Patients are increasingly being offered special financing to cover medical treatments that, according to consumer advocates, may prove more expensive than using conventional credit cards.
These financing options include medical credit cards, which have been around for years and work like traditional credit cards but are used exclusively for medical treatment. More recently, according to a new report from the Consumer Financial Protection Bureau, a group of financial technology companies has also begun offering a dizzying array of installment loans for medical care.
While medical debt has long been a problem for Americans, the growth in medical financing “could cause financial ruin for individuals who fall ill,” the agency’s director, Rohit Chopra, said in a statement earlier this month. “Fintechs and other lenders are designing expensive loan products to peddle to patients trying to make ends meet on their medical bills.”
The cards and financing services market themselves to hospitals and doctors as a way for them to get paid quickly and avoid the hassle and expense of sending statements and collecting payments. The credit is usually offered to patients in a doctor’s office or hospital and is provided by financial companies.
The consumer agency said it continues to look at how medical credit cards and loans are sold to doctors and hospitals, and how the loans affect patients’ finances and health.
There is a market for alternative financing, as even people with health insurance can struggle to afford care. The average annual deductible — the amount patients are responsible for before insurance pays — is nearly $1,800 for an individual with work-based health insurance, according to the nonprofit research group KFF.
According to KFF, an estimated 9 percent of adults, or about 23 million people, owe more than $250 in health costs, and about half of those with significant medical debt owe more than $2,000.
Medical financing, once an option primarily for care not covered by insurance, such as dental or hearing services, is now available for a variety of treatments, including checkups and emergency room visits, the consumer agency found. However, details vary widely. Some cards and financing options can only be used for specific treatments, such as cosmetic surgery or infertility care, while others leave it up to the provider. Some cap loans for a few thousand dollars, while others go up to $50,000. Because financing is typically offered through the hospital or doctor’s office, patients may tend to think the loans are a good deal.
The loans can come in handy, especially for patients with smaller balances that can be paid off relatively quickly. Some lenders make small loans available at zero percent interest if the loan is repaid over a period of weeks, similar to buy now, pay later financing at online retailers.
But other loans can have double-digit interest rates. The annual percentage on a typical medical credit card is 27 percent, the bureau found. As of March 2023, the average rate for general purpose credit cards was about 20 percent, according to federal data. Some lenders named in the bureau’s report charge rates as high as 36 percent.
“It’s really alarming,” said Wesley Yin, an associate professor of public policy and management at the University of California, Los Angeles, who studies medical debt.
Particularly troublesome is that some loans use “deferred” interest promotions, a feature that has declined in most purchase categories except medical care, the agency said. Patients can get a zero percent rate for a few weeks or months, but if they don’t repay the debt in full within the time frame, interest will be charged retroactively from the start of the loan.
“It works — if you can pay it off before interest accrues,” says Caitlin Donovan, spokeswoman for the Patient Advocate Foundation. But many low-income people can’t.
Patient advocates say they are concerned that the special financing could take the place of no or low-cost installment plans traditionally offered by medical providers. Patients, they said, should consider other more affordable financing options, including loans from a local credit union. “Just because a medical provider offers financing doesn’t mean it’s best for you, if you need it,” says April Kuehnhoff, a senior attorney at the National Consumer Law Center.
Ms. Donovan, from the Patient Advocate Foundation, said patients should first make sure their insurance plan properly covers the treatment. If your insurer denies a claim, but you think the care should be covered, consider filing an appeal, she said. “The appeal procedure to have insurers cover care is drastically underused.”
If you still can’t afford to pay a bill after the insurer pays, ask the doctor or hospital if a patient assistance program is available to cover all or part of the balance. Not-for-profit hospitals are required to provide some level of charitable care to financially strapped patients, and some states have similar requirements for for-profit hospitals. There may be an income limit for such help, but it’s often higher than you think, Ms Donovan said. If they don’t offer a program, ask if they can direct you to it. Or you can search the foundation’s website for programs near you.
Also ask the provider directly about arranging an informal payment plan. You can even try to negotiate a lower amount, Ms Donovan said, if you agree to pay the full amount. “Ultimately,” said Ms. Donovan, “hospitals want to get paid.”
Here are some questions and answers about medical debt:
Can Medical Debt Hurt My Credit?
It’s possible. Doctors and hospitals usually don’t report your payment history directly to the major credit bureaus, but they may send overdue bills to outside collection agencies, who can then report them to the major credit bureaus such as Equifax, Experian, and TransUnion. According to the Consumer Bureau, nearly one in five households have reported overdue medical debt.
Have the credit bureaus changed the way medical debts are reported in credit reports?
Yes. The three major agencies announced last year that they would remove from consumer credit reports any record of paid medical collection debts and all medical collection debts less than a year old. They also now give patients one year to pay off their medical debt – starting at six months – before unpaid bills appear on a credit report.
And as of April 11, the credit bureaus will no longer record medical collections for amounts under $500 on credit reports. (This means that about half of all people with a medical debt on their credit reports will have it removed, according to the Consumer Bureau).
How do I know if my debt has been removed from my credit report?
To see if you have medical debts on your credit report that shouldn’t be there, check your report at www.annualcreditreport.com, a special website maintained by the credit bureaus. You can view the reports for free on a weekly basis, at least until the end of this year. But keep in mind that the changes don’t apply to credit card debt in direct debits — even if, say, you used your credit card to pay a medical bill of less than $500, according to the Consumer Financial Protection Bureau.
