Everyone has a healthcare story.
Maybe it was a medical bill you didn’t understand. Maybe you went to the doctor expecting to owe $50 and somehow ended up owing $500. Or maybe you pay thousands of dollars a year for health insurance, and then discover that when you actually need care, you still have a deductible to meet first.
On the first episode of Medicine Unplugged, Dr. Bukola Okoro, board certified in internal medicine, obesity medicine, and lifestyle medicine, and Tochi Okoro, an engineer and healthcare operator, took on the question almost every American asks at some point: why is healthcare so expensive?
The short answer is that there isn’t one answer. But there is a structure, and once you can see it, your own bills start making a lot more sense.
Imagine a restaurant with no prices on the menu
Here’s the analogy Tochi used to open the episode:
You walk into a restaurant. There are no prices on the menu. You order dinner, and at the end of the meal the restaurant hands you a bill for $500. Then somebody says, “Don’t worry, your insurance company negotiated that down to $180.” The insurance company pays $100, and you get a bill for the remaining $80.
At that point you’d probably ask: what did the meal actually cost?
That is, more or less, American healthcare. And it explains why an Explanation of Benefits is so disorienting the first time you read one.
Why your bill has four different numbers on it
When you get an Explanation of Benefits (EOB), you’re usually looking at four separate figures, and patients understandably assume one of them is “the price.” None of them is, exactly.
- What the provider charged: The amount submitted to insurance.
- What the insurance company allowed: The contracted rate the insurer has negotiated with that specific provider.
- What the insurance company paid: Their share of the allowed amount.
- What you owe: Your share, based on your deductible, copay, or coinsurance.
As Dr. Okoro put it, a provider might submit a charge for $300, and the insurance company may respond that its contracted rate is $130. What a provider bills and what they actually receive can be completely different numbers.
One thing worth knowing: an Explanation of Benefits is not necessarily a bill. It’s a summary of how a claim was processed. Read all four numbers before you pay anything.
How many people are involved in a single doctor’s visit?
More than you’d think.
In one healthcare transaction you may have the patient, the physician, the hospital, the insurance company, a pharmacy benefit manager, a laboratory, a radiology company, and an employer.
Behind all of them sit billing departments, prior authorization teams, credentialing, compliance, and administration.
Every additional layer adds cost and complexity. As Dr. Okoro noted, physicians would love for it to be simple: see the patient, figure out what’s wrong, treat the patient.
Modern medicine has an enormous administrative component that sits on top of that.
What you’re actually paying for in a 15-minute visit
When someone says, “my doctor saw me for 15 minutes and charged $200,” there is a much larger infrastructure behind those 15 minutes:
- Nurses, medical assistants, and front office staff
- Electronic medical record systems
- Medical malpractice insurance
- Rent, equipment, and supplies
- Billing, credentialing, and compliance
And a good deal of the work happens when you’re not in the room.
Before your visit, someone may have verified your insurance, reviewed your medications, and obtained a prior authorization.
After you leave, someone reviews your lab results, sends prescriptions, responds to your messages, documents the visit, and coordinates your follow-up care.
All of that is part of delivering care.
Why hospitals cost what they cost
Hospitals run 24 hours a day.
They maintain emergency departments, operating rooms, intensive care units, laboratories, imaging, and pharmacies, staffed by nurses, physicians, respiratory therapists, and technicians, with enormous amounts of equipment.
Critically, much of that infrastructure has to stay available even when the beds aren’t full.
Standby capacity is not free, and it’s a real part of what hospital pricing reflects.
Why the same procedure can have two very different prices
You can have the exact same procedure performed at two different facilities and see dramatically different prices.
That lack of transparency is one of the single biggest reasons patients feel frustrated with the system. It’s very difficult to be a careful shopper when the prices aren’t visible before you buy.
Why your prescription price is so unpredictable
Your doctor writes a prescription and sends it to the pharmacy.
What you pay at the counter can depend on your insurance company, your pharmacy benefit manager, your deductible, which pharmacy you chose, whether a manufacturer’s coupon exists, and even which version of the medication your plan covers.
There’s a second problem underneath that one.
Sometimes the medication the physician believes is medically appropriate isn’t the medication the plan wants to cover. The response comes back as “try these two medications first,” or “prior authorization required,” inserting another layer between the doctor and the patient.
Are we running a healthcare system, or a sick care system?
A very large share of healthcare spending happens after people are already sick.
Conditions like diabetes, high blood pressure, heart disease, kidney disease, and obesity may require treatment for years, sometimes decades.
Which raises the question Tochi asked in the episode: are we really running a health care system, or a sick care system?
Identifying problems earlier, managing risk factors, and helping people build healthier lifestyles can prevent or delay many of the complications that become extremely expensive later on.
What you can actually do as a patient
This is the practical part. None of it fixes the system, but all of it puts you in a better position inside it.
- Know your numbers. Your deductible, your copays, your coinsurance, and your out-of-pocket maximum.
- Check the network before non-emergency care. Ask whether your doctor, laboratory, imaging center, and facility are all in network. They aren’t always the same answer.
- Ask about expected costs beforehand whenever it’s possible to do so.
- Read the EOB carefully. Charged, allowed, paid, your responsibility: four different numbers.
- Ask questions about any bill you don’t understand. You have every right to understand what you are being charged for.
Where technology fits, and where it doesn’t
Healthcare generates enormous amounts of data, but much of it lives in disconnected systems.
Hospitals have one system, physicians have another, insurers another, pharmacies another, and often they don’t talk to each other well.
Better technology could reduce documentation burden, improve communication, identify high-risk patients earlier, coordinate care, and give doctors more time to actually practice medicine.
Artificial intelligence may eventually help patients understand their bills, compare costs, and navigate their insurance.
But as Tochi put it: technology alone won’t fix healthcare. You still have to fix the incentives and the underlying system.
So who is to blame?
There isn’t one single villain.
Physicians, hospitals, insurance companies, pharmaceutical companies, government programs, employers, administrators, and patients are all interacting inside an incredibly complicated system.
The cost is an emergent property of the whole structure, not the fault of any one participant.
That complexity is exactly why we started Medicine Unplugged.
Frequently asked questions
Is an Explanation of Benefits a bill?
No. An EOB is a statement showing how your insurance processed a claim: what the provider charged, what your plan allowed, what your plan paid, and what portion is your responsibility.
The actual bill comes from the provider. Compare the two before paying.
Why is the amount my doctor charged different from the amount insurance allowed?
Insurance companies negotiate contracted rates with doctors, hospitals, laboratories, and pharmacies.
The “allowed amount” is that negotiated rate. A provider may submit a charge well above it and receive only the contracted amount.
Why did I still get a bill when I have insurance?
Having insurance doesn’t mean your plan pays everything.
Depending on your deductible, copay, and coinsurance, a portion of the allowed amount is typically your responsibility until you reach your out-of-pocket maximum.
Why does the same procedure cost different amounts at different facilities?
Prices are negotiated separately between each facility and each insurer, and they generally aren’t published in advance.
The same service can carry dramatically different prices at two facilities in the same city.
Why does my prescription cost change from month to month or pharmacy to pharmacy?
The price can depend on your plan, your pharmacy benefit manager, your deductible status, the specific pharmacy, available manufacturer coupons, and which formulation your plan covers.
Listen to the full episode
Medicine Unplugged is where we have real conversations about medicine, healthcare, insurance, technology, and the system behind the care you receive.
No sensationalism, no unnecessary jargon. Healthcare explained in plain English by people who work inside the system.
Upcoming episodes cover insurance, medications, medical myths, preventive health, artificial intelligence, and the business of medicine.
Subscribe to Medicine Unplugged wherever you listen to podcasts.
About the hosts
Dr. Olubukola “Bukola” Okoro is a physician board certified in internal medicine, obesity medicine, and lifestyle medicine.
Tochi Okoro is an engineer, entrepreneur, and healthcare operator.
This article is for general educational purposes and reflects a discussion of how healthcare pricing and insurance work in the United States. It is not medical advice, and it is not a substitute for care from your own physician. It does not constitute insurance, financial, or legal advice. For questions about your specific coverage, contact your insurance plan; for questions about your health, speak with your clinician.