Liam Gibson, Wealth of Geeks
A new expose released by the Consumer Financial Protection Bureau (CFPB) reveals some alarming trends in the healthcare industry: so-called medical credit cards. Health scares are scary enough on their own. Yet when deteriorating health is accompanied by diminishing wealth, it can become a nightmare.
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 above 25%. Yet, they are promoted as reducing procedure costs, even when the patient’s insurance may cover their treatment already.
These products can exacerbate the financial burden of healthcare. They can also 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.”
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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’ expenses.
These credit cards may seem like a lifeline when someone faces a health scare and is offered a line of credit. Patients are typically pitched these credit cards when they see their medical provider. Some providers have been trained explicitly by the financiers to sell the product during consultations. The cards cover costs for a whole range of services, from medication to emergency hospitalization and 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. However, the deferred interest accrues, 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 your existing healthcare insurer provides.
“My advice – avoid Medical Credit Cards at all costs,” 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 recovery journey.
“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.”
Bernstein adds, “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 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 patient’s health – 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. It adds to the urgency to reform America’s broken healthcare system comprehensively.
Affordable and accessible healthcare will empower individuals to obtain the proper care without jeopardizing their financial health and wealth; Prioritizing patient well-being over financial exploitation must be the goal.
