Balance Billing as a Signaling Device

Abstract: In France and some other countries, patients can chose between consulting a physician working in the regulated sector where, in general, fees are covered in full by the health insurance, or consulting a physician in the unregulated sector under a balance billing scheme. In the latter fees might not be fully covered by the health insurance, and patients pay out-of-pocket some positive amount. We analyze the signaling properties of this mechanism. If patients di¤er in their marginal cost of adhering to the treatment, and if this characteristic is private information to them, a mixed regulated and unregulated system including a balance billing scheme can help separating patient types. In this equilibrium, those patients with a high propensity to adhere to the treatment will receive a better attention from their physician, and vice-versa. We analyze the equilibria of the game and comment on their welfare properties.