Consumers question what is “good value” more than ever these days. This trend started in earnest in the Great Recession in 2008. In particular, Millennials with fewer job opportunities and lower income started to ask whether the promised benefits of brands were worth the price charged. In many cases, the benefit can be open to interpretation, especially for perceived gratification from high image products like fashion, cosmetics, fragrances, etc. But when the price for “standard benefits” is so out of line, then credibility and trust for that brand becomes a real issue.
The concept of value in its simplest form involves these two elements: benefits divided by the price, or Benefit/Price.
There is probably no other industry that offers such poor value than the U.S. health system, which involves an extraordinarily wide discrepancy between an acceptable result/benefit and its disproportionately high pricing or costs to consumers. In December, the International Federation of Health Plans, a group that represents the C.E.O’s of health insurers worldwide, published their latest guide on the international costs for standard medical services, based on 2017 prices (https://www.healthsystemtracker.org/chart-collection/how-do-healthcare-prices-and-use-in-the-u-s-compare-to-other-countries/). The net conclusion was that patients and insurance companies in the U.S. pay significantly higher prices for typical surgeries, imaging tests, basic health visits, popular medications and common operations than comparable countries around the world. Some specific examples:
• Total health expenditures per capita in the U.S. in 2017 was $10,348. Next highest was Switzerland with $7,919, then Germany at $5,551. The comparable country average was $5,198 (Canada was $4,753).
• Average prices in the U.S. for common medical tests and operations were significantly higher:
o Angioplasty in the U.S. ($32,000) and coronary bypass ($78,000) were 183% and 129% more expensive respectively than the next highest country average
o MRI prices in the U.S. were higher than comparable countries, an average of $1,119, 122% higher than the United Kingdom, the next highest at $788
o The average price of an appendectomy in the U.S. was $15,930, nearly double the price in the U.K. ($8,009), and prices in Switzerland and Australia were even less ($6,040 and $3,814)
o Average U.S. prices for a hip and knee replacements respectively were also much higher: $29,067 for hips vs. $19,484 in Australia, and $28,184 for knees vs. $20,132 in Switzerland.
Although the news of such exorbitant healthcare prices in the U.S. should not surprise most people, they represent a quandary since there is no local competition to rectify this poor value situation, short of traveling abroad for treatment. Needless to say, the costs for drugs are also way out of line, which has at least caught the attention of many politicians and resulted in some consumers going to Canada for their prescriptions.
While there is no question about the higher healthcare prices in the U.S., one could argue that the benefits in the U.S. are so superior that the ultimate value for treatment and drugs is acceptable. Unfortunately this report by the International Federation of Health Plans shows that the positive benefits of U.S. healthcare lag behind other comparable high income countries:
• U.S. has the lowest life expectancy at birth (just under 79) compared to the average of other countries (82). Japan and Switzerland are the highest at 83, followed by Canada, Sweden, Australia, and France at 82. (It should be noted that life expectancy can be influenced by a variety of factors beyond healthcare, such as lifestyle, diet, violence and accidents.)
• The “disease burden” (i.e. DALY – “disability adjusted life year” rate) is highest in the U.S. (21,956) vs. the average of 19,071 (U.K. is second highest at 20,384).
• The mortality rate for most leading causes of death is highest in the U.S. (e.g. diseases of the circulatory system is most common), although the U.S. does slightly better for cancers.
The concept of “value” for a brand will be even more important for future purchase decisions as Millennials and Generation Z consumers become the dominant force in the marketplace. Today these indisputable discrepancies between the high prices consumers must pay and what they can expect for health benefits clearly demonstrate the interplay in this value equation – Benefit/Price. And this growing awareness of the elements behind “good value” will have reverberations for all product sectors going forward. For example, retailing is no longer the same. Amazon and online shopping has capitalized on consumers’ increased obsession with satisfactory/acceptable value by offering competitive products with similar benefits at much lower prices (and for many, greater convenience).
Connect with us