BBB Mid-South (BBB Mid-South)
A report from the Consumer Financial Protection Bureau (CFPB) says that about half of U.S. adults have difficulty affording the cost of their healthcare. Research by Stanford economist Neale Mahoney found that Americans had at least $140 billion in outstanding medical debt in 2021.
Financial institutions and fintech companies are offering a growing number of payment options for medical bills, including medical credit cards and installment loans, to replace what used to be informal payment plans offered by medical providers. The CFPB says these products are generally more expensive than other forms of credit and worries that “the interaction of financial companies and healthcare providers may fundamentally alter the relationship between patient and doctor and result in patients losing leverage to negotiate their bills.”
Medical credit cards and loans were traditionally used to help cover procedures insurance didn’t cover, such as hearing aids and cosmetic procedures. Still, they’ve been expanded to cover other kinds of healthcare charges.
The CFPB says medical providers like these third-party financing options for a few reasons:
- They increase business. The patient is less likely to delay or defer treatment to “shop around” for other options if they can make the payment using the financing plan. This includes patients who do not have insurance or otherwise could not pay out-of-pocket costs in full.
- They receive full payment quickly. Some products advertise to providers that they’ll be paid in two business days, while others advertise they’ll be paid in full instantly.
- They reduce the time and cost of billing and collecting unpaid bills. Providers avoid managing accounts receivable, mailing statements, and negotiating billing disputes. Providers also avoid debt collection costs, as the lender financing your medical credit card or payment plan will also be responsible for debt collection. The medical provider may encourage you to apply for one of these payment options, but it may not always be in your best interest. First, ask if the medical provider is required to offer you financial assistance based on your income. It may be harder to get assistance if the charges have already been applied to a credit card or loan.
You may be prescribed or elect to receive more expensive treatment than you would otherwise. One financial company promotes its product to medical providers, saying, “This gives you, the business owner, the power to upsell and increase your sales.” In fairness, you may also be able to get helpful treatment earlier. Medical credit cards and installment loans are often more expensive than other forms of credit. A study by the Federal Reserve earlier this year found that the Annual Percentage Rate of the typical medical credit card was 26.99 percent vs. 16 percent for a general-purpose credit card. Medical financing products may include zero or low interest for some time. Still, failure to pay in full by the end of the promotional period or a missed payment along the way can result in the high interest being assessed against the whole balance. Be sure you understand all of the fees and other terms of a medical financing plan and that you can make the payments. New protections that reduce the reporting of unpaid medical bills to credit reporting agencies don’t apply to these financing plans.
Randy Hutchinson is president & CEO Better Business Bureau of the Mid-South. This column is in partnership with Better Business Bureau of Middle Tennessee & Southern Kentucky.