Most intro courses focus on perfectly competitive markets, ignoring the messiness of the economy and what students care about. Health care is full of market failures, and it belongs in a principles class.
Three takeaways
- Insurance only works if some people don't use it. Premiums from healthy people pay for the care of sick people. Push the healthy people out and premiums go up, more people leave, and the pool unravels. More than one in five people with employer coverage don't use any care in a given year, and that's normal.
- An aging population doesn't explain U.S. costs. Other countries are aging too. Sarah Schutz points to drug pricing power, consolidation (CVS owns a pharmacy chain, the insurer Aetna and the pharmacy benefit manager Caremark), and administrative costs that run a quarter to a third of all health spending.
- Publishing is not the end of a research paper. If the public never hears about your work, it stops at the journal. Sarah's rules for sharing it: define every term, tie it to what people are living through, and back every opinion with evidence.
About this episode
We recorded this the day before the midterm election, in the middle of open enrollment, when a lot of people were opening their new premiums and wincing. Sarah Schutz, the health economist behind Econ with Sarah, joins me and this week's co-host, Brooklyn Stephens, to talk about why health care costs what it does and why so many people online call it a scam.
I've spent my career trying to make economics more relevant to students, and my biggest gripe with intro courses is that most of them overlook market failures. About 80% of our intro students never take another economics class, so they leave thinking markets don't fail. Sarah and I talk about where health care fits in that course, starting with risk pooling. Then we get into her path from pre-med to health economics, her research on how drug companies extend their patents, how she built an audience of nearly 240,000 on TikTok, and what researchers should do with a paper once it's published.
Listen if you teach principles and want a market-failure example your students already care about, or if you've published research that nobody outside your field has read.
Our guest
Sarah Schutz is a health economist and postdoctoral researcher at Vanderbilt University. She studied economics at Barnard, earned her PhD in Health Care Management and Economics at Wharton, and has worked at the Federal Trade Commission, RAND and the U.S. Department of Health and Human Services. Her research covers drug prices, pharmaceutical patents and advertising in health care. As Econ with Sarah, she explains health economics to nearly 240,000 followers on TikTok.
What we cover
- 00:00Meet Sarah
- 01:49Headline: affordability, open enrollment and "health care is a scam"
- 04:23Why U.S. health care costs so much, in 60 seconds (or a little more)
- 09:11Where health care fits in Econ 101: risk pooling and insurance unraveling
- 17:53From pre-med to health economist, by way of Joseph Stiglitz and Angus Deaton
- 22:56Sarah's research: secondary patents, the EpiPen and health care advertising
- 30:08From food blogger to Econ with Sarah on TikTok
- 36:38Did anyone tell her not to post? Credibility and evidence
- 39:31The life of a research paper after it's published
- 43:57Where simplifying turns into being wrong
- 49:41My takeaways
Research mentioned in this episode
Alpert, A. E., Gupta, A., Richards, M. R., Schutz, S. D., & Whaley, C. M. (2026). Does advertising expand the market for hospital services? Evidence from Medicare. Journal of Health Economics, 110, 103191. Read it
Burke, K., & Chang, J. (2024, September 16). One in five people with employer-sponsored insurance do not use any health care services. Health Care Cost Institute. Read it
Paragon Health Institute. (2025, October 1). Ghostbusting ACA fraud: Millions who don't use their health insurance expose abuse in the program. The zero-claims argument Sarah pushes back on. Read it
Cutler, D. M. (2020). Reducing administrative costs in U.S. health care (Policy Proposal 2020-09). The Hamilton Project, Brookings Institution. Read it
Harvard Public Opinion Project. (2026). Harvard Youth Poll, 53rd edition, Fall 2026. Institute of Politics, Harvard Kennedy School. The survey Sarah cites on Gen Z voters. Read it
For the classroom and your conversations
- If you're healthy and pay premiums all year without seeing a doctor, are you subsidizing someone else or buying protection for yourself? Does your answer change at 25 versus 60?
- CVS owns pharmacies, an insurance company and a pharmacy benefit manager. Draw the path a prescription takes from the drug maker to the pharmacy counter. Where could one company owning several steps raise the price you pay?
- A drug company's patent is about to run out. What could it do to keep cheaper generics off the shelf? Which of those moves would you allow?
- Sarah says the average doesn't cancel out your personal experience, and your experience doesn't cancel out the average. When has something you lived through disagreed with the data?
Where does health care show up in your intro course, if it shows up at all? Tell me in the comments.
Use it Monday
Activity · 15 minutesRun a class insurance pool. Hand each student a card with this year's medical bill: most cards say $0 to $500, and two or three say $25,000. Add up the bills and divide by the class to set the premium. Then let anyone whose bill is under $100 drop out, and recalculate the premium for the students who stayed. Ask them: who would leave next, and what happens to the pool after that?
Pair it withThe Health Care Cost Institute brief showing that more than one in five people with employer coverage use no care in a year. Get it