibility for welfare from the federal government to the states. Tonight Charlayne Hunter-Gault talks with Eloise Anderson, director of the California Department of Social Services and former director of Health & Social Services in the state of Wisconsin.

MS. HUNTER-GAULT: Eloise Anderson, thank you for joining us. Welfare by most accounts has been an abysmal failure. Do you agree with that, and, if so, why do you think it has been?

ELOISE ANDERSON, California Social Services Director: [Sacramento] I'd probably come to it a little differently given what AFDC, if that's what we're talking about, and welfare was designed to do, it's been a roaring success.

MS. HUNTER-GAULT: Aid to Families --

ELOISE ANDERSON: Aid to Families with Dependent Children. It's that it's outlived its time, and therefore, we are an angry people about it because it's doing what it set out to do, and what it set out to do is to keep women at home with their children in 1930, when this program was designed; Social Security was not quite on- line yet. There was no -- not much life insurance going on in the country. There was not a place for women who lost their husbands, so we had to do something with women and children. And this program came in to take care of that need, and it's done that, year after year, decade after decade.

MS. HUNTER-GAULT: So what's the problem now?

ELOISE ANDERSON: Well, the problem now is that we have a lot of women who are not widows on this program. In fact, most of them have life insurance, or they're on Social Security. And we have many mothers now who go to work, and you have many single moms who go to work, so the question is, which I believe is getting to be a question of fairness, is how do you ask let's say a minimum wage mom who gets up every day and goes to work in a hotel or a restaurant or cashier to pay taxes to keep a woman who lives next door to her to stay home, when they have the same exact responsibility?

MS. HUNTER-GAULT: There are those who say that welfare created a culture of dependency, that people got used to it.

ELOISE ANDERSON: I think that what welfare has done, it has done a lot of things, and I think one of the things, it said to women, a certain population of women, is that you can marry us, the government, and we will become your spouse, and we will take care of you, not very well, but we will take care of you, and you don't have to work. I don't think that was our design or intent but yet, they're not capable of competing, and they really do believe that somebody owes them something, and many of them believe that you can get something for nothing because that's what they've learned through this system. Now, that's not everybody on AFDC. The population is not homogenous. You know, it's mixed up, and there's a lot of different people in that population.

MS. HUNTER-GAULT: Some say that illegitimacy is the single most decisive factor in welfare today, that this is what is increasing the rolls of welfare recipients.

ELOISE ANDERSON: Well, I think it's teen parenting, mothers who are minor and in many ways are the big problem on AFDC. Mothers who are adults who come on AFDC don't stay long. It's the young mom who comes on before she's finished high school, not very mature, not very developed in her own cognitive skills, doesn't know very much about the world, has very few experiences, not financially capable or ready, and has a child. And then she usually doesn't have one child; she then very closely behind that has a couple of other children. She's a permanent fixture. She's the problem.

MS. HUNTER-GAULT: Should welfare be scrapped altogether, as some are suggesting, or should it be reformed, or what?

ELOISE ANDERSON: I've watched welfare be reformed for 30 years, and all we do is nibble around the edges, and I think we nibble around the edges because we have very different feelings about women. Some of us really believe women are helpless and victims, so we never really do anything to say, you know, you had a kid, you and this guy had a kid, and you and this guy together ought to figure out how you're going to deal with this, and the government will be there, I mean, the larger society will be there for you when you're in a crisis, and then to ask the question, what's the crisis, is having a baby a crisis? Not the last time I looked, so we need to come to grips around that one. We got to as a country come to grips with these people on AFDC are not helpless, not inferior, not irrational, and not stupid.

MS. HUNTER-GAULT: But if you're saying that these young women who are having children and not thinking about the consequences and ending up on welfare need a reality check, where's the reality check going tocome from?

ELOISE ANDERSON: I think we ought to have fairness checks here, that we ought to treat people on AFDC, if we have an AFDC program, the same way we treat working poor. There should be no difference in that treatment, because if this is a difference in that treatment, if it is more beneficial for me to be on AFDC then it is for me to go out and work, what am I going to choose? But it's not the working poor who is on welfare. It's the non-working poor who's on welfare, and if you want 'em to go to work, then you've got to think about a different system. And you can't -- we can't design a new welfare program from the present one if this cannot be our model.

MS. HUNTER-GAULT: What fundamentally has to be done? Do we scrap this system altogether and start from scratch?

ELOISE ANDERSON: Well, I think we need to do exactly what we did when we make an automobile. We need to create a new mold. And the questions you ask are: When do we want to help? When is it that we want to intervene? Under what conditions do we want to intervene? And we've got to ask those questions.

MS. HUNTER-GAULT: All right. Well, let's ask this question. If we scrap the system, as you seem to want to do, what should be the goal of welfare?

ELOISE ANDERSON: To help you when you're in a crisis.

MS. HUNTER-GAULT: And only in a crisis?

ELOISE ANDERSON: And only in a crisis.

MS. HUNTER-GAULT: And who should be eligible?

ELOISE ANDERSON: A variety of different people, people who are sick, people who are disabled permanently or temporarily, children who are without parents, people who are unemployed temporarily.

MS. HUNTER-GAULT: So are you saying it should be an entitlement, welfare should be an entitlement?

ELOISE ANDERSON: No, I didn't say it should be an entitlement. See, an entitlement says that I'm going to give it you regardless of anything else that's going on, and I think that we need to talk about what other means you may have. You may have a family that can help you. You may have a friend that can help you. Government shouldn't just be there for everybody all the time under any condition, and I think that's what an entitlement is.

MS. HUNTER-GAULT: Do you think in a new system government should require something in exchange --

ELOISE ANDERSON: Oh, yes.

MS. HUNTER-GAULT: -- for like what?

ELOISE ANDERSON: Work. I don't see how you put -- you give people assistance who've never put into the pot. You have a pot, a community pot that everybody contributes to. And how do I continue to let people come and take out of the pot who've never contributed into the pot? You need to have contributed. Now what that does is that it eliminates minors out of taking out. So if you're a minor with a child, you get no grant. I'm much more interested in a system where we look at who the person is and we make a, a plan for that individual person that says this is what you're capable of, this is how long you need this, and that's it, and never have it over two or three years. That, to me, is really a long time.

MS. HUNTER-GAULT: One of the people I interviewed for this series said that you can't do any reform of welfare until you deal with this values question.

ELOISE ANDERSON: I believe that those of us who work in the system have to get our values changed. We have to start looking at people on AFDC very differently. We have to look on them as capable, competent people, who have potential, who can do all these things. That's not how we look at them. Before the 60's, it wasn't negative to be poor. Nobody said you were poor and you were diseased and you were a criminal. I mean, it wasn't that sense about being poor. Now, if you're poor, you don't have values, you don't have all kinds of things. We shifted about how we think about being poor.

MS. HUNTER-GAULT: Whose responsibility do you think this should be, because, as you know, the debate that's going on now has it remaining in federal control, state control, and some even saying that it should be private charities that run welfare systems. What do you think?

ELOISE ANDERSON: Well, my 30 years' experience says that I really wish the federal government would get out of this and that's just from my own experience.

MS. HUNTER-GAULT: Why?

ELOISE ANDERSON: Because you can't run this -- you can't dictate from Washington what all of the 50 states need. We're very different. We have very different base line needs. Our populations are different, and we need to have it more back in the hands of at least the states.

MS. HUNTER-GAULT: But people who've criticized that say that states are notorious for having allegiances to business and that they would use the money for purposes other than welfare.

ELOISE ANDERSON: I have not had that experience about states not taking care of their own people. What I have seen occur is that states try to put a lot of money within the business community to generate jobs. Now, it seems to me that if you want people on welfare to work, you've got to have job generation somewhere. Government doesn't make jobs. The business community makes jobs.

MS. HUNTER-GAULT: There are those who say the unifying principle of welfare reform today seems to be work.

ELOISE ANDERSON: Right.

MS. HUNTER-GAULT: But there are others who say, but you got to have education, you got to have training, you got to have this and that and the other.

ELOISE ANDERSON: I believe that the best -- the best experience for work is work. I don't -- I'm not convinced the classroom is the best place to get work to happen, and I think what happens is those of us who go to college and get educated in college believe that the only place you learn anything is in college. In fact, that's probably the last place you learn anything is in college. So I think what we need to do is to get us out of the way and put a different set of people into thinking about this. We don't have people who create jobs sitting at the table talking with us. We don't have the business sector sitting at the table talking to us. Who do we have sitting at the table talking to us? The colleges, the universities the training community. We have all the people who want something very different from us, so we need to have a very different set of people talking to us. We don't need this -- you know, one of the things that might be interesting for the Feds to think about is moving AFDC out of Health & Social Services and moving into the Department of Labor. That would create a radical change in how they thought about it.

MS. HUNTER-GAULT: If you were in charge, what would you do? What would be the main things that you would do at this point?

ELOISE ANDERSON: I'd do what we tried to do in the 60's, that's split the work effort totally out of AFDC, and I'd move what's left into child welfare, because what's left are moms who really do need to be dealt with. You need to say a woman who's never married, never worked, what are you doing with a kid, what are your parenting -- what's happening with you as a parent? You have never worked and you've never married. How did you come to parent? You didn't bring anything to the table for this child. We need to really pay attention to that mom. We need to look at substance abuse in this program, and we need to deal with it. We need to put moms in treatment, moms and dads in treatment, and we need to deal with that.

MS. HUNTER-GAULT: What would that kind of program do to the deficit?

ELOISE ANDERSON: I think we'd save money because we would be dealing with saving families, getting family structures back in order, doing family work. We'd be doing social work, not just giving people money, and we need to get to that, and if we've got a family that has a problem, we'll be dealing with that problem; we won't be giving them money to hide the problem. And I think we'd have reduction in child welfare costs; we'd have a reduction in juvenile delinquency, so long-term we'd save money.

MS. HUNTER-GAULT: Well, Eloise Anderson, thank you.

ELOISE ANDERSON: Thank you.

MS. FARNSWORTH: Charlayne concludes her series tomorrow with a conversation with Ralph Smith, a senior fellow at a Baltimore foundation that studies poverty. RECAP

MR. LEHRER: Again, the major stories of this Wednesday, the Senate failed by three votes to prevent a threatened Republican filibuster of Dr. Henry Foster's nomination to be surgeon general. There will be another vote tomorrow, and Japanese police stormed a hijacked airliner. They captured the hijacker and freed the 365 people aboard the plane. Good night, Elizabeth.

MS. FARNSWORTH: Good night, Jim.

MR. LEHRER: That's the NewsHour for tonight. We'll be back tomorrow. I'm Elizabeth Farnsworth. Have a nice evening.