Senators Warn of 'Predatory' Medical Credit Cards

The high cost of medical care is making some parties involved very wealthy.

When it comes to hospitals, it's easy to imagine a place where everyone works together to help patients heal and get back to the business of living. Perhaps it's time to rethink that image.

According to a group of Democratic senators, some hospitals have teamed up with credit card companies to push high-interest debt on those desperate for medical help. Unfortunately, it is those most in need who are being harmed by this practice.

The letter

Sens. Elizabeth Warren, Ed Markey, Bernie Sanders, Chris Murphy, and Sherrod Brown recently sent a letter to the chief executives of Wells Fargo Bank and Synchrony Financial, two of the largest banks offering medical credit cards.

In the letter, the senators expressed concern that these medical credit cards could be predatory. After all, once treated, patients are left with "hefty, high-interest medical debt."

While the majority of Americans are insured, millions are not. Of those who are fortunate enough to have health coverage, many cannot afford the out-of-pocket maximums, copays, or uncovered services.

How profits are made

Here's how the system works, step by step:

1. Someone goes into a hospital in need of care but can't afford the cost of treatment.
2. The hospital convinces them to open a medical credit card.
3. The credit card offers an introductory "no interest" period.
4. Desperate for the money to pay the bill, the person applies for the card.
5. They're approved for just enough money to pay their hospital bill.
6. Once they use the card to pay, the card is maxed out. Maxing out the credit card impacts their debt-to-income (DTI) ratio, often lowering their credit score.
7. If the patient is unable to come up with enough cash to pay the credit card balance off in full by the time the introductory period expires, they end up with a large credit card debt, carrying one of the highest interest rates in the industry.

The hospital profits

Once the patient agrees to take out a medical credit card, the hospital may be paid upfront by the bank issuing the card. These kickbacks are good for the hospital's bottom line.

The bank profits

The high interest rate means that many borrowers quickly strain their bank accounts and can afford no more than their minimum monthly payment. This cycle of debt leads to greater profits for the bank that issued the card.

Wells Fargo's Health Advantage® card cannot be used at hospitals but does cover dental, audiology, vision, and veterinary care. According to a spokesperson for the bank, the card currently carries an interest rate of 12.99%. However, interest rates can vary dramatically by credit card issuer.

An unfortunate loophole

Credit reporting agencies recently agreed to remove 70% of negative medical debt remarks from credit reports. While that's great news for some consumers, the change will not benefit those who took out a medical credit card because it's considered credit card debt, rather than medical debt.

It's a race to see who wins. Will it be patients and their advocates or banks who view profiting off a broken medical system too lucrative to give up?

It's worth noting that more than 100 million people in the U.S. are burdened with medical debt. The collective total owed is around $200 billion. At the same time, the U.S. is the only industrialized country in the world that does not guarantee universal health coverage for its citizens.

What's the best move for you?

According to the Wells Fargo spokesperson, some medical providers pay the bank to "buy down" the interest rate for their patients. What you decide to do should be dependent on the interest rate you're offered.

For example, if your eyeglasses break and you desperately need a new pair, it makes sense to use a medical card with a 0% APR to pay for the exam and new glasses. However, if the interest rate is high enough that you can't pay the debt off quickly, you'll want to look for another way to cover the bill.

These alternatives may help you avoid interest:

• If your credit score is good to excellent, apply for a credit card with a 0% promotional rate. These cards typically give you anywhere from 12 to 24 months to pay off the debt. If you don't get it paid off by the time the promotion expires, the APR reverts back to its standard rate.
• Ask about financial assistance. Let's say you end up in emergency surgery for an appendicitis and are left with a staggering hospital bill. Do not assume that you must pay the entire bill. The first thing to do is call the billing department of the hospital and ask about any financial assistance they offer. In return for not paying state or federal taxes, non-profit hospitals are required to provide financial assistance to eligible patients.
• Request a discount. If you do not meet a medical facility's criteria for assistance, ask the billing department to reduce your total bill.
• Set up a payment plan. Look over your monthly budget to determine how much you can afford to pay toward the medical bill each month. Propose a payment plan that allows you to methodically get the bill paid.

Like any credit card, medical credit cards have their place. If using one helps you manage medical costs without eating away at your budget, it's worth considering. If you decide to use a medical credit card, don't sign anything until you've worked with the billing department to get your balance down as low as possible.