Medical credit cards can be poison for your finances, study shows

Medical credit cards have proliferated at health care offices across the country as more Americans struggle to afford treatment even when they have insurance. While these cards may seem like a great way to quickly pay for needed services, they have some serious drawbacks that experts say can cost you dearly.

One major card provider, CareCredit, is offered at more than 250,000 health care providers, up more than 40% from a decade ago, according to a recent report from the Consumer Financial Protection Bureau.

The cards may seem appealing because they offer so-called deferred interest, which comes with 0% APR interest for an introductory period. But the “deferred” part of the deal isn’t favorable to borrowers if they can’t pay their bill in full before the grace period ends. If they still have a balance, they are charged all the interest they would have accrued since the original charge date, the federal agency noted. Consumers paid more than $1 billion in those interest payments from 2018-2020, the study said.

The cards also don’t provide the same type of financial protection as debt that a healthcare organization has, according to a new report from the US Public Interest Research Group. That’s because any charges on those cards aren’t considered medical debt, unlike a bill owed to a hospital or health care office, the consumer advocacy group notes.

Key difference

That could hurt borrowers because credit reporting agencies treat debt from getting health care differently, with the top three credit bureaus agreeing last year to get rid of most medical debt from consumer reports. However, this is not the case with credit card debt.

“The moment it goes onto a medical credit card, it’s not seen as medical debt — it’s not owed to a doctor, it’s owed to a bank,” Patricia Kelmar, senior director of health campaigns at US PIRG, told CBS MoneyWatch. “There are certain protections in the way medical debt can be collected and how it appears on a credit report and how it appears on your credit score.”

She added, “People are reaching for these credit cards like away to pay bills, but it doesn’t work well for those who have to file for bankruptcy.”

An analysis of Oregon bankruptcies by OSPIRG, the Oregon Public Interest Research Group, found that the most frequently listed debt holder related to medical issues was for a single medical credit card issuer, with 1,037 filings with $2 million in loans.

A better alternative

Instead of reaching for the credit card application to pay for medical services, Kelmer recommended asking a healthcare provider about a payment plan that fits your budget.

“Before these products were available, people just worked out a payment plan with their provider,” she said. “You’d say, ‘I really need that root canal, but just make X amount and that’s what I can pay you for the next two years’.”

Also ask about financial aid. Federal law requires all nonprofit hospitals to have financial assistance policies, US PIRG notes.

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In general, it is also wise to avoid making financial decisions in a healthcare office where you may be stressed and even in pain. The administrative staff working in health offices are unlikely to be familiar with the details of the financial product they offer, which means you may not have the necessary information to make the right choice.

“You shouldn’t make financial decisions in a health care setting, especially if you’re not feeling well or have received some bad news,” Kelmer said. “These are emotional times and making a decision at these times is probably not set up for the best outcome.”

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