In the past decade, medical credit cards have spiked in popularity as health care costs have continued to rise and Americans are spending more out-of-pocket for even routine procedures.
But according to a recent report from the Consumer Financial Protection Bureau, these products can be troublesome for patients, with many of them signing up for contracts they don’t fully understand, overpaying for specialized medical finance products, and accumulating debt that they are unable to get out of.
CFPB Director Rohit Chopra claims that “these new forms of medical debt can create financial ruin for individuals who get sick”.
Millions of patients in the US are using this type of financing. The CFPB report states that CareCredit (a subsidiary of Synchrony Financial), one of the three major medical cards examined in the report, has 11.7 million cardholders as of this year, triple the number that it had a decade ago.
Hospitals are drawn to the type of plans that these medical credit cards or installment loans companies offer because they are paid upfront by banks for their services, according to a report from Crain’s Chicago last September.
PrimaHealth Credit, one of the loan providers highlighted in the CFPB report, claims that it can “generate up to 20% more revenue” for medical providers, according to its website. “We take care of payment processing, resolve past due accounts and handle all credit reporting, so you don’t have to”.
PrimaHealth has two classes of patients, according to the CFPB and the company’s website. For patients with good credit, PrimaHealth pays the medical provider upfront (minus a fee). However, for patients that have worse credit, the provider receives payment only as the patient pays off their bills.
The CFPB writes that because “the provider carries the risk of the patient not paying their full bill”, providers that are signed up with PrimaHealth may avoid patients they see as a credit risk, such as “people with limited English proficiency, older Americans, and people with lower incomes”.
PrimaHealth founder and CEO Brendon Kensel disagreed with the analysis of the CFPB, claiming that the service extends access to individuals who cannot pay for care upfront.
“Most people don’t have an extra $5,000 lying around, and being able to access a monthly payment plan is the difference between being able to access care for their kids and not,” he said.
However, the CFPB questions whether this specialized form of medical financing actually expands access to the underinsured and low-income. The bureau opines that formal financial services such as medical credit cards or installment plans are an inadequate and often more dangerous alternative to informal, often zero-interest payment plans directly offered by health care providers.
The CFPB found that patients, who are often pitched these financial products while trying to make vital medical decisions, often miss important financial details such as specific payment terms or interest rate on a loan. And legal experts note that the doctors that pitch these products are not penalized if they suggest a less-than-ideal financial product because they are not held to the same laws that banks are. Thus, the extra convenience for doctors may come at a high price for patients.
One patient complained to the CFPB that “the employees at medical offices are selling a product they know little about without fully disclosing the terms and conditions to their patients”. Another consumer reported to the CFPB that their household was signed up for a credit card with no notification at all.
The consumer wrote that “I am a senior citizen and went to a dentist office in my area to have them do a routine check up on my wife’s teeth. They only did two x rays, yet I received a bill for $14,000 for services she never received or we agreed for. The dentist office opened up a credit card in my name in order to pay for these services without my consent.”
“I never received any receipts or copies of anything until I received a bill in the mail from the credit card company”.
Patients that use specialized credit cards end up paying a great deal more in interest than they would have in other circumstances, even if they use a general credit card. For example many cards offer an interest free-period, during which interest on a health procedure builds, but is not charged to the patient. However if that person does not pay off the entire debt balance during this time period, they may be forced to pay a high amount of interest all at once.
The CFPB noted that: “Our research suggests that many patients — specifically those who are unable to pay off a deferred interest product during the promotional period — can pay significantly more than they would otherwise pay.”
“Interest rates for medical financing products are generally higher than the interest rates for other products, such as general purpose credit cards,” said the CFPB report.
The report further found that in the three years between 2018 and 2020, people who used medical cards or installment plans incurred $1 billion in deferred interest.
The report advises that patients should do their own research if they are pitched medical financing.