While she was headed into surgery, a hospital billing representative asked how she planned to pay. When Schell explained her predicament, the hospital suggested she apply for a medical credit card with an introductory no-interest period offered by Commerce Bank.
“I wish I didn’t have to have that conversation right then because I wasn’t in the right mindset,” says Schell, who ended up charging about $2,500 to the card. “I feel like it was taking advantage of somebody at their very most vulnerable time. At that moment, they were more worried about how I was going to pay this bill than how they were going to help me.”
Schell managed to pay off the balance before interest charges kicked in. But that’s not the case for everyone signing up for medical credit cards, a fast-growing segment of consumer finance. As chief program officer at Working Credit, a Chicago-based nonprofit that advises consumers on how to improve their credit scores, Schell often sees clients using cards like the one she had. Mercy Hospital declined to comment specifically on Schell’s case, citing federal privacy laws, but said in a statement to Crain’s that it offers patients payment plans along with other financing options.
As healthcare costs and insurance deductibles rise, more hospitals in Chicago and around the country are teaming up with banks to market medical credit cards and other loans to patients who lack the insurance or funds to pay for care.
Hospitals that convince patients to take medical credit cards get paid upfront by banks at a time when unpaid bills are straining their budgets. Lenders, for their part, see an opportunity to capitalize on the growing gap between the cost of medical care and what many Americans can afford.
“The banks have identified a market and the hospitals want to get paid,” says Gina Calabrese, a professor of clinical legal education at St. John’s University School of Law in New York who has represented clients that have sued medical credit card companies. “(Hospitals) have very much become like businesses.”
Patients who take the card get money to pay for care, solving a short-term dilemma. But a quick decision made in a high-stress situation can create long-term financial problems. Patients who can’t drum up the cash to pay off the initial balance within an introductory period end up with hefty credit card debt that carries some of the highest interest rates in the industry.
There isn’t aggregate data on medical credit card debt because it’s lumped in with overall credit card debt. But Stamford, Conn.-based Synchrony Financial, one of the largest issuers of these cards, reported a 50% increase in purchase volume on its CareCredit card, growing from $7.8 billion in 2015 to $11.7 billion in 2021 in its annual filings with the U.S. Securities & Exchange Commission. Since at least 2019, Synchrony has focused on launching formal partnerships with hospitals, which promote CareCredit cards to patients.
“As out-of-pocket health expenses continue to rise for consumers, Synchrony’s CareCredit is a way for people to pay for care not covered by insurance, including deductibles, coinsurance and copays,” Synchrony CEO Brian Doubles said on the company’s recent earnings call.
A Kaiser Family Foundation analysis published in July shows that about 17% of Americans with medical debt reported putting bills on a credit card to pay off over time. Other medical credit card issuers include Wells Fargo, which offers a card for vision, dental and hearing care and is accepted by providers in the Chicago area.
Healthcare credit cards have been on the market for decades; CareCredit launched in 1987. Early on, many consumers turned to the card and others like it for expenses that health insurance doesn’t traditionally cover—cosmetic procedures, dental work and veterinary bills. But as patients see their healthcare costs and insurance deductibles rise, they’re increasingly borrowing money to cover essential medical procedures such as emergency surgery.
“It’s not surprising that we’re seeing a proliferation of alternative ways to pay for these bills,” says Patricia Kelmar, director of healthcare campaigns for advocacy organization U.S. Public Interest Research Groups. “We will be seeing this more and more.”
A recent Employee Benefit Research Institute study shows that health insurance plan deductibles exploded over the last two decades. Individuals enrolled in employer-sponsored health plans saw average deductibles grow 336% from $650 in 2002 to $1,945 in 2020, which shifted more medical costs to consumers. Out-of-pocket payments rose to 19% of all U.S. healthcare expenditures by people with employer-sponsored health insurance in 2021, up from 17.4% in 2013.
Those rising costs have contributed to the $88 billion of medical debt on the credit records of 43 million Americans, according to a report published this year by the Consumer Financial Protection Bureau. Illinois residents owe about $2.5 billion of that debt, the ninth-highest in the nation behind states like Texas, California and Florida.
Hospitals become credit advertisers
Amid rising healthcare costs, banks like Synchrony, the issuer of CareCredit, have struck deals with hospital chains in recent years, setting up hospitals as marketers of the cards to patients. In its 2020 annual filing with the SEC, Synchrony wrote “our success depends on (hospitals’) active and effective promotion of our products to their customers.”
Five-hospital chain Mercyhealth in Rockford is among them. As part of the deal, Synchrony trains Mercyhealth staff to introduce the card to patients who are unable to pay medical fees, says Kimberly Scaccia, Mercyhealth’s vice president of revenue management.
“It’s not easy to talk to patients or families about financial responsibilities,” she says.
The hospital pitches the card at the point of care, at discharge and when the billing department contacts patients days or weeks later, Scaccia says. She calls the card a useful payment tool for the hospital and for patients, particularly those with high deductibles. Scaccia, a CareCredit cardholder herself, often sees patients use the card to cover emergency room visits, hospital stays and other unexpected medical needs.
“Our internal partners and our patients are starting to understand that this can make it so that people don’t have to wait (for care) because they have those high deductibles,” Scaccia says. “I truly believe (CareCredit) is in it to make these opportunities better for patients. They’re not in it to make a whole bunch of money.”
Mercyhealth’s most popular financing offer for cash-strapped patients is a no-interest payment plan with $50 minimum monthly payments, according to Scaccia. But she says the CareCredit card is a “close second” with patients, and clearly the better option for Mercyhealth.
“When we look at it comparatively, I pay a single fee for CareCredit versus one fee every time I swipe your credit card for 60 months or however long your payment plan is,” Scaccia says. “That adds up.”
Scaccia has less insight into the financial impact on patients who use the card to pay for costly treatment. For example, she says Mercyhealth hasn’t asked Synchrony how many patients are able to pay off their initial balances before interest charges start. But she adds that Mercyhealth often sees patients reusing the card, indicating that some are reducing the initial balance enough to pay for more services.
CareCredit’s issuer, Synchrony, declined an interview request and did not answer emailed questions.
CareCredit has partnerships with 250,000 healthcare providers nationwide, including 20 hospital systems. Synchrony recently inked a deal with AdventHealth, which has four hospitals in the Chicago area and will offer CareCredit as its “primary patient financing option” at facilities nationwide, Doubles said on the earnings call.
Besides providing payment upfront, medical credit cards also help hospitals save time and resources negotiating with insurance companies or putting patients on payment plans, a long-standing method for collecting payment from low-income and uninsured patients. Medical credit cards also allow hospitals to protect relationships with patients; if there’s a billing dispute, patients argue with a bank, not the provider.
The tradeoff for hospitals is that they have to pay credit card transaction fees, which are sometimes higher for medical credit cards. Hospitals also have to grapple with the ethical dilemma of asking patients to go into debt to pay bills.
“If it seems like the provider is putting their stamp of approval on it, then the patient is probably going to be more likely to sign up for it,” says Jenifer Bosco, an attorney for the National Consumer Law Center. “In the worst cases, it’s probably an abuse of that trust.”
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Downsides for patients
Medical credit cards give desperate patients a way to pay bills but also leave them owing money not to a healthcare provider but to consumer lenders, which often use more aggressive collection tactics. With a credit card, patients risk damaged credit, high interest rates and falling into the financial trap of paying minimum monthly payments that don’t reduce their balance quickly enough to avoid interest costs once the promotional period ends.
For example, the CareCredit card defers interest during an introductory period usually lasting for six months, provided cardholders make minimum monthly payments and pay off the full balance by the end of the promotional period. Those who don’t make those payments are charged interest retroactively on the balance carried during the introductory period and all amounts outstanding until they eventually pay off the balance. Interest rates on the CareCredit card are as high as 26.99% per annum, well above the average credit card rate of 19% in 2020, according to the CFPB.
Synchrony doesn’t separately disclose delinquency rates for CareCredit cards, but the overall 30-day delinquency rate across Synchrony products is 51% higher than the average for all credit cards, according to the Federal Reserve System.
CareCredit came under fire in 2013, when the CFPB forced it to refund consumers $34.1 million for allegedly deceptive credit card enrollment tactics. The agency said CareCredit led consumers to believe its cards were interest-free, when they actually accrue interest during the introductory period that becomes payable if the full balance isn’t paid by the end of that period. CareCredit did not admit or deny any wrongdoing at the time.
Medical credit cards come with other drawbacks. Unlike mass-market cards, the available credit on medical credit cards rarely exceeds the cost of the service, meaning the card is maxed out immediately, damaging cardholders’ credit scores and making them useless for any other purchases until the balance is reduced. And because CareCredit isn’t part of a major card network, it’s not always accepted by merchants that take Visa, Mastercard or Discover cards. Besides healthcare providers, a limited number of pharmacy chains (including Walgreens), big-box stores and a few other merchants accept the card for a limited range of purchases, typically related to health and personal care needs.
Medical credit card holders won’t benefit from recent moves to ease the aftereffects of medical debt. The three major credit reporting agencies have agreed to modifications expected to remove about 70% of medical debt from credit reports. But the changes won’t help those who used medical credit cards to pay for care, because their debt is considered credit card debt, not medical debt, experts say.
“If you put a medical procedure on a credit card, it’s not really medical debt anymore,” says Ted Rossman, a senior industry analyst at Bankrate, a personal finance comparison service. “Now it’s credit card debt, and that’s viewed less favorably by the bureaus.”
Still, Bosco expects the usage of medical credit cards to keep growing. As temporary health benefits instituted during the COVID-19 pandemic expire, she predicts more uninsured people who need medical care will turn to the cards.
“If someone has to resort to a credit card, that can be a pretty expensive way to pay for healthcare,” Bosco says. “But it speaks to the challenges that we have with our current system, which has so many gaps, leaves so many people without adequate insurance and without adequate help to get the healthcare they need.”
This story first appeared in our sister publication, Crain’s Chicago Business.