In the United States, Healthcare expenses are the leading cause of personal bankruptcy and account for more collections than every other type of debt. Americans charge about $45 billion worth of healthcare expenses to credit cards each year, and that is expected to grow to an estimated $150 billion, according to a report by McKinsey & Company.
While it is no surprise that an alternative means of paying for healthcare has become popular, considering the current realities of the healthcare market, it’s fair to wonder if medical credit cards are worth it. Medical credit cards have distinct advantages and disadvantages, as you’ll see below, and each should be weighed cautiously.
Advantages of Medical Credit Cards
- Prompt Access to Funds: Known for their swift application and instant approval processes at healthcare professional’s offices. Patients access otherwise unaffordable health care.
- Pay Over Time: One core benefit of a medical credit card, as with any other financing offer, is the ability for repaying expenses as you go. This reduces immediate financial barriers to getting a procedure done, but it also means that debt will be with you for a while.
- Wide Applicability: Widely accepted in the health care community, the cards are also eligible to pay for a variety of procedures. Some cards are even designed specifically for their use within a network of providers.
- Low-Interest Rates: Financial institutions that issue medical credit cards generally charge low-interest rates. Cardholders are less likely to accrue huge amounts of debt, especially if they make payments promptly.
- Prevention of Identity Theft: Financial companies that issue medical credit cards close monitoring and careful screening process for identifying potential identity theft issues. Medical credit card accounts are not subjected to fraud, as they are not tied to any existing accounts.
- Large Amounts of Available Credit: Compared to a conventional credit card, the lines of credit that medical credit cards offer are significantly higher. Cardholders can purchase medical items using their card and not have to worry about getting into loan trouble if they find it difficult to pay all at once.
- Accessible 24/7: Traditional banks and lenders close branches or offices at the end of the day. Medical credit cards, however, are always accessible in case of an emergency or unexpected medical emergency. Cardholders do not have to wait until morning hours to secure funding.
- Easy Application: Typically, people applying for medical credit cards need little documentation and can complete the application process quickly.
- No Co-Signers Needed: Patients can apply for medical credit cards on their own unless they have no established credit history. Single people and parents who have younger children can benefit from this feature of the cards.
Disadvantages of Medical Credit Cards
- Deferred Interest: Usually offer a 0% or low introductory interest rate to attract customers. This introductory rate will usually only last between 3 and 24 months, as a “promotional” or introductory period. Patients who miss a payment or are unable to pay their balance in full by the end of the promotional period, can see a high interest rate kicks in that applies retroactively to the cardholder’s entire original balance. The typical interest rate for medical credit cards is about 27% but can range from 10% to 30%. It’s likely that the deferred interest feature on these medical credit cards will be triggered since medical credit cards are typically used for unaffordable procedures. You can use the “deferred interest option” of a medical credit card and pay off the balance over a period (of time) before the interest is added. This only works if you can pay off the balance within the time frame.
- Conflict of Interest & Lack of Competition: Many healthcare practitioners offer medical credit cards to patients during a visit. This can lead to a patient agreeing too quickly to a medical credit card without first learning all the associated risks or considering other options. A lack of knowledge can lead to high-interest rates on medical procedures, or to a lack of knowledge about the nature of the product being purchased.
- Tempting for Unnecessary Procedures: Offered to patients as a convenient alternative option for financing. However, the cards ultimately are meant to drive more business to healthcare providers. Some of these providers have reportedly encouraged patients to pursue unnecessary procedures. Having any kind of big-ticket purchase will create stress, especially if you are struggling financially. The temptation for patients to buy now and pay later with deferred interest is very enticing, especially for those with poor credit scores. However, this can easily become a financial disaster if you don’t have an emergency fund in place, or if you aren’t earning enough income to cover your expenses each month.
- Inaccurate Credit Reporting: Medical credit cards report credit information directly to consumer reporting agencies such as Experian, Transunion and Equifax. This presents a conflict of interest since the services offered by health practitioners are often reported inaccurately, due to high-interest rates that are charged. Inaccuracies can be harmful when applying for other loans and may negatively affect your ability to obtain insurance.
- High Interest Rates: A typical medical credit card offers an APR (Annual Percentage Rate) that is much higher than that offered for most other types of credit cards.
- Medical ID Theft: Medical identity theft is the criminal act of using another person’s personal information, such as name, social security number or insurance number to obtain medical care, goods and services. No one can tell you with complete 100% certainty that this will never happen. If it happens to you and your medical information is reported inaccurately to a credit bureau, it could affect your ability to get other loans or insurance for years.
- Unexpected Costs: Your “free” exam might come with co-pays on the associated tests. Also, when visiting your doctor after hours there may be a charge for that visit in addition to the interest charges and monthly fees associated with the card. These additional charges can make the medical credit card more expensive than an alternative, such as paying cash up front.
- Lack of Transparency: The terms and fees associated with medical credit cards are often not clearly disclosed up front and may be complex and confusing to the average consumer. You may receive a solicitation for a medical credit card while you are still at the office or even after you have visited the office. This may lead to a patient agreeing to a medical credit card before first learning about the associated risks or considering other options.
- Inaccurate Credit Reporting: Medical credit cards report credit information directly to consumer reporting agencies such as Experian, Transunion and Equifax. This presents a conflict of interest since the services offered by health practitioners are often reported inaccurately. Inaccuracies can be harmful when applying for other loans and may negatively affect your ability to obtain insurance.
