For the rising number> of patients who can't pay their medical bills, doctors and hospitals have a new prescription: a health-specific loan or credit card. But as these medical financing programs grow in popularity, patients may be overlooking cheaper options.
A growing number of hospitals and doctors have turned into loan brokers, matching strapped patients with lenders so that they can pay their bills. One company, ClearBalance, a loan originator and servicer that works with hospitals, now counts more than 160 as clients up at least 10% since June 2010. A year prior, the Cleveland Clinic introduced a financing program at its 12 hospitals and through its 2,100 doctors. And General Electric Co.'s subsidiary CareCredit, a health care credit card for elective procedures, is now accepted by around 140,000 doctors and used by 7 million patients -- up 40% and 27%, respectively, since three years ago.
Critics say these programs have many of the same pitfalls of more traditional loans and credit cards low interest rates that can spike after a certain time period, strict rules that can also raise the interest rate, and, in some cases, a negative impact on a consumer's credit score. Patient advocates also raise questions about the practice, which, they say, could land patients deeper in debt. "Why would you possibly do this?" says Alwyn Cassil, spokeswoman at the Center for Studying Health System Change, a nonpartisan policy research organization. "This should be a last resort."
For their part, lenders say they provide patients with more payment options, and cite the commonly-offered 0% promotional period, during which patients would incur no extra costs. "Patients should do the research, and they should make decision that's best for them," says a spokesman for CareCredit. He adds that more than 80% of customers who sign up for its deferred-interest plan pay off the balance without incurring interest. And a ClearBalance spokesman says the company doesn't raise patients' interest rates even if they miss a payment.
Lenders have been trying to break into this market for years, says Todd Nelson, a director at the Healthcare Financial Management Association. But it has only gained traction recently, as the medical industry has faced rising costs and patients have struggled with higher deductibles and shrinking benefits. Family deductibles across all employer-sponsored insurance plans rose 35% between 2006 and 2010, to an average of $2,218, according to the Kaiser Family Foundation, a health policy nonprofit. And dental and vision benefits are each offered by just 47% and 18% of firms, respectively, down from 50% and 21% in 2006.
Into the void stepped the medical financing industry: lenders, who lend to patients and make money off the interest on the loan, sometimes helped by middlemen, who charge a servicing fee to the hospital. Now hospitals and doctors' offices can tell patients about options for financing before planned surgeries, when they send out their bill, or if patients call to say they can't pay, says Nelson.
Everyone wins except, critics say, the patients, who risk mounting high-interest rate debt. Many financing programs do offer 0% annual percentage rates, but the rate skyrockets to 20% or more if a patient falls behind on payments. In other cases, the 0% promotional period is short; at Cleveland Clinic it lasts for 60 days, then rises to prime rate (currently 3.25%) plus an additional rate the hospital declined to disclose. And CareCredit's extended plan, which 15% of its cardholders choose, runs two to five years with a fixed interest of 14.9% -- no better than the average credit card. Also, in many cases, the lenders will run a credit check before making the loan, which could hurt a consumer's credit score.
There is a better option, says Cassil: Work out a payment plan with the medical provider. Many still offer what amounts to a traditional payment plan an agreement between the hospital (or doctor) and patient to make monthly payments at zero interest as well as financial assistance policies for patients below certain income thresholds. Providers aren't eager to advertise this option; they'd like to be out of the lending business, which is one reason they've contracted with the financing industry in the first place. But if a patient asks, most providers will be willing to work out an arrangement. The hospitals already have the debt on their books, so they'll be eager to work out a payment plan even if it means forgoing financing, Cassil says.