The Bluff-Fueled Price Spiral

 

How American Health Care Prices Itself Out of Reach

Game theory is often presented as the study of strategic advantage: how one player anticipates another player’s move and responds. More revealingly, it is the study of traps—situations in which every participant can behave rationally and still produce an outcome almost none of them wants.

Imagine a patient who needs a scheduled procedure. Let’s call her Laura. There is not an emergency. No one is unconscious. The surgery is six weeks away, which should be enough time to answer a question that precedes the purchase of almost anything else: What will this cost me?

The surgeon’s office can quote the surgeon’s fee, perhaps, but not the hospital’s. The hospital needs the procedure codes. The insurer needs the codes, the facility, and every participating provider. The anesthesiology group cannot say how much time will be required. Someone may send tissue to a laboratory that has not yet entered the story. Each answer is individually defensible. Together, they leave Laura with a date, a consent form, and the financial equivalent of a blank check.

Laura would not buy a $600 television this way. Yet she may undergo a procedure capable of generating tens of thousands of dollars in charges without knowing whether her own portion will be $800, $3,000, or much more. The care arrives first. The price jumps out later like a jack-in-the-box.

This is not an exceptional horror story. It is a recognizable feature of the system. Anyone acquainted with American health care knows the ritual: call the provider, get referred to the insurer, get sent back for billing codes, discover that one estimate excludes two other bills, and eventually make a medical decision without the information that would make it a consumer decision.

The Unknown Price

The first problem is uncertainty. Before receiving care, patients often cannot obtain a reliable estimate of what they will owe.

Instead, the number changes according to who is asking, who is insured, which insurer covers the patient, whether the provider is in-network, how the service is coded, how much of the deductible has been consumed, and which part of the transaction the speaker wishes to emphasize.

The federal transparency rules make this multiplicity explicit. Hospitals must publish gross charges, discounted cash prices, payer-specific negotiated charges, and minimum and maximum negotiated charges. They must also provide a consumer-friendly display or estimator for at least 300 services that can be scheduled in advance, according to the current Centers for Medicare & Medicaid Services requirements.

This is useful regulation. It is also accidental conceptual art. A normal market does not require the government to compel every seller to publish several incompatible answers to What does this cost?

Nor did the rules instantly produce ordinary transparency. In its October 2024 review, the U.S. Government Accountability Office reported that stakeholders had encountered inconsistent file formats, complex pricing, and data perceived to be incomplete or inaccurate—problems that impeded price comparisons across hospitals. CMS had initiated 1,287 enforcement actions from 2021 through 2023. Requirements introduced in 2024 standardized the files and required hospitals to attest to their completeness and accuracy, but the need for those repairs tells its own story. Opacity was not a rare software glitch. It was the inherited condition.

There is an especially revealing asymmetry in the No Surprises Act. Since 2022, an uninsured person—or an insured person choosing to self-pay—has generally been entitled to a written Good Faith Estimate when scheduling care or requesting one. Congress also created an advance-estimate process for insured patients, in which providers would send expected charges to the health plan and the plan would produce an Advanced Explanation of Benefits showing expected coverage and patient liability. Yet more than four years after the statutory deadline, the federal government’s 2026 regulatory agenda still listed the implementing regulation under “Proposed Rule Stage.” In its December 2024 implementation update, CMS reported that commercially insured participants in its consumer research expressed “a general uneasiness about navigating their insurance coverage and understanding their health care costs.” Participants overwhelmingly supported receiving cost estimates before treatment and identified an accurate estimate of their out-of-pocket cost as the most important feature.

Complexity Is Not an Alibi

Some uncertainty is real. A surgeon can encounter complications. An operation can take longer than expected. Emergency care cannot wait for a comparison-shopping expedition.

But uncertainty is not the same as enforced ignorance. It does not explain why a scheduled service can be delivered with no credible range, or why the party with the least information and the least ability to walk away must absorb the surprise.

This is where the game-theory explanation stops absolving everyone equally. Defensive behavior may explain how opacity developed. It does not justify preserving opacity as a business practice. Pricing secrecy has no legitimate place in a transaction the patient is expected to navigate as a consumer.

A market cannot call the patient a consumer while withholding the one piece of information without which consumer choice is impossible: the price. Informed consent that excludes reasonably foreseeable financial exposure is only partial consent.

The Bluff Behind the Price

Laura still faces a second problem. When the price finally arrives, it is often inflated. No single villain is required to build the machine that drives it upward.

Providers set high opening charges in anticipation of negotiated reductions, delayed payment, denied claims, and uncompensated care. Insurers build networks, prior authorizations, and cost-sharing in anticipation of high provider prices and unnecessary claims. Employers keep buying increasingly expensive coverage because dropping it would expose their workers and make hiring harder. Patients keep paying premiums because facing the system uninsured can be ruinous.

Each move is defensive. Each becomes the next player’s reason to defend.

The provider’s opening price justifies the insurer’s restrictions. The insurer’s restrictions justify higher charges and more billing staff. Administrative growth raises costs. Rising costs raise premiums and deductibles. Patients then delay care because they fear the bill, sometimes allowing manageable problems to become expensive ones.

The chicken and the egg take turns being first—simultaneously.

This is why the system resembles a bluffing arms race. Every participant exaggerates or fortifies a position in anticipation of the others doing the same. No one can safely disarm alone. A provider that begins with a modest price may be reimbursed below viability. An insurer that stops policing claims may be undercut by competitors. An employer that withdraws coverage transfers enormous risk to workers. A patient who refuses to play may lose access to the insurer’s negotiated rates and protection against catastrophe.

The system survives not because everyone believes in it, but because no participant can safely stop playing.

And so a prediction becomes self-fulfilling. The system does not merely respond to the expectation that care will be unaffordable. Layer upon layer of rational self-protection helps make it unaffordable.

When Laura’s bills finally arrive, the price does not appear as a single number. It multiplies into several prices for the same care.

The provider submits a billed charge. The insurer applies the negotiated allowance. Part of the allowance becomes the insurer’s payment and part becomes the patient’s responsibility. The difference between the opening charge and the allowance appears as a discount—as though the first number had been waiting at the cash register for an unsuspecting shopper.

The discount can be real. An in-network contract may prevent a provider from collecting the full billed amount, and that protection can be extremely valuable. But the presentation remains theatrical: the supposed savings are measured against a price the provider never seriously expected to collect and the insurer never expected to pay in the first place.

And all of this happens after Laura has already paid premiums to enter the system—and may still face a deductible and coinsurance to use it.

Dental coverage provides a useful illustration of how a “good” plan can remain expensive at the moment of use. For example, under the 2026 Blue Cross Blue Shield Federal Employee Program dental plan, an adult member using an in-network dentist pays 50 percent of the plan allowance for major Class C services—including endodontic treatment—under the High Option. Under the Standard Option, the member pays 65 percent. Those percentages still do not answer what a root canal will cost. The allowance must be known, and the final restoration may be a separate service. “Covered” describes a relationship among charges; it does not reveal a price.

The broader medical market shows how far commercial prices can diverge from a public benchmark. The latest large RAND comparison, published in 2024 using 2022 claims, found that employers and private insurers paid hospitals an average of 254 percent of what Medicare would have paid for the same services at the same facilities. That does not prove that Medicare always pays the correct amount, or that every dollar above it is excess profit. It does show that the same services are routinely delivered under a substantially lower public payment schedule, complicating any claim that commercial rates simply reflect the irreducible cost of care. 

A Bluff That Became Real

The trap is durable because every participant can point to a different number. Providers point to the discounts they granted. Insurers point to the charges they defeated. Employers point to the premiums they subsidized. The government points to the share paid through public programs. Patients point to the amount removed from their bank accounts. Every number can be accurate while the account of who paid what remains strangely incomplete.

The first reform is conceptual: stop pretending that all these numbers describe the same thing. A billed charge is not an allowed amount. An allowed amount is not an insurer payment. An insurer payment is not the value of the policy. A patient’s bill is not the patient’s total cost. An employer contribution is not free.

Only then can the famous discounts be judged honestly. Until then, the system will continue performing its favorite trick: inventing a price no one was expected to pay, reducing it to a price the patient was not allowed to know, dividing that price among parties who have already paid one another, and presenting the result as evidence that the machinery works.

The bluff did not conceal the price. Eventually, it became the price.