Traditional credit cards as we know them today are not new. In fact, they have been around for decades and are a part of everyday life for most consumers. However, something relatively new has surfaced on the credit-card scene that some consumers — especially those with limited credit histories — are finding attractive: medical credit cards.
Traditional credit cards are designed to make it easier for users to pay their bills each month by charging purchases and paying them back with interest over a specified period of time. But with medical credit cards, the reasoning is much different and has more to do with helping consumers manage medical bills than simply making payments on time.
It’s no secret we have seen healthcare costs have rising dramatically over the past several years. The cost of healthcare is one of the top reasons for personal bankruptcy filings in this country, and more than half of all bankruptcies are caused by medical debt.
So what is a medical credit card? It’s essentially a credit card designed to help consumers manage their out-of-pocket expenses to pay for qualified healthcare expenses. The cards are not designed to serve as a payment method for services rendered, but rather as tools to pay bills after receiving care.
An experienced healthcare credit card company can help consumers by pre-approving their medical expenses and, in many cases, paying the bills upfront to hospitals and doctors. As a result, consumers can use these cards to pay their healthcare bills in full and not worry about how they will make the payments long after they’ve received care.
Consumer medical credit cards may come with numerous benefits that traditional credit cards do not offer:
- Specific benefits for certain illnesses or surgeries (e.g. heart bypass surgery, cancer treatments)
- No pre-existing condition exclusions
- Cash back rewards incentives
- No annual fee or late payment fees (though this may vary by bank)
Medical credit cards are also different from traditional credit cards in that the companies backing them are typically non-profit organizations or banks with healthcare affiliations, which helps these institutions get involved in the medical arena without the risk of losing money. For example, Citibank’s healthcare division is a wholly owned subsidiary of Citigroup Inc., while Capital One Financial Corp. donated $1 billion to form Capital One Cares, a non-profit organization dedicated to increasing access to affordable healthcare for underserved populations across America.
Medical credit cards also help those with poor credit histories or no credit history at all improve their odds of qualifying for future installment loan opportunities. For example, as a result of the Fair Credit Reporting Act, health-care providers must report patients’ medical debt data to major credit bureaus such as Equifax and Experian.
The problem with this law is that medical debts tend to remain on consumers’ credit reports for seven to 10 years, and a bankruptcy filing can haunt a consumer’s credit report for up to 10 years. As a result, many consumers cannot qualify for other types of loans due to their poor financial history.
