A new generation of credit cards, debit cards and gift cards -- targeting millions of Americans struggling to pay high health care and medical costs -- has emerged offering financing options for medical expenses, but not everyone is cheering their arrival.
Special report: Health care and credit
Poll: More than a third of Americans would borrow to pay medical debts. (poll data)
What’s new: Banks, health insurance companies and credit card issuers are launching new options to finance medical expenses.
Why it’s important: Consumer advocates warn of the potential for abuses and high fees and interest.
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How are you coping with medical bills, high deductibles and debt? E-mail us at editors@CreditCards.com.
Unlike regular, multipurpose credit cards, health care financing options offer incentives to pay balances off quickly rather than rack up hefty interest charges. Some feature 0 percent interest rates similar to the "12 months same as cash" financing plans popular with furniture retailers and offer up to $40,000 in lines of credit. (See comparison chart of health care credit options.)
It's "friendly credit," says Ben Slen, director of product strategies for Humana Inc., a health insurance company that launched a Visa health credit card in October 2007 with Republic Bank.
Consumer advocates, however, say patients are unfairly hit with offers of credit when they are facing medical crises. "Consumers have to be wary," according to Andrea Rock, senior editor at Consumer Reports magazine, which published "Overdose of Debt" in its July 2008 issue. The report studies how credit cards and lines of credit are being marketed to consumers.
"Often they're in a vulnerable position when they receive these sales pitches -- in a doctor's office or a hospital -- and they don't understand what they're signing up for," according to Rock. "Furthermore, some consumers have said that they felt pressured by their medical providers while sedated or recovering from treatment."
The rise in health care credit has been fueled by health insurers, credit card issuers and banks stepping in to fill a growing gap between household incomes and rising out-of-pocket costs for health care. Families -- already accustomed to putting everything from groceries to appliances on plastic -- are turning to credit cards and other loan options to pay medical bills. A recent report by McKinsey & Co. management consultant firm found that $45 billion worth of out-of-pocket medical expenses were charged on credit cards.
Poll: Borrowing to pay medical bills
A CreditCards.com survey of 1,004 American adults found nearly 1 in 10 would use a revolving credit card account if hit with a medical bill of more than $1,000. The poll, conducted Jan. 18-20, 2008, by GfK Roper Public Affairs & Media, also found that 10 percent of Americans say they would seek an installment payment plan, while 8 percent would apply for short-term loans from banks or credit unions. Three percent would borrow from their 401(k) retirement plans to pay medical bills and 8 percent would seek loans from friends or family members.
"It's a very bad idea to put medical debt on a credit card," says Dr. Steffie Woolhandler, an internist and co-author of a 2005 Harvard University study on medical bankruptcy. The study found nearly half of all personal bankruptcies filed in 2001 were attributed to unpaid debt from medical bills. "If you have medical debt with a hospital, you may be able to negotiate with the hospital for a discount. Once it's been turned over to a credit card, there's no incentive to negotiate."
She adds: "Hospitals are less likely to impose all sorts of penalties and late fees."
'A perilous act' "Putting medical expenses on a credit card if you don't have the resources to pay for it is a perilous act," says Mark Rukavina, executive director of The Access Project, a Massachusetts-based nonprofit group that counsels consumers on how to resolve and avoid medical debt. He is also co-author of a January 2007 study called "Borrowing to Stay Healthy: How Credit Card Debt is Related to Medical Expenses."
Says Rukavina: "We've seen people put their premiums on credit cards because they don't have the resources to pay it and they need coverage. Then, if they get sick, they have to put that on the credit card, too."
Much of the negative response to health care credit cards is fueled by recent criticism of a number of credit card industry practices, such as frequent assessment of penalty and late fee charges, and hiking interest rates on credit card accounts to what critics call usurious levels. Changes in terms of credit card agreements "at any time for any reason" have also angered many consumers. Banking industry representatives have responded that they re-price -- or increase the interest rate -- on accounts when borrowers are considered greater credit risks. Federal regulators have proposed a series of rule changes designed to curb some of the credit card practices sited most often by consumer groups.
Healthy credit? The newly launched HumanaAdvance card is only available through Humana's employer-provided health insurance plans. Employees can charge the cost of co-payments for doctor office visits, prescription drugs and other health-related costs at 0 percent interest. They must then repay the balance over the next six months with payments automatically deducted from their paychecks.
"They couldn't get themselves into trouble paying it back with just making minimum payments. There's no real chance of that with this card," Humana's Slen says.
Although credit options for medical care have been available for more than 20 years, earlier financing plans focused on elective or voluntary procedures, such as dental implants, braces, LASIK eye surgery and later plastic surgery and tummy tucks.
Financing primary medical care services for routine or emergency health needs remained off-limits for most doctors' offices. The reason: They didn't need it. Insurance company reimbursement checks flowed in for patients who received care, paying only a small fee for office visits or co-pays.
What changed? Responding to higher health care costs, employers in recent years have begun to shift more of the burden of payment to workers. Instead of a $10 or $20 co-pay, many doctors now have to collect hefty upfront deductibles of $1,000 or more from patients before insurance benefits kick in.Those rising out-of-pocket costs for patients paved the way for broadening credit and finance options, whether for cosmetic treatment or primary medical care.
Prepaid gift card After researching the market and seeing an unfulfilled need for payment options for health and medical services, Highmark Inc., a health insurance company that serves as the Blue Cross and Blue Shield provider in western and central Pennsylvania, launched a health care gift card in November 2007.
The Prepaid Healthcare Visa gift cards function like a typical gift card you might purchase to give a friend or loved one. The purchase price is $4.95 plus $1.25 shipping and handling fees. The card can be used only at certain health-related merchants that accept Visa debit cards, including doctors, spas, health clubs and gyms. It also can be used for wrinkle-smoothing, teeth whitening and other cosmetic procedures, says Kim Bellard, vice president of eMarketing for Highmark.
Putting medical expenses on a credit card if you don't have the resources to pay for it is a perilous act.
-- Mark Rukavina
The Access Project
Bellard notes that the card is accepted at national pharmacy chains such as Walgreens and CVS even though customers might buy nonhealth related items in those stores. So you could buy a six pack of beer or magazines when using the health gift card at Walgreens. On the other hand, trying to fill up the tank at a gas station will be rejected.
The card features a dormancy fee. If unused after nine months, a $1.50 a month fee will be deducted from the balance.
Recognizing reality Bellard says the health gift card recognizes the reality that consumers have health care financing needs. "This card is a way to help consumers meet those needs."
The company is not releasing sales numbers on the cards, Bellard says, adding, "there is certainly a great interest in the product and strong positive reaction."
Why buy a Highmark card when any multipurpose gift card offered by Visa or American Express can function just as well without purchasing restrictions? Bellard says giving the health card shows "that the giver understands something about the needs of the recipient and is trying to match their needs to the gift."
He says the card might be suitable for parents sending their children off to college and giving them a $200 health gift card to purchase their prescription medications. Another target group might be recent college graduates who do not have health insurance. "It's obviously not a substitute for health insurance, but it's a way to help pay those expenses," Bellard adds.
Health Savings Accounts Wells Fargo offers a Visa debit card that allows you to access money you or your employer has deposited into a Health Savings Account (HSA). These are tax-deferred accounts designed for people with health plans that require them to pay high deductibles before their health insurance plan begins to cover medical costs. Annual HSA contributions are capped and adjusted each year for inflation. The individual HSA cap in 2007 was $2,850; it's $2,900 in 2008.
When out-of-pocket costs arise, patients can pay for them with the HSA debit card. Unlike a Flexible Spending Account, a popular tax-deferred account offered by employers to allow workers to pay for child care or medical expenses in pre-tax dollars, the HSA does not have a yearly "use it or lose it" time limit on using the funds.
The accounts are "a nest egg for that day when they're going to need it," says Elizabeth Dienst, Wells Fargo's senior vice president for health benefit services. "The idea is you could basically save for that medical emergency."
The HSA debit card program is only two years old, so the average account balance is only about $1,560. Those dollars earn interest in one of six different mutual funds available to participants.
The debit card is accepted anywhere Visa debit cards are accepted and can be used to pay for doctor's office co-pays, deductibles, prescription drugs or other health-related costs.
Installment loans Capital One offers installment financing for health care through a company it acquired in 2001. The advantage of the plan -- which is available through 30,000 dental, cosmetic, fertility and vision providers nationwide -- is that it has fixed rates and terms, says Cap One spokesman Steve Schooff. "Like other installment loans, there is no re-pricing for late payments," he adds.
The Cap One loans are generally for voluntary, elective procedures. The terms are 18 to 60 months with interest rates ranging from as low as 1.9 percent up to 23.99 percent for higher risk applicants. Patients must sign up for the loans via referral from their doctors. Cap One runs a credit check and typically approves or rejects the request within 10 minutes, Schooff says. An applicant must sign a contract agreeing to the terms. Only then will the doctor proceed with the treatment.
This offer is kind of a win-win situation for medical officers as well as patients.
-- Steve Schooff
Capital One spokesman
"This offer is kind of a win-win situation for medical officers as well as patients," Cap One's Schooff says. For patients, "there's greater flexibility to pay for medical needs that may not be totally provided by their insurance provider." Doctors have less paperwork and billing, he notes, adding there's another plus for medical providers: "Not having those awkward conversations with patients about paying for their medical needs."
Expensive treatments For expensive treatments costing several thousand dollars, financing is the only option for some patients. "If you had to write a check for $10,000 on the spot, that would be tough," says Mike Testa, president of CareCredit, a 21-year-old health care financing program that focuses on voluntary medical procedures such as dentistry and cosmetic surgery. The service is owned by GE Money, a division of General Electric Co., and boasts 90,000 providers in its U.S. network, including veterinarians for pet care and audiologists for hearing implants. "To be able to spread the payments over time is very helpful for patients."
Financing plans are marketed in brochures and pamphlets available in participating doctors' offices and on the CareCredit website. They offer interest-free financing for 3- to 18-month intervals. The average credit limit is about $4,000 and the minimum monthly payment is 3 percent of the balance. The doctors pay transaction fees for each charge, similar to merchant fees that retailers pay when customers charge purchases. Testa said the doctors' fees are higher for longer repayment plans.
For more costly procedures -- such as lap band surgery -- installment loans are available for up to 60 months at 11.9 percent fixed interest rates. The weight-loss procedure can cost up to $15,000 and is not typically covered by major medical insurance unless it is considered medically necessary.
Says Testa: "As is true of a lot of things in the economy, the use of credit cards is going to grow. People use credit cards for all kinds of things that they never did before. Advances in technology are amazing in all of these fields, but it costs more and more. For these higher-cost treatments, people need help in getting the treatment they want."
Tell us your story How are you coping with medical bills and high deductibles? Has medical debt pushed your family into hard financial times? E-mail us at firstname.lastname@example.org.
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