Medical Care Credit Cards Benefit Patients and Providers

My wife’s former hair stylist was an immigrant struggling with the loss of income after the Covid lockdown. One day the stylist explained she needed eye surgery she could not afford. My wife told her about CareCredit, a company that provides consumer credit for medical care and veterinary care. The next time they met the stylist thanked her. She had scheduled her eye surgery after getting approved by CareCredit. The stylist said she would have up to a year to pay off her surgery interest free.

The above anecdote may sound like a story with a happy ending but not according to Senator Elizabeth Warren and some of her Democratic colleagues. They worry about consumer credit companies that help patients finance care they otherwise could not afford.

A group of Democratic senators is asking the nation’s consumer finance watchdog to take action against medical credit cards such as CareCredit, saying use of these cards can result in patients paying much more for their medical care than they should.

Medical credit cards have historically been used for elective procedures like cosmetic dentistry, dermatology, vision and in veterinary clinics. They come in handy for patients who can’t pay a medical bill all up front

But the lawmakers, led by Sen. Elizabeth Warren, D-Mass, say the cards’ deferred interest features are confusing and often lead to consumers paying high interest rates after an initial promotional period has ended. They also say that sometime the cards are used in lieu of need-based programs that hospitals and other health organizations should apply to a patient’s finances before forcing them to take on debt.

CareCredit offers interest-free loans for a promotional period of six, 12, 18 or 24 months, but charges high interest rates for those who want to stretch out payments beyond the promotional period. For example, those who fail to pay off their balance within promotional period are billed for the accumulated interest all at once in the 13^th month, if the promotional period was 12 months. Senator Warren and her cronies must not comprehend that people who pay off credit balances within the interest-free time frame are low credit risks (zero risk in fact), whereas those who stretch out payments fall into the range of much higher risks and warrant higher risk premiums (that is, higher interest rates).

The Senators note that roughly one out of four CareCredit customers end up paying interest on their purchase, while one out of five Wells Fargo customers pay interest.

That means 75% to 80% of people taking out loans for medical care pay them off within the interest free period. That percentage is much higher than I would have expected. The system apparently works well.

Now here is where it gets complicated, and the senators have a point. Elective medical procedures are often paid for in cash and prices are transparent. However, prices for nonelective procedures, like care in the hospital, are not transparent. Hospital billing errors are common, so common that most hospitals bills have at least one error in my opinion (I was once in charge of a hospital business office). If you pay your portion of the hospital bill and there is a discrepancy in the bill, hospitals are unlikely to credit your account without a fight.

The senators raise a concern that… hospital billing and insurance is never a straightforward process and often what a patient is billed is not what a patient will pay in the end. The Senators are concerned patients could be charging these cards before the hospital bill is settled.

The Senators ask the CFPB to potentially look for ways to make sure medical credit cards are used only after insurance and need-based aid is exhausted without violating a patient’s medical privacy rights.

“We are also concerned by the prevalence of medical billing errors, which may put patients on the hook for charges they do not owe,” the Senators write.

The same thing worries me about my health savings account (HSA). Some medical offices ask you to present your card before services are provided rather than pay after a service is rendered. Yet, there are times that billing errors occur and hospital/clinic business offices have little incentive to investigate errors that may reduce their revenue once cash has already changed hands.

As a final note, I wonder why Senator Warren and her colleagues are not concerned about my Obamacare plan that costs me $7,000 a year with an $8,000 a year deductible? Obamacare is a perfect example of bad public policy negatively affecting consumers, yet the so-called consumer advocates in Congress don’t seem to notice.