A Closer Look at Necessities

Chapter Summary

One important criticism levied against the arguments advanced in this book is that much spending on “necessities” is not really necessary.  Spending on unnecessary treatments for hypochondriacs, deluxe dorm rooms at college, or the installation of a backyard pool would register as healthcare, education, and housing expenditures in the data.  Arguably, there are luxury expenditures masquerading as essentials spending.  If increasing expenditures on “essentials” are on these kinds of goods, then it may be reasonable to expect people to save money by spending less on these unnecessary “necessities”.

This chapter reviews arguments linked to the question of whether or not the wellbeing-essential goods we purchase are in fact improving our quality of life, or whether they are a matter of profit-taking or closure.  The evidence is mixed.  It seems like some of this increased spending has gone to purchasing better essentials, but it is also clear that some of these rising prices are a result of profit-taking or a governments’ choice to spend less to ensure that these essentials products are affordable.

Key Findings

  • Relative to disposable income, healthcare expenditures rose between 1996 and 2014 were primarily driven by insurance costs.  Out-of-pocket spending on medical services, supplies, and drugs were roughly the same, if not slightly lower.   The source of these cost pressures are channeled through insurance plans, although health insurance profit-taking may not be the major source of rising expenditures (see below)
  • Profit margins among drug manufacturing, biotechnology, diagnostics, medical instruments, supplies, and equipment are well above those in consumer and industrial goods.  Profit margins among hospitals and healthcare plans were low in comparison to general margins in consumer and industrial markets.  This suggests that profit taking is relatively high in these technology-intensive parts of the healthcare markets.
  • Sticker prices in US healthcare can be very high. Several reports suggest hospitals charge very high prices compared to similar services in other countries Doctors also make more in America than their counterparts in other developed countries.

Tables and Figures