1961
We received a very nice letter from MacMagrary's wife Joan bringing us up-to-date on his adventures. She writes: "Mac received 1 is Masters Degree in Landscape Architecture from the University of California at Berkeley last September. Since then he has worked for the Forest Service in the area rear the Grand Canyon with the Kaibab Forest his special area. His job is to give advice on any project being considered in the forest from camping areas to mining permits. The job requires him to travel in light plane, jeep, snow mobile and on skis—and anyone would love a job where they could just give advice! Mac's degree in geology from Dartmouth is an excellent background for this work. When Mac is not the Forest Service, he spends his time cross country skiing or planning yet another trip into the canyonlands." Mac and Joan are enjoying the recent brith of their first child, a son, named lan Quinn Magary.
We have said from time to time that this column was available to classmates for expressing their views on various subjects. In the March issue we suggested Hop Holmberg share with us his knowledge of the health care needs of this country. Hop has taken the time to put his thoughts in writing, so we are turning over the rest of this column to him. We hope that you will write and let us have your reaction to Hop's article. He is currently executive director of the Boston-Brookline Health Resources Organization and has spent all his time since leaving Dartmouth in the health care field.
Health Services Roadblock: The Mechanic—Body Shop Problem. As participants in this society we share the common fate of facing a number of risks from ill health to household fire. We've found a mechanism for living with those risks—insurance. We each pay a small premium; in return the few of us who are unfortunate are able to avoid financial disaster. Be it repairing a crumpled fender or rebuilding a borned out house, the insurance mechanism generally attempts to get the damage repaired at the lowest possible cost. The insurer doesn't tell you that you can only buy so many bricks and only so many feet of electrical cable. Your auto collision insurance doesn't tell you how much to spend on labor and how much to spend on parts.
Imagine auto collision insurance written as two separate policies: one policy for the cost of the body shop, its heavy equipment, and the unskilled laborers; another policy for the master body mechanic and his hand tools. Assume you have a "fender-bender"; the damage can be repaired for $100, $50 to the body shop and $50 to the master mechanic. Total cost $100. If you only have master mechanic insurance you won't go to the body shop. Instead, you'll park your car on the street and tell the master mechanic "pound it out with your hand tools no matter what it costs, my insurance will pay th bill." The mechanics bill may be $200. You've made a rational decision; beyond your premium payments you have no out of pocket cost. If you had put the car in the body shop you would have paid $50 for the body shop expense not covered by your insurance.
"What is personally rational in this situation is social disaster. Instead of expending $100, we have spent $200. $100 of resources have been unnecessarily consumed and will not be available for other use. In economic terms, we have constrained the production function and prevented finding the lowest cost mix of productive factors.
"Auto insurers don't write their policies in that way for good reasons. Yet health insurance is written in mechanic and body shop form. In some cases separate compa- nies are used—Blue Cross and Blue Shield.
"To this one persistent structural flaw, and the thinking which sustains it, can be attributed much of the character of "crisis" which surrounds the delivery of health services today. Many Americans are covered for the cost of hospitalization and the cost of physician services while in the hospital but are not covered for the cost of health care outside the hospital. As a result a lot of bodies are parked in hospitals due to financial incentives which are, like the mechanic-body shop example, rational for the individual but a social disaster. Under this awesome system we have a chronic shortage of health resources; the average American uses 1.0 to 1.2 days of hospitalization per year.
"There are settings in the U. S. where the mechanic-body shop division does not exist in health care; the results are astounding. Hospitalization is reduced to 0.3 to 0.4 days per person per year, a reduction of 60% to 75%. That represents a savings of $50 to $100 per person per year. If realized for every American it could represent savings of twenty billion dollars per year or 2% of Gross National Product. If those hospital days were converted to days of productive activity, it could mean an additional 600,000 man years of productive activity per year. This is the ideal cure for a sluggish economy whose productive capacity does not match up to its consumptive desires.
"If the productivity found in a variety of settings called "pre-paid group practice" could be extended across the country we wouldn't have a shortage of physicians, we'd have a surplus. What's more, we'd find half our hospital bed capacity was unnecessary.
"The persistence of the very expensive mechanic-body shop dichotomy in health services, and all that is associated with it. can in great part be attributed to a defective system of social governance. In considerable part, this ineffective system for delivering health care has been governed by boards of community hospitals and boards of insurance companies who have been happy with the status quo and have not forced change. In proportion to their numbers in the general population, Dart- mouth graduates are probably inordinately represented in that governance process. It has been governance by the esteemed citizen; it has tones of noblisse oblige and an allusion of lower income citizens being unable to decide what is best for themselves.
"Boards of esteemed citizens have not themselves found health care lacking; they, their families, and their friends all seem to be able to get health care when they need it. The average American family has an annual before-tax income of less than $10,000 per year. In the Boston area adequate health insurance coverage costs more than $75 per month or $900 per year. If you add related out of pocket costs, visits to physician offices and drugs, the cost may reach $1200 per year. A family of four with an income of $6000 per year finds there is just no way to spend 20% of their before—tax income on health care. Yet they earn too much to qualify for our proportedly generous social security mechanisms. They don't get the care they feel they need—they can't afford it anymore than they can afford a trip to China. One can wonder whether the present system would continue if the esteemed citizens were replaced by a mother faced with the need to find $1200 for health care in a $6000 income.
"Certainly she and her counterparts would be little concerned about lowering the income of a physician from $60,000 to $45,000. Certainly they would be undeterred if told new arrangements were going to violate the physician-patient relationship, a relationship they hadn't enjoyed. Certainly, she might be less apt to support a $2,000,000, 40-bed expansion of the local hospital when she knew that same chunk of capital could build ambulatory care facilities which could serve 50,000 people and eliminate the need for more hospital beds.
"And most certainly this mother and her counterparts would fail. They'd not fail for lack of great wisdom in their acts. They'd fail because the esteemed citizens who were previously on the hospital board will still be officers of the banks and insurance companies who must cooperate in such ventures. The mothers would fail because what they were trying to do was "unsound" or because their leadership was "unproven." Instead, the "proven" course would reassert itself. We would continue the "sound" path of allowing the share of GNP consumed by the health sector to grow by one-third (from 6% to 8%) in ten years."
Secretary, 14 Glen Rd. Winchester, Mass. 01890
Class Agent, 16 Bellridge Rd., Glastonbury, Conn. 06033
