Speaker
Richard Thaler
Appearances over time
1 episodes
Episodes
1
Podcasts
Quotes & moments
Richard Thaler estimated the sludge cost of the US medical system alone is in the hundreds of billions of dollars per year.
US health insurers use administrative complexity — prior authorizations, impossible provider searches, endless paperwork — not out of incompetence but as a rationing tool. Ben Handel confirms: this is not unintentional. Every healthcare system rations; America just uses sludge instead of a waiting list or a published rule.
When a company offers two health plans covering identical doctor networks, 40% of employees still believe the 'more generous' plan gives access to more doctors. That false belief makes them willing to pay $2,000 more per year. The confusion is by design — or at minimum, by neglect.
94% of physicians say admin burdens from insurers are massive. 64% report burnout. The result: independent doctor practices are being hoovered up by insurers and private equity because solo physicians can no longer survive the paperwork alone. If you don't have a corporate shield, you're not a doctor — you're a sludge processor.
When consumers are forced to re-enter credit card details after expiry, cancellation rates on subscription services jump four times higher than normal months. Mahoney's model shows people are only paying attention about a quarter of the time. The implication: most subscription spending is involuntary.
For subscription services with no information feedback — no delivery at your door, no regular reminder you're using it — consumers spend 200% more than they would if paying attention every month. This isn't a small problem: the Council of Economic Advisers pegs junk fees at $90 billion a year, or about $650 per household.
Sludge isn't just a nuisance — it's a malignancy. Administrative burdens force independent physician practices into corporate consolidation, which produces more sludge, which forces more consolidation. Each cycle of infection spreads to more healthy tissue. The term 'cancer' is not hyperbole.
Platforms start by being good to users. Then they abuse users to please business customers. Then they abuse business customers to recapture value for themselves. Then they die. Cory Doctorow's 'enshittification' is the linguistic crystallization of what everyone feels but struggles to articulate about today's internet.
A $13 Chipotle burrito on Uber Eats becomes $25 by the time fees drip in at checkout. To comparison-shop, you'd need to repeat the entire checkout process on every competing app. Almost nobody does. That gap — between the effort required and the effort exerted — is exactly what drip pricing exploits.
Health insurer websites are stuck in 2004 while Amazon's shopping experience is frictionless. Ben Handel argues insurers aren't actively sabotaging their provider databases, but they are conspicuously not applying the obvious tools that every other industry uses to make search easy.
Ben Handel's landmark research found that most employer health plan menus include at least one 'dominated option' — a plan that is objectively worse than every other choice. Workers kept choosing it anyway, losing at least $1,000 a year. The worst-hit were people earning under $40,000.
During COVID lockdowns, some gyms required members to physically show up at a closed gym to cancel their membership. Richard Thaler's verdict: nobody designs that innocently — it is pure, strategic sludge.
Nudge is the WD-40 of life — it makes things easy. Sludge is gunk: the deliberate or careless friction that makes life harder than it needs to be. Richard Thaler, who coined both terms, makes the case that most sludge is either incompetent or intentional, and rarely innocent.
Nobody has a precise figure for the cost of healthcare sludge, but Richard Thaler puts it in the hundreds of billions per year for the US alone. The problem is that so much of it is consumed time — invisible on any balance sheet.
In 2015, StubHub rolled all its fees into a single upfront price. The result? Consumers bought cheaper seats, bought less frequently, and the company hemorrhaged market share. After 6–9 months they reversed course. The lesson: when competitors hide fees, transparency alone becomes a competitive disadvantage.
Analysis
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- Business 100%
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