Concepedia

Balance billing: the patients' perspective

Health Economics Review · 2011 · 21 citations · 9 references

Open access

TL;DR

The study investigates the optimal Medicare fee under balance billing from the patients’ perspective, extending prior work by Glazer and McGuire. The authors analyze optimal Medicare fee structures under balance billing, examining how fee discrimination and administrative costs affect patient welfare. They find that while efficiency suggests a zero Medicare fee, patient welfare can be higher with a positive fee and with fee discrimination when administrative costs are large, though prohibiting balance billing may still be preferable in some cases.

Abstract

We study the effects of 'balance billing', i.e., allowing physicians to charge a fee from patients in addition to the fee paid by Medicare. First, we show that on pure efficiency grounds the optimal Medicare fee under balance billing is zero. An active Medicare policy thus can only be justified when distributional concerns are accounted for. Extending the analysis by Glazer and McGuire, we therefore analyze the optimal policy from the patients' point of view. We demonstrate that, from the patients' perspective, a positive fee can be superior under balance billing. Furthermore, patient welfare can be lower if balance billing is prohibited. In particular, this is the case if the administrative costs of Medicare are large. However, we cannot rule out that prohibiting balance billing may be superior. Finally, we show that payer fee discrimination increases patient welfare if Medicare's administrative costs are high or if Medicare's optimal fee under balance billing implies lower quality for fee-only patients.JEL-classification: I11, I18, H51.