econlife - Six Surprising Facts About Our Prescription Drug Spending by Elaine Schwartz

Most of us say that our pharmaceutical drug spending is soaring.

Not necessarily.

Prescription Drug Spending Facts

Yes, our prescription drug spending is up. But the reasons relate much more to our age and health than to prices.

1. Canada spends more.

When we look at average per capita out-of-pocket spending on prescriptions, in 2017, Canada ($144), Norway ($178), Korea ($156), and Switzerland ($216) spent more. In the U.S., the average was $143.

2.  Prescription drug spending has been stable or falling.

Between 2013 and 2018: average household spending on prescription drugs was down by 11 percent according to the BLS Consumer Expenditure Survey:

3. Prescription drug spending represents an increasingly higher proportion of our income as we age.

Many baby boomers have begun to spend close one-third of their income on prescription drugs:

4. As we age, we buy more prescription drugs that cost us less.

Although we buy many more prescriptions, the out-of-pocket cost per prescription falls:

5. Our out-of-pocket spending on prescription drugs is up less than for most other healthcare categories.

Second in a 10 item list, prescription drug spending was up 8 percent from 2013 to 2018:

6. People with fair and poor health pay less for each prescription.

The average out-of-pocket cost per prescription for a healthy person is approximately $15 while it’s closer to $13 for someone with poor health:

Our Bottom Line: Thinking at the Margin

Alfred Marshall was the first economist to look at the significance of the margin. Defined as where you start to use extra, the margin is where we decide if we want more of something. When you order another slice of pizza, you are thinking at the margin. Similarly, how fast you drive, how much you study, and whether you sleep later in the morning all involve marginal analysis.

For prescription drug spending, we’ve probably been looking at the wrong margins. Directing our economic lens to the extra spending we do as we age could provide more insight.

My sources and more: Thanks to Marginal Revolution for alerting me to The Prescription Escalator that was described clearly and thoroughly by economist Michael Mandel. From there, I took a look at OECD pharmaceutical spending data.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Why Albums Are Longer by Elaine Schwartz

We are streaming more of our music with the newest albums having as many as 45 tracks.

Where are we going? To some marginal thinking.

But first, a bit of history…

Music Industry Revenue

Does anyone remember LP records?

In 1980, the music industry was dominated by LP/EP. With LP standing for long play and EP, extended play vinyl records, both represented almost 60% of the revenue generated by different musical formats. Next, we had cassettes at 19.1%.

By 1992 CDs had ascended to that 60% position and by 2002, were at a whopping 95.5% of all revenue. Fast forward to 2012 though and all began to change. You can see that CDs had moved way down as downloaded singles and albums became more popular:

But this graph says it all:

New Incentives

With streaming becoming increasingly dominant, the incentives in the industry have changed. Musicians have always coveted a higher ranking from Billboard. But now that they count streaming, Billboard has made downloads ever more crucial.

This how The Washington Post explains their criteria:  

You can see that it’s the length that lets you “climb the charts” because longer albums maximize the chance for more downloads.

Examples? Here I again quote The Washington Post since I know little about the 22 tracks in Drake’s “More Life” and the 20 in Ty Dolla $ign’s “Beach House 3.″ The “record” right now though goes to Chris Brown’s “Heartbreak on a Full Moon” with its 45 tracks.

Our Bottom Line: Thinking at the Margin

Thinking about extras, we should thank British economist Alfred Marshall (1842-1924) for his insight. Marshall was the first scholar to suggest we keep an eye on the margin if we truly want to understand supply and demand. Because the margin is where we decide if we want something extra, the cost of that extra item shapes our behavior. At the margin, sellers decide whether to produce something extra and consumers calculate the quantities they are willing and able to buy at different prices. Their decisions depend on the extra item’s marginal utility–its value at the margin.

So, those extra tracks are no longer an artistic decision. As revenue generators, they have considerable marginal utility.

My sources and more: Making yesterday’s walk a pleasure, Tim Harford’s More or Less podcast alerted me to the longer album phenomenon. From there, I discovered more facts in The Guardian and Forbes. But The Washington Post had the best article.

Ideal for the classroom, econlife.com reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.