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Advice & More January 2014

Dollar Sense

Use Medical Credit Cards with Caution

By Teresa Ambord

There is some evidence that credit card issuers give dentists discounts based on the volume of transactions, leading those dentists to recommend expensive treatments that might not be urgent (some credit card issuers deny this). Critics also point to the fact that in recent years as the economy languished, the medical credit card industry has grown rapidly.

If you are on Medicare, you know it doesn’t cover everything. Dental care is minimal, possibly limited to extraction, and hearing aid coverage may be non-existent. State aid programs are not much better. Suppose you need major bridgework. Unless the price tag is no problem for you, you could be up a financial creek, and you would not be alone. Many seniors find themselves in the same situation, vulnerable and in need of care they can’t afford. That’s where medical credit cards come in. They generally pay your provider up front so you get care you couldn’t otherwise obtain and they create a payment plan for you. So are these cards good or bad? The jury is still out on that.

 

Background

Medical credit cards are often offered at the offices of practitioners such as dentists, hearing aid centers, and veterinarians. As the economy got worse a few years ago, many of these practitioners lost business because their patients just couldn’t pay for treatment. Recognizing an opportunity, medical credit card companies stepped up their efforts and many providers signed on to offer these plans. Some patients love them and some hate them, but regardless, they still get care they needed and may have no other way to get.

Generally the credit card issuers require no credit checks or proof of ability to pay. Not all cards come with high interest, but many do, in the 22% to 23% range, with a hefty penalty and/or late fee when payments are missed. Another common feature is that the cards offer deferred interest for the first few months or a year.  What the card companies are doing is not illegal, but they are drawing a great deal of attention from state regulators, attorneys, and some in the media, like the New York Times.

 

The Downside

High interest is an obvious downside. But it’s typical when there is high risk. Patients without good credit histories should expect to pay higher interest. Those with good credit can and should probably get better financing on their own. Because when a payment on a medical credit card is missed, it can mean an added penalty. Also, if you are on a medical credit card plan and choose deferred interest, you must pay the full balance before the end of the deferral period, or all the interest that was deferred will be added back to your balance. Think of it like buying a couch on a “90 day same as cash plan.” It’s great if you pay it off in the “same as cash” period. If not, you’ll end up paying much more in the end.

The New York Times (NYT) did a lengthy article decrying these cards, stating they take advantage of patients in their times of vulnerability, possibly while they are in pain. The article goes through various scenarios, all of which turned out badly for the patients. In each case, the patient made a hasty decision, got in over his/her head, or didn’t understand the terms. In some instances patients thought they were making financial arrangements with their own dentists, not with faceless credit card companies.

In short, patients did not understand the nature of the plans, the details of payment, and the repercussions for non-payment. Unfortunately the author of the NYT article stopped short of telling the other side by including interviews with satisfied patients.

Neither the American Medical Association nor the American Dental Association have formal policies governing these cards, said the NYT. There is also little regulation to stop a dentist from overcharging for a procedure. So if a provider is unscrupulous, patients can be cheated, whether they pay cash or with a medical credit card.

The NYT says there is some evidence that credit card issuers give dentists discounts based on the volume of transactions, leading those dentists to recommend expensive treatments that might not be urgent (some credit card issuers deny this). Critics also point to the fact that in recent years as the economy languished, the medical credit card industry has grown rapidly.

Suspicious? Possibly, but not illegal.

Attorneys General in New York and other states are currently taking a closer look at these credit plans to determine whether they are detrimental or not.

 

The Upside

Credit card issuers point to statistics that say 80% of their patients they serve pay off their balances within the deferred interest period, before a penny of interest is ever charged. In other words, the patient gets an interest-free loan. (Generally the dentist pays the interest during the deferral period.) It is standard practice when credit is issued to high-risk individuals to charge higher rates. And the patients are able to get work which they otherwise would not be able to obtain.

After reading the NYT article, and realizing the author only told one side, I decided to talk to my own dentist. I’ve been going to him for 25 years, and trust him and his office staff completely. My elderly mother has also been his patient, so I inquired on her behalf, about financing if she needed significant work.

The biller was completely upfront with me. She said the office uses CareCredit (one of the companies described in the NYT article). She told me interest is high if the bill isn’t paid within the deferral period, which is one year. She also confirmed that my dentist pays the interest during that year, out of his own pocket.

If the patient falls behind and doesn’t pay the balance in full, the credit company adds the interest back to the account. That’s harsh, she explained, so she makes sure patients fully understand what they are getting into. She also urges them to use the option to have the payments taken automatically from their bank accounts, to avoid missed payments.

Of course not every dentist is as trustworthy as mine. But while this type of credit is clearly not ideal, if used according to the terms of the plan, it can make the difference in a patient getting needed care, or suffering without it.

If You Must Rely on Medical Credit Cards, Take These Precautions:

  • Before you agree to an expensive treatment, you may want to get a second and maybe a third opinion to verify the need and the price. This is especially important if you are not well familiar with your practitioner.
  • If you pursue other opinions and are told you do need the treatment, take a minute to ask at those offices about their financing options. Tell them about the plan your original dentist offered and ask what they think.
  • Assuming you decide to go with the medical credit plan, ask for a thorough explanation of the details, your payment, any penalties and late fees, and if there are optional ways to handle the payments. Ask if you can set up an automatic withdrawal from your bank, to prevent accidentally missing a payment. Ask if you can forgo the one-year-no-interest plan, and instead, stretch the payments out in a way that fits your budget better.
  • If you feel overwhelmed by the details, ask your adult child or a friend to talk to the dentist office with you to be sure you understand all of the details.
  • If you feel pressured to take the medical credit card, walk away and also… find another provider.
  • Remember, you may be able to get financing cheaper and with better terms, on your own.
  • f you feel you have been taken advantage of or were misinformed by a medical credit card plan, you should contact your local legal aid for senior citizens and ask them to take a look.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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