More Options to Pay for Medical Care, but Some May Be Costly

Patients are increasingly being offered special financing to cover medical treatments that, consumer advocates say, can turn out to be more costly 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 solely for medical treatments. More recently, according to a new report from the Consumer Financial Protection Bureau, a crop 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 of medical financing “can create financial ruin for individuals who get sick,” said the bureau’s director, Rohit Chopra, in a statement earlier this month. “Fintechs and other lending outfits are designing costly loan products to peddle to patients looking to make ends meet on their medical bills.”

The cards and financing services promote themselves to hospitals and doctors as a way for them to get paid quickly, and to avoid the hassle and expense of mailing statements and collecting payments. The credit is typically offered to patients in a doctor’s office or hospital, and is serviced by financial companies.

The consumer bureau said it was continuing to look at how medical credit cards and loans are marketed to doctors and hospitals, and at how the loans affect patients’ finances and health.

There is a market for alternative financing because even people with health insurance can have trouble paying for care. The average annual deductible — the amount patients are responsible for before insurance pays — is almost $1,800 for an individual with job-based health insurance, according to the nonprofit health care research group KFF.

An estimated 9 percent of adults, or about 23 million people, owe more than $250 in health costs, according to KFF, and about half of those with significant medical debt owe more than $2,000.

Medical financing, once an option mainly for care that wasn’t covered by insurance, like dental or hearing services, is now available for a variety of treatments, including checkups and emergency room visits, the consumer bureau found. Details vary widely, however. Some of the cards and financing options can only be used for specific treatments, like cosmetic surgery or infertility care, while others leave it to the provider’s discretion. Some cap loans at a few thousand dollars, while others go as high as $50,000. Because the financing is typically offered through the hospital or doctor’s office, patients may be inclined to think the loans are a good deal.

The loans may be convenient, particularly 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 may carry double-digit interest rates. The annual percentage rate on a typical medical credit card is 27 percent, the bureau found. The average rate for general purpose credit cards as of March 2023 was about 20 percent, according to federal data. Some lenders cited in the bureau’s report charge rates of up to 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 waned in most purchase categories except medical care, the bureau said. Patients may receive a rate of zero percent for a few weeks or months, but if they don’t fully repay the debt by the deadline, they are charged interest retroactive to the start of the loan.

“It works — if you can pay it off before interest accrues,” said Caitlin Donovan, spokeswoman for the Patient Advocate Foundation. But many low-income people cannot.

Patient advocates say they worry that the specialty financing may replace 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 the best for you, if you need it,” said April Kuehnhoff, a senior attorney at the National Consumer Law Center.

Ms. Donovan, of the Patient Advocate Foundation, said patients should first make sure their insurance plan has properly covered the treatment. If your insurer denies a claim but you believe the care should be covered, consider filing an appeal, she said. “The appeals process to get insurers to cover care is drastically underused.”

If you still you can’t afford to pay a bill after the insurer’s payment, ask the doctor or hospital if a patient assistance program is available to cover all or part of the balance. Nonprofit hospitals are required to provide a certain level of charity care to financially strapped patients, and some states have comparable requirements for for-profit hospitals as well. There may be an income limit for such help, but it is often higher than you think, Ms. Donovan said. If they don’t offer a program, ask if they can refer you to one. Or you can search the foundation’s website for programs in your area.

You should also ask about arranging an informal payment plan directly with the provider. You can even try to negotiate a lower amount, Ms. Donovan said, if you agree to pay in full. “Ultimately,” Ms. Donovan said, “hospitals want to get paid.”

Here are some questions and answers about medical debt:

Can medical debt hurt my credit rating?

It may. Doctors and hospitals typically don’t report your payment history directly to the major credit bureaus, but they may send past due accounts to outside collection agencies, which may then report them to the major credit bureaus like Equifax, Experian and TransUnion. Nearly one of five households has reported having some type of overdue medical debt, according to the consumer bureau.

Have the credit bureaus changed the way medical debt is reported on credit reports?

Yes. The three big bureaus announced last year that they would remove from consumer credit reports any record of medical collection debts that have been paid and any medical collection debts that were less than a year old. They are also now giving patients a year to resolve their medical debt — up from six months — before unpaid bills are included on a credit report.

And, as of April 11, the credit bureaus no longer include medical collections for amounts under $500 on credit reports. (This means about half of all people with medical debt on their credit reports will have it removed, according to the consumer bureau).

How can I tell if my debt has been removed from my credit report?

To see if you have medical collections debt 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 check reports weekly, for free, at least until the end of this year. But note that the changes don’t apply to credit card debt in collections — even if, say, you used your credit card to pay a medical bill under $500, the Consumer Financial Protection Bureau said.