[This article is the first in a series addressing the structural problems that plague our health care financing system and how to fix them.]

$15,076 for four tiny metal screws.

That’s how much the OU Medical Center in Oklahoma City charged Sherry Young, a retired librarian from Lawton. Indeed, Young’s total bill was $115,527 (including the screws) for a three-day stay at OU Medical Center as she underwent a few minor procedures to relieve pain in her shoulder and foot. Her itemized bill showed the hospital charged her more than $15,000 for four 14-millimeter titanium screws that likely cost the hospital only $300 to $1,000, according to Arthrex, the screw manufacturer.

Her insurer, BlueCross BlueShield, initially did not approve the hospital stay and pushed the bill onto her. However, after receiving inquiries from local media and pushback from Young, her insurer agreed to pay for the procedure.

Fortunately, Young was able to avoid the massive bill, but many other insured Oklahomans are not so lucky.

Thousands of Oklahomans are hit with surprise medical bills each year, including those who are insured. Many hospitals go after those who don’t pay their bills. Earlier this month, Oklahoma Watch reported that Oklahoma hospitals filed 5,841 lawsuits against patients for unpaid medical bills since July 1, 2019. At least 1,178 of those lawsuits were filed after April 2 when Kevin Stitt declared a statewide health emergency due to Covid-19.

Generally, those who receive services should pay, but why do patients get inflated bills rife with errors and bogus charges like in Sherry’s case? Shouldn’t patients get an estimate before routine services and procedures?

And why do medical services and procedures cost so much anway? Has healthcare always been this expensive?

In this series of articles, I will address these concerns and show how the answer to all of these questions largely stems from how we pay for our medical care.

For decades, we have continued to allow more and more health care expenditures to be spent on our behalf by insurance companies and the government. These “third parties” pay for 90 percent of our health care expenditures.

Source: Mark Perry, American Enterprise Institute; Data sourced from U.S. Centers for Medicare and Medicaid Services

As we spend less and less of our own money directly out of pocket, health care costs have continued to rise, as shown in the chart below.

Source: David A. Hyman and Charles Silver, Overcharged: Why Americans Pay Too Much for Health Care, pg. 288. Data sourced from Centers for Medicare and Medicaid Services, “National Health Expenditures by Type of Service and Source of Funds: Calendar Years 1960 to 2015.”

With so few consumers directly paying for their care or paying attention to the total bill, it’s no wonder that medical prices and hospital services charges have risen so dramatically. See below the widely lauded chart prepared by economist Mark J. Perry.

Source: Mark Perry, American Enterprise Institute; Data sourced from Bureau of Labor Statistics

The model of letting third parties pay for most of the bill has been dubbed by health care economists as the “third-party-payer problem.” Because those who are insured are mainly insulated from total costs, most consumers only care about what is directly coming out of their pocket for their premiums, deductibles, and copays. But as total costs continue to rise and out-of-pocket costs increase proportionally, more consumers are finally feeling the pinch. Seemingly ever-rising health care costs continue to top financial concerns for many American families.

Source: Kaiser Family Foundation; Data sourced from KRR Employer Health Benefits Survey; Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2017

Stay tuned throughout this series to see how this “third-party-payer problem” arose, why it exacerbates all the problems that plague our system today (namely high costs, waste, and fraud), and how to fix it.