Medical credit cards can be poison for your finances, study finds

Medical credit cards have proliferated in health care offices across the nation as more Americans struggle to afford treatment, even when they have insurance. Yet while these cards may seem like a good way to quickly pay for needed services, they come with some serious downsides that experts say could cost you dearly.

One major card provider, CareCredit, is offered in more than 250,000 health care provider offices, an increase of more than 40% from a decade ago, according to a recent report from the Consumer Financial Protection Bureau. 

The cards may seem appealing because they offer so-called deferred interest, which comes with 0% APR interest for an introductory period. But the "deferred" part of the agreement isn't favorable for borrowers if they can't pay off their bill in full before the grace period ends. If they still have a balance, they're charged all the interest they would have accrued since the original charge date, the federal agency noted. Consumers paid more than $1 billion in these interest payments from 2018-2020, the study said. 

The cards also don't provide the same type of financial protections as debt held by a health care organization, according to a new report from U.S. Public Interest Research Group. That's because any charges on these cards aren't considered medical debt, unlike a bill owed to a hospital or health care office, the consumer advocacy group notes. 

Crucial difference

That can hurt borrowers because credit reporting agencies treat debt from obtaining health care differently, with the top three credit bureaus last year agreeing to drop most medical debt from consumers' reports. That's not the case with credit card debt, however. 

"The minute it goes into a medical credit card, it's not seen as medical debt — it's not owed to a medical provider, but to a bank," Patricia Kelmar, senior director of health care campaigns at U.S. PIRG, told CBS MoneyWatch. "There are certain protections against the way that medical debt can be collected and how it appears on a credit report and how it appears on your credit score."

She added, "People are reaching for these credit cards as away to pay bills, but it's not working out well for those who have to have to file for bankruptcy."

One analysis of Oregon bankruptcies by OSPIRG, the Oregon Public Interest Research Group, found that the most frequently listed debt holder related to medical issues was for a single medical credit card issuer, with 1,037 filings listing $2 million in borrowing. 

A better alternative 

Instead of reaching for the credit card application to pay for medical services, Kelmer recommended asking a health care provider for a payment plan that fits your budget. 

"Before these products were available, people just worked out a payment plan with their provider," she said. "You would say, 'I really need that root canal, but only make X amount, and this is what I can pay you for the next two years'."

Ask about financial aid as well. Under federal law, all nonprofit hospitals must have financial assistance policies, U.S. PIRG notes. 

In general, it's also wise to avoid making financial decisions at a health care office, where you may be stressed and even in pain. The administrative staff who work at health care offices are unlikely to be familiar with details of the financial product they're offering, which means you may not have the information required to make the right choice. 

"You shouldn't be making financial decisions in a health care setting, particularly if you aren't feeling well or have gotten some bad news," Kelmer said. "These are emotional times, and making a decision at these times probably isn't setting you up for the best outcome."

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• medical debt