Health scares are scary enough on their own. Yet when deteriorating health is accompanied by diminishing wealth, it can turn into a nightmare.
A new expose released by the Consumer Financial Protection Bureau (CFPB) reveals some alarming trends in the healthcare industry – “medical credit cards.”
According to the CFPB report, these specialized credit products are being sold to patients who are ill and under the stress of medical bills. The cards can have interest rates reaching above 25%, yet are promoted as reducing costs on procedures, even when the patient’s insurance may cover their treatment already.
These products can exacerbate the financial burden of healthcare and can lead to decreased access to credit, costly and lengthy collection litigation, and an increased risk of bankruptcy.
“Fintechs and other lending outfits are designing costly loan products to peddle to patients looking to make ends meet on their medical bills,” said CFPB Director Rohit Chopra. “These new forms of medical debt can create financial ruin for individuals who get sick.”
This article will take a closer look at the medical credit card phenomenon and get input from financial planners on how to best navigate the complexities of healthcare costs.
Deadly Lifeline?
Americans are vulnerable to emergency costs. According to the 2023 Bankrate Annual Emergency Fund Report, only 48 percent of adults say they have enough emergency savings to cover at least three months’ worth of expenses.
When someone stares down a health scare and offers a line of credit, it may seem like a lifeline.
Patients are typically pitched these credit cards as they are seeing their medical provider, who has been specifically trained by the financiers to sell the product while consulting their patient.
They cover costs for a whole range of services, running the gamut from medication to emergency hospitalization and from dental work to vision treatment.
According to data cited by the CFPB report, the interest rates on these medical credit cards are around 10% higher than traditional consumer credit cards. They often soften the blow with enticing deferred interest plans. These may temporarily relieve patients from repayments, but the deferred interest accrues nonetheless, compounding their debt burden when the bill is due.
“Patients under financial stress may be tempted to use these cards as a quick fix, potentially exacerbating their financial burdens in the long run,” says Doug Greenberg, Founder & President of Pacific Northwest Advisory. “Before resorting to medical credit cards, patients should explore other financing options. These may include personal loans, negotiation of payment plans with healthcare providers, or seeking assistance from medical financial aid programs or non-profit organizations.”
If unsure of your coverage, advisors strongly recommend clarifying the benefits provided by your existing healthcare insurer.
“My advice- avoid Medical Credit Cards at all cost,” Paul Doak, CFP and Senior Advisor at I.D. Financial. “If possible, do not pay any medical bill until after the Explanation of Benefits is provided by your insurer (typically 30 days after the procedure). Then work with the billing office on options available to pay the balance due to avoid collections.”
Depending on their condition, patients may need a financial consultant as much as their healthcare professionals on their road to recovery.
“Medical credit cards may seem like a lifeline in times of healthcare distress, but it’s essential to remember that they are not a panacea,” says Jorey Bernstein, CEO of Bernstein Investment Consultants. “High-interest rates and tricky terms can swiftly turn a manageable medical bill into a financial sinkhole.”
“Just as we would consult a doctor for our health ailments, we should consult financial professionals for our monetary woes. It’s not just about treating the symptom of high medical bills, but about nurturing our overall financial health. Before resorting to medical credit cards, it’s worth exploring alternative paths like negotiating payment plans with your healthcare provider, consulting your insurance company, or looking into personal loans with better terms.”
The CFPB reports that over the past decade, purchase volumes deferred interest credit has decreased across all categories – except medical care. One possible reason: medical costs are hard to foresee, especially amid ongoing treatment, tempting patients to put off repayments.
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Systemic Risks
When it comes to health, Americans are getting what they pay for. The U.S. spends more on healthcare than any other rich country yet has the worst health outcomes. Compared to all other OECD countries, the country has the lowest life expectancy at birth and the highest rate of people with multiple chronic diseases, per a report from The Commonwealth Fund.
“Medical Care in the USA is the most inefficient and expensive and getting worse by the day- and is by far from the best,” says Doak. “Doctors offices have to spend over 20% just to submit claims to the insurers to get paid…and the consumer medical debt increases the stress and thus diminishes the health of the patient – thereby increasing the need for medical care.”
With high-interest rates and atypical borrowing terms, medical credit cards pose a grave financial risk to patients. The worrying trend underscores the importance of finding appropriate healthcare coverage and adds to the urgency to comprehensively reform America’s broken healthcare system.
Affordable and accessible healthcare will empower individuals to obtain the right care without jeopardizing their financial health and wealth. Prioritizing patient well-being over financial exploitation must be the goal.
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
Frequently Asked Questions
What is a medical credit card?
A medical credit card is a credit card or line of credit used to pay for healthcare costs, often offered right in a doctor’s or dentist’s office. Many come with promotional deferred-interest periods, and the interest rates after the promotion can be high. Because they are signed up for at the point of care, patients may agree before comparing other options.
How does deferred interest work on a medical credit card?
With deferred interest, you pay no interest if you pay the full balance before the promotional period ends. If any balance remains when the promotion ends, interest is typically charged back to the original purchase date on the full amount, not just the remaining balance. That can make a small leftover balance very expensive.
Do hospitals offer financial assistance for medical bills?
Many do. Tax-exempt nonprofit hospitals are required by federal tax rules to have a written financial assistance policy covering emergency and other medically necessary care, and they must publicize it. Ask the hospital’s billing office for the policy and an application before putting a bill on a credit card.
Should I pay a medical bill before my insurance processes the claim?
It is usually wise to wait for your insurer’s Explanation of Benefits, which shows what was billed, what insurance paid and what you actually owe. Comparing it to the provider’s bill can catch errors or charges that insurance should cover. If you can’t pay what you owe, ask the provider about an interest-free payment plan first.
About the author
Contributing Writer, Wealthtender
Liam Gibson is a Taiwan-based freelance journalist who covers tech, geopolitics, and finance. He has written for Al Jazeera, Nikkei Asia Review, South China Morning Post, Straits Times, National Interest, and has appeared in Fortune Magazine, and several other international media outlets.