Answer extracted from the Proven Podcast — listen to the full episode below.
Why does third-party payment insurance structure distort competition and pricing in healthcare markets?
Third-party payers—insurance companies—control how much providers can charge and determine how many customers they receive, which fundamentally breaks the competitive pricing mechanism. Nobody in the healthcare system can make more money by lowering their prices, the opposite of every other industry. This structural design keeps prices artificially inflated and prevents the kind of natural competition that drives costs down in retail, technology, or any market where pricing power rests with individual competitors.
The core problem stems from how third-party insurance operates as a middleman. When an insurance company negotiates rates with hospitals and doctors, it sets the price ceiling—providers cannot charge more than what the insurer allows. But they also cannot gain market share by undercutting competitors, because the insurer controls which customers they serve through network design and referral patterns.
Consider how this differs from competitive markets. In retail, a store can increase profit and market share by lowering prices, attracting more customers and driving competitors out of business. A pharmaceutical company can gain market dominance through superior products at better prices. But as David Goldhill explains in the Proven Podcast episode, a hospital cannot lower its rates to win more business—the insurer still controls patient flow. This removes the primary incentive for price competition that exists everywhere else in the economy.
The result is price levels locked in place by regulatory and contractual design rather than market forces. Without the ability to compete on price, providers compete instead on ancillary services, brand reputation, or simply on consolidation—buying up smaller competitors to gain negotiating power against insurers. This consolidation itself further reduces competition rather than enhancing it, a feedback loop unique to third-party-payer systems.
"Nobody in the healthcare system can make more money, can be more profitable by lowering their prices."
David Goldhill — Founder and CEO of Sesame. A former entertainment executive who ran television operations at Universal Studios and the Game Show Network before entering healthcare as a consumer advocate and entrepreneur, Goldhill built Sesame as a direct-pay marketplace designed to restore price transparency and competitive dynamics to healthcare service delivery.
One striking illustration of this principle emerges when examining what happens when the third-party layer is removed entirely. In the episode, Goldhill discusses how GLP-1 weight loss drugs saw significant price declines in recent years—not because insurance coverage expanded, but because more competitors entered the market for direct-pay patients willing to self-insure. Price competition only resumed when the insurance barrier was lifted.
This structural distortion explains why American healthcare spending has climbed to nearly 20% of GDP while other developed nations—with different payment models—spend far less. The Proven Podcast explores how the United States accounts for 40% of global healthcare expenditure while representing only 3% of the world's population, a premium largely attributable to this broken incentive structure.
Fixing this requires either removing the third-party payer entirely—returning pricing power to providers and patients negotiating directly—or fundamentally restructuring how payers operate so that competitive advantage actually accrues to lower-cost, higher-quality providers rather than remaining neutral among all network members.
See also
Why does the United States healthcare system cost significantly more than other developed nations despite being 3% of the world population?
The United States has the only free enterprise healthcare system on earth where prices are not controlled and hospitals and doctors are not employees of the state, which creates structural cost differences compared to other developed nations.
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