Getting a medical procedure? CFPB warns consumers healthcare financing is loaded with pitfalls

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If you hear the word 'deferred,' stop right there!

The Consumer Financial Protection Bureau (CFPB) says consumers should proceed cautiously with any credit cards and loans pushed by healthcare providers. 

Consumers probably never saw it coming, but medical credit cards and similar products designed to cover the costs of patient services and devices may have finally gone too far. Over time, the agency says while the prevalence of these options has grown steadily, most consumers are completely in the dark as to the pitfalls that come with these payment plans. 

“Many people who sign up for medical financing in doctor’s offices and hospitals may otherwise be eligible to receive financial assistance or charity care that medical providers may offer or otherwise be required to offer under federal, state, or local law,” the CFPB wrote in a new report.

“A better understanding of this matter may help improve the lives of the many patients – of all economic backgrounds – who find themselves stretching to cover necessary medical payments.”

The pitfalls

Near the top of the concern chain is that there are too many players with too many ways of doing business. Companies mentioned – but not reviewed – in the report include Wells Fargo Healthcare Advantage, ZenPay, and Comenity. All in all, every medical procedure is covered, too, depending on the credit company. 

For example, Wells Fargo offers the Health Advantage Card in partnership with medical providers that provide a wide range of medical services, including audiology, dental, veterinary, and vision, while Comenity’s Alphaeon Credit Card can only be used to cover the cost of certain elective procedures. 

These specialty finance products are typically more expensive for patients than other forms of payment with interest rates often exceeding 25% – a rate higher than any other credit category. For example, some personal loan products have interest rates that are half of that.

These health credit products can add, not remove, the financial stress that comes with medical bills. Then the floodgates to decreased credit availability, costly and lengthy collection litigation, and an increase in bankruptcy rates, open.

Low-credit patients may be most at risk

Another concern is that the “medical installment loans” option can hurt patients with lower credit scores because the medical service provider carries the risk of the patient not paying their bill. 

“This can create an incentive for providers to avoid offering care to people assumed to have limited access to credit or designated by a financial company as being a high-credit risk including people with limited English proficiency, older Americans, and people with lower incomes,” the report states.

The last snag is that employees at medical offices who are selling these products often know very little about how they work and don't fully disclose the terms and conditions to their patients.

The stinker is the word “deferred.” The CFPB suggests that many patients who are unable to pay off a “deferred” interest product during the promotional period could pay significantly more than they would otherwise. In fact, consumers paid $1 billion in deferred interest payments for these healthcare charges over a recent two-year period. 

Here’s proof from a ConsumerAffairs reviewer hit by a "deferred" payment"

“I took a loan for care credit for a dental procedure( the doctor made me sign up for it saying it's interest-free) for $6200; after paying it for almost three years and the principal amount coming down to $3800 this January, Synchrony added another $2900 saying that that was promotional APR,” Prem of The Colony, Tex wrote in a ConsumerAffairs review.

And, then, the big “deferred” slap came.

“They charged another 29% (YES 29% – despite my Credit score is ~800) APR from the day I signed up for the loan, saying it was deferred interest."

Before signing up for medical debt financing, ask questions 

If you are offered financing for a medical procedure – especially an expensive one – you would be wise to read the CFPB’s complete guide to healthcare financing. Knowing the lay of the land ahead of time might come in handy when the person at the doctor’s office springs the price of the service on you.

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