What Is a Sliding Scale Fee?
Sliding scale fees are a type of tax or cost that may change depending on an associated factor. Such fees are designed to capture value according to the movement of an underlying variable—most commonly income.
For example, in the case of healthcare, an individual with a low income would pay less for services than someone with a high income. This type of pricing spreads out the consumption of goods and services, though it may reduce consumption for the wealthy.
Many practitioners and businesses prefer not to introduce sliding scale fees because they must contend with the paperwork required to verify a client's financial situation.
Sliding Scale Fees Explained
The concept of sliding scales fees is to introduce fairness. For example, a hospital may not charge a poor or uninsured patient the market value of the medicine that they receive for an ailment because they cannot afford it, but the hospital may charge a wealthy or insured patient the market value.
Companies and organizations can make up revenue shortfalls by providing below-market price services to the less fortunate while taking advantage of grant funding or donations.
A business or organization adjusts product pricing using a sliding scale for many reasons. The company may want to be charitable to those less able to afford the product or service because they will receive a tax deduction for doing so. Alternatively, they might boost their reputation by offering lower-cost services, retain longtime customers, or increase referrals from their existing clients.
For medical care providers, sliding scale fees simplify billing and reduce the time and costs associated with dealing with insurance companies. Insurance companies can refuse to cover certain diagnoses and the associated treatments, and they can also require constant updates and authorization. The paperwork is often voluminous.
- Sliding scale fees change depending on an associated factor, such as income.
- The fees are designed to introduce fairness to the market, particularly for low-income earners.
- In the case of healthcare, a low-income earner would pay less for services compared to a high-income earner.
Critics of Sliding Scale Fees
Some believe sliding scale fees are unnecessary, unwise, and problematic. The reason is that most sliding fee scales used by nonprofits and other entities base the fee on the financial condition of the billable party.
Critics of the practice contend that to implement such a policy properly, entities must ask for certain information and perhaps supporting documentation such as tax returns to verify the income of the billable party. Most private practitioners would rather not assume such practices.
Consequently, physicians and other practitioners establish a “usual and customary fee” and, typically, do not change their fee for different patients. If the patient cannot afford the fee, they are referred to another provider.