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Considering a Medical Credit Card? Proceed with Caution

Credit Cards, Medical Costs
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Medical emergencies drain your time, energy, emotional strength and, unfortunately, savings. It’s not uncommon for hospital bills and surgeries to cost in the thousands of dollars, especially if the procedures aren’t covered by health insurance. Americans pay more and more for health care every year. In 2009, out-of-pocket payments topped $284 billion – yes, that’s billion, with a B. Under pressure for urgent and unaffordable care, many patients are turning to medical credit cards.

Originally used for elective surgeries like liposuction, medical credit cards are increasingly used by those with limited or no health insurance to pay doctors, dentists, chiropractors and even veterinarians. Among the medical credit cards are GE Money’s CareCredit and Citi’s Citi Health Card.

How does it work exactly?

A medical credit card, or healthcare credit card, works something like a normal credit card: you take out a loan (the cost of the procedure) and pay it back over time. Patients work with their health care providers to establish a payment schedule, usually 6-24 months, and minimum payments. Usually, patients get a zero-interest promotional period if the loan is paid off in two years, and is charged about 12-26% interest if the payment plan extends longer than that. Like with any loan, consumers need a decent credit score to qualify, and worse credit means higher interest rates.

Unlike a credit card, a medical credit card can only be used to cover health-care-related expenses including deductibles. The rules regarding the 0% period are also different. On most credit cards, if you don’t pay off your balance during a 0% promotional period, you’ll only be charged interest on the remaining balance. However, medical credit cards operate on a deferred interest system, meaning that if you don’t pay off your bill in the promotional period, you’ll owe interest on the entire amount.

When can I owe interest on a medical credit card?

Technically, your medical credit card balance starts accruing interest on the day you make your purchase. It’s just a matter of whether you’ll be able to avoid paying that amount. You don’t have to pay the interest on your medical credit card balance if two conditions are met:

  • You make the minimum payment every month (usually around 3% of the outstanding balance)
  • You pay off the entire balance during the zero-interest promotional period

This means that if you pay nothing in months one through three and pay off the entire balance in month four, or if you make the minimum payment every month and don’t pay your balance in full by the time the promotional period ends, you’ll owe all the interest that’s been accruing since day one. Again, this is very different from regular credit cards, where you’ll only owe interest on the balance that remains after the 0% period.

What are the benefits of medical credit cards?

These cards carry pretty significant benefits for health practitioners. For one thing, they get paid for the procedure up front. Even if multiple visits or surgeries are required, the practitioner receives his entire payment before a single scalpel is lifted, cutting down on the provider’s administrative costs. They don’t have to worry about sending a debt collection agency after patients and potentially only receiving pennies on the dollar. Finally, some practitioners receive kickbacks for putting patients on the card (more on this later).

Medical credit cards offer perks to consumers as well. As long as patients make the minimum payments and pay off the balance before the promotional period ends, they can get access to healthcare more quickly without paying interest. For an extended two- to five-year payment plan, patients might face higher interest rates (such as 14.99% for CareCredit), but this can still be a good option for people who can’t qualify for cheaper lines of credit. Luckily, Citi Health and CareCredit don’t have prepayment penalties, so you won’t be penalized for being able to pay off your debt more quickly than you thought. As with a 0% intro APR card, the health care credit card makes sense for consumers who know that they can pay off their balance on time.

But patient beware

Medical credit cards have come under fire for deceptive lending practices. In August of 2010, then-New York Attorney General Andrew Cuomo launched an investigation into the cards after numerous consumer complaints. The office received numerous complaints that patients were pressured into using medical credit cards and were unknowingly charged up-front for procedures or services they never used. Some allege that patients who were eligible for Medicaid or other programs were instead pushed to take out a medical credit card. Others complain that the lenders expected payment for bills that were never sent.

The pitfalls of medical credit cards abound. It’s practically a credit card. That bears repeating: it’s practically a credit card. And like a credit card, the devil’s in the details.

Late penalties: If you miss even one payment or fail to make the minimum, your interest rate could skyrocket to almost 30%, and your credit score will take a hit. More distressingly, the lenders apply retroactive interest rates: if you’re late, you’ll pay interest on the full amount of the loan. Missing the last payment could sink you into debt for a long time afterwards. Don’t expect to get any slack from your credit company if you’re late on a payment. If you do take out a medical credit card, be sure, absolutely sure, that you can pay it off on time.

No refunds: If you pay for a service and end up not using it, you’ll probably find getting a refund very difficult. This is especially important for procedures with multiple sessions – if you purchase six treatments and end up only needing three, you probably won’t be able to get the unused money back.

This is certainly not to say that medical credit cards are never a good idea. Like a 0% balance transfer card, it could have significant payoffs if you budget carefully and know your limits. According to CareCredit spokesman Stephen White, more than 80% of the company’s medical cardholders pay off their accounts on time. If you have a good credit score and are confident that you can pay off your debt in two years, a health care credit card may be a solid bet. That said, turn to these cards only if you’ve considered other options first.

Tips for those considering a health care credit card

1. Have your insurance company cover as much as possible, if you have health care. Choose a provider in your network, and remember that it pays to be pushy with insurance companies. Other sources of help may be available, such as Medicaid, Medicare, or nonprofit programs.

2. Talk to your health care provider. You may be able to work out a payment schedule with your doctor or hospital, and possibly at a lower interest rate or over a longer time frame. Be sure to ask, though, whether your doctor receives a commission from credit card companies. He may have an incentive to promote the card. Nonprofit organizations such as the National Foundation for Credit Counseling can also offer free, personalized and trustworthy advice.

3. If you need multiple procedures or treatments, take out a separate line of credit for each so you don’t get stuck paying for treatment you never receive. Once your money is put on the card, consider it gone.

4. Finally, and most importantly, know your finances. Is there a chance that your financial situation can change and leave you unable to repay the bills? Will your treatment affect your employment, and therefore your health insurance and earnings? Are you the kind of person who would benefit from the structure a medical credit card provides? Have you exhausted all your other options?

Citi Health Card and GE’s CareCredit

Citibank’s Citi Health Card doesn’t offer much information on its interest rates or payment plans. The bank’s website encourages potential applicants to speak to their health care providers about the terms of the card. However, we’ve seen a number of negative reviews of the card. Cardholders complain that they were never billed for their debt but held accountable for not paying them, or not explaining fully the terms of the loan. We would be wary of this card.

Nominally, CareCredit is a better card for those who have less-than-stellar credit, as long as you can repay your debts on time. They offer no interest on plans of two years or less, but offer extended payment plans of up to five years. Their APR is 14.9%*, offering a better deal for customers with bad credit than some credit-score-dependent rates. The penalty and interest accrual rates are about the same. However, GE’s CareCredit is the subject of an ongoing investigation by the New York Attorney General’s office. We encourage those considering a medical credit card to maintain a healthy level of cynicism.

*Interest rates are accurate at the time of writing, but may change at any time