For years, employers have focused on rising healthcare costs as a pricing problem. But inside many health plans, a quieter force is driving spending decisions long before any bill is processed: employee perception.
The assumption is simple, and deeply ingrained. Higher cost must mean better care.
“The belief is intuitive. In almost every other part of life, higher prices frequently signal higher quality,” says Jude Odu, Founder of Health Cost IQ and author of Model Optimal Care. “So, when an employee needs surgery, imaging, or a specialist visit, the same instinct kicks in. The expensive hospital must be the safer choice.”
The issue is not just that this belief exists. It’s that the healthcare system has done little to correct it, and in many cases, has reinforced it.
“The healthcare system has not done much to correct that instinct. On the contrary, it has actually reinforced it,” Odu explains.
For decades, pricing opacity has made meaningful comparisons nearly impossible. Without visibility into costs, employees default to reputation, brand recognition, or physician referrals. Even when pricing tools are available, behavior doesn’t always follow.
“Without visible prices, employees cannot compare. Without comparison, they default to brand names and reputation,” he says.
Physician referrals further cement the pattern. Research shows patients routinely bypass lower-cost options, even when they have access to pricing information, choosing instead to follow provider recommendations. At the same time, large hospital systems invest heavily in branding, shaping perceptions of quality that are not always supported by outcomes data.
The result is a persistent disconnect between price and performance.
“Higher-priced providers frequently performed worse on standardized safety measures,” Odu notes, pointing to analyses showing little to no correlation between cost and quality across major U.S. markets.
That disconnect carries real consequences, not just for employers, but for employees themselves.
On the financial side, the variation can be staggering. “A knee replacement in Dallas can run $20,000 or $100,000 depending on the facility selected,” Odu says. “Every dollar of inflated cost eventually comes out of someone’s household budget.”
But the implications go beyond cost. In some cases, higher-priced care pathways can lead to worse outcomes or unnecessary interventions.
“When employees route care through high-cost hospitals on the assumption that price equals quality, they sometimes get worse care,” he explains.
There is also the issue of overuse. “The first question that no one asks is whether the scan was needed at all,” Odu adds. “Americans get twice as many scans as Europeans, with worse outcomes to show for it.”
For employers, these patterns compound quickly. Within self-insured plans, inefficiencies can consume a significant portion of total spend.
“My analysis over the years shows that up to 50 cents of every dollar can be classified as wasteful or inefficient,” Odu says. “A $50 million health plan… sheds roughly $7 million a year in misspent dollars.”
And the impact doesn’t stop at the balance sheet. Rising costs often translate into higher premiums, reduced benefits, or slower wage growth.
“The employee who believed the costlier provider was the better choice gets billed twice,” he notes. “Once at the point of care and again through a smaller paycheck, a higher premium, or a thinner benefits package.”
Despite growing availability of price transparency tools and regulations, many employer strategies fall short because they rely too heavily on information rather than action.
“Employers spend a fortune on price transparency tools and then wonder why nobody uses them,” Odu says. “The problem is simple. Employees do not know what questions to ask, what the numbers mean, or why it matters.”
The solution, he argues, is not more education alone, but better system design.
“The fix is to take much of the decision-making burden off the employee. Build the right answer into the plan.”
That shift includes strategies like tiered networks, care navigation, and real-time decision support, approaches that guide employees toward high-value care without requiring them to decode complex pricing structures on their own.
Ultimately, the most effective interventions happen at the moment decisions are made.
“Putting the right choice in front of the employee, at the right moment, with the lowest possible barrier, produces more significant behavior change than the volume of information delivered weeks earlier,” Odu says.
As employers continue searching for ways to control healthcare costs, the takeaway may be less about negotiating prices, and more about correcting the assumptions that drive how care is chosen in the first place.
“The dollars are recoverable,” Odu adds. “The work starts with correcting the belief that costlier means better.”