Costs of Confusion: When What You Don’t Know Definitely Hurts

Monopoly on Knowledge

If I gave you two minutes to explain the basic details of your health insurance plan, could you do it? If not, you are far from alone. A recent survey has concluded that a majority of Americans feel “hopelessly confused” by health insurance (Bend, 2021). Coupled with the fact that Americans spend more on healthcare than any other country in the world while producing outcomes that are far from the best, the current state of affairs is aptly summarized as rife with market failures (Tikkanen, et al 2020). Wherefore art thou invisible hand?

Source: Adapted from T. Rice, et al., “United States of America: Health System Review,” Health Systems in Transition, vol. 15, no. 3, 2013, p. 27.

Imagine I was something akin to Billy on the Street, and I brought with me a large poster of the image to the right. How likely is it that an interviewee would be able to provide a brief summary of our healthcare system? Even if I were incentivized with a $1, I may consider it not to be worth the mental effort. Overly complicated systems engender feelings of helplessness, and you don’t have to look far for another example. The US tax code has become so complicated that an entire industry has arisen to profit from the average American’s lack of understanding.

The healthcare industry naturally profits from consumer naïveté. A study from the American Economic Association suggests nearly 9 out of 10 Americans purchase the wrong prescription drug coverage plan for their needs, costing them 30% more than the ideal plan on average (Abaluck & Gruber, 2016). It begs the question, who is responsible for educating Americans on navigating our healthcare system? By the time Americans need to purchase health insurance for the first time, they are likely 26 years old. Many years removed from the education system, we are relying on Americans to figure it out for themselves, and it clearly isn’t working.

“Because people are so bad at choosing plans, the market often sends weird signals to insurance companies, encouraging them to offer more of the wrong plans instead of the right ones.”

Margot Sanger-Katz, “It’s Not Just You: Picking a Health Insurance Plan is Really Hard”
Inexplicable Inconsistencies

This past fall break, I road tripped to a close friend’s house outside of Charlotte, North Carolina. As usual, I forgot to pack an item, but unfortunately this time it was my thyroid medication—something I am supposed to take daily. Luckily, I was able to have the prescription filled at a Costco in Charlotte, where I was only charged $7. This was in stark contrast to the $27 I typically pay at the Costco in Mishawaka, Indiana. In the American health system, this isn’t remotely unusual! The varying costs of identical surgical procedures from hospital to hospital and city to city are well documented (Rosenthal, 2013).

Yet again, a lack of transparency and awareness leads to wasteful spending. In an ideal market, consumers and competitors would take advantage of mispricings and force the most efficient outcome. In a country that prides itself on free market capitalism, how is this allowed to persist? I believe two central issues perpetuate this broken system.

The first is the influence of the healthcare industry on regulation via political lobbying. Three of the top five largest political donors this past year were the Pharmaceutical Research and Manufacturers of America, the American Hospital Association, and Blue Cross Blue Shield—all donating in excess of $25 million (OpenSecrets, 2023). Uneven pricing allows some to inflate their margins. The desire to protect their profits is a rational, self-interested act.

The second is once again a lack of knowledge on behalf of the consumer. Once more, if you asked random individuals on the street to estimate the price of a common medical procedure, more likely than not you would get wildly different responses. Ask the same people the price of a gallon of milk and nearly every answer would be between $2-$4, depending on location. This is by no means the fault of the everyday American. Even at the same hospital with the same doctor, individuals may have wildly different out-of-pocket costs depending on their insurance plan. It is, however, a failure of broader American society.

A Simple Step Towards Better Healthcare

“There is rarely a single, immediate remedy […] Success would be incremental.”

Dr. Elizabeth Loder, The Heroism of Incremental Care

Much of the debate in U.S. politics over the healthcare industry surrounds controversial topics. Deadlock prevents radical change, and thus leaves us stuck with the issues of the present. In our obsessive debate over universal coverage or the sustainability of current public health programs, we forget about the uncontroversial. One of the few matters in existence not to exhibit diminishing marginal returns is that of useful knowledge. It is not controversial to suggest that Americans should have a better grasp of our healthcare system. The government has a long-held desire for an educated populace. More quickly than we can cut through red tape, more quickly than we can restrain the influence of lobbyists, more quickly than we can reign in pharmaceutical drug costs, politicians can help the everyday American by enacting programs that will help them to navigate the costs of care. The citizenry so often criticize the wasteful spending of government; how ironic it is that government now has the opportunity to eliminate the wasteful spending of its citizenry. Unsurprisingly, education can make our country stronger.


Abaluck, J., & Gruber, J. (2016, August 8). Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance. American Economic Review. Retrieved February 20, 2023, from 

Bend. (2021, February 3). More than Half of Americans Confused by Health Insurance, including HSAs. Bend News. Retrieved February 20, 2023, from  

OpenSecrets. (2023). Top Spenders. OpenSecrets: Following the Money in Politics. Retrieved February 20, 2023, from 

Rosenthal, E. (2013, June 1). The $2.7 Trillion Medical Bill. The New York Times. Retrieved February 20, 2023, from 

Sanger-Katz, M. (2020, December 11). It’s Not Just You: Picking a Health Insurance Plan is Really Hard. The New York Times. Retrieved February 20, 2023, from 

Tikkanen, R., Osborn, R., Mossialos, E., Djordjevic, A., & Wharton, G. (2020, June 5). United States. International Healthcare System Profiles . Retrieved February 20, 2023, from