Are health care prices set on an open market? Almost certainly not. In many cases, physician fees are set by insurers. Currently, for instance, Medicare sets fees for physicians administratively. At Medicare’s inception, however, Medicare did allow physicians to charge whatever fees they wanted; Medicare would pay a base rate and patients would be responsible for any differences. This practice is known as balance billing.
How are physician prices set in the rest of the world? Is balance billing allowed? France provides one test case as outlined in a paper by Dormont and Péron (2016):
In France, a large proportion of specialists is allowed to balance bill their patients. The population is covered by mandatory NHI, and for each service provided, a reference fee is set by agreement between physicians and the health insurance administration. NHI covers 70% of the reference fee for ambulatory care. Individuals can take out supplementary private insurance: either voluntarily on an individual basis, or through occupational group contracts. Currently, 95% of the French population is covered by SHI. Supplementary insurance contracts cover the 30% of ambulatory care expenses not covered by NHI. In addition, they can offer coverage for balance billing…
In France, ambulatory care is mostly provided by self-employed physicians paid on a fee-for-service basis. Since 1980, physicians can choose between two contractual arrangement … If they join ‘Sector 1’, physicians are not permitted to balance bill…If they join ‘Sector 2’, they are allowed to set their own fees. Access to Sector 2 has been closed to most GPs since 1990, so most of them are in Sector 1: 87% in 2012. Hence, balance billing concerns mostly specialists. On average, balance billing adds 35% to the annual earnings of Sector 2 specialists. In 2012, 42% of specialists were in Sector 2. However, this proportion varies greatly across regions and specialties: for instance, the proportion of specialists in Sector 2 is 19% for cardiologists, 73% for surgeons, and 53% for ophthalmologists.
Balance billing (dépassements d’honoraires in French) clearly increase incomes for physicians. But is it good for patients? The authors use administrative data provided by the Mutuelle Générale de l’Education Nationale (MGEN) to answer this question. The authors compare individuals who left the MGEN supplemental insurance for more generous supplemental insurance coverage to those who remained with MEGN, and use an individual fixed effect to examine how insurance coverage affects use of specialists that balance bill. Clearly, changing insurance may be endogenous so the authors examine individuals who moved to a new département. This change likely was due to other factors (e.g., job change) and is less likely to be related directly to health insurance coverage.
The authors find that:
…better coverage increases demand for specialists who charge high fees, thereby contributing to the rise in medical prices. People whose coverage improves increased their average amount of balance billing per consultation by 32%. However, the impact of the coverage shock depends on the supply of physicians. For people residing in areas where few specialists charge the regulated fee, better coverage increases not only prices but also the number of consultations, a finding that suggests that balance billing might limit access to care. Conversely, in areas where patients have a genuine choice between specialists who balance bill and those who do not, we find no evidence of a response to better coverage.
At first glance, this finding would seem to indicate that balance billing could be banned in areas with limited supply. However, allowing balance billing is the best way to attract new physicians to areas with limited supply. Thus, although in the short run balance billing may harm patient access in regions with few physicians, in the long-run, balance billing may increase the supply of physicians, potentially drive down price and increase patient access. Clearly, balance billing rates need to be clearly posted—unlike in the US—to ensure transparency.