Medical Credit Cards and the Risk They Pose to Consumers

Consumers of medical and mental health care who look to medical credit cards with the hope of expanding their ability to access care are too often trapped by predatory practices. Oregon Consumer Justice (OCJ) has prioritized consumer debt issues as we advocate for pro-consumer policies that put people first. Debt related to medical and mental health care is pervasive across Oregon. It prevents too many Oregonians from being free to thrive and equitably share in our abundance of resources. Oregon Consumer Justice (OCJ) supports adopting more restrictions related to medical credit cards to curb predatory practices, and the removal of medical credit card debt from credit bureau reports.

A medical credit card is a credit card that is only used to pay for health care services. The consumer incurs a debt for their medical or mental health care. They agree to pay back the debt later under certain conditions. An increasing number of consumers are turning to medical credit card use, as many healthcare providers and other credit-issuing institutions offer them to those who use medical and mental health services. Marketers, healthcare providers, and credit card-issuing institutions often tell consumers that it is an easy way to access the care they need. Before signing up for a medical credit card at their doctor’s checkout, consumers need to know and understand the challenges and potential risks involved.

Most people use medical credit cards to cover medical expenses ranging from essential treatments and procedures to elective medical and mental health services. Some medical credit cards allow consumers flexibility regarding where they can use them, while others only allow payment at a single provider or for one specific service. 

Financial institutions, like banks and credit card companies, are the most common issuers. Nationwide, 250,000 medical offices offer medical credit cards, a 40% increase in the past decade. Medical offices can offer medical credit cards once they partner with a financial institution or a health insurance agency that sets the card’s terms and conditions.

Medical credit cards can seem like a suitable option for consumers. They offer a way for individuals and families to access expensive medical and mental health care quickly, and the sign-up process often has low barriers. However, consumers need to pay hefty fees to access credit offered via medical credit cards. Someone who signs up for a medical credit card will usually pay a steep origination fee to start using the card, annual fees to maintain an active line of credit, and high-interest rates on the cost of their medical care. 

The company issuing the card often puts off or defers repayments for a set period before you have to start paying back money used advances for medical expenses. At the end of this deferment period, high interest rates go into effect, quickly leading to a high total balance when applied to any outstanding amount.  

Consumers with medical credit card debt, which encompasses 32% of American workers, are more likely to default due to an inability to repay or risk falling under the poverty line if they prioritize repayment but neglect other financial needs, like paying for housing and food. Card issuers are the ones who stand to profit.

Consumers who cannot make payments on their medical credit cards will usually get it reported on their credit report, which lowers their credit score. Credit reports today make no distinction between a credit card used for everyday purchases and one used to access medical care. Reporting needs to change to help consumers benefit most from recent updates in how major credit reporting agencies handle medical debt. This needs to change to maximize the impact for consumers of the latest changes in how the major credit reporting agencies report medical debt. In 2023, the three major credit reporting agencies announced that they would enact changes, removing paid medical collections from credit reports. Later that year, the CFPB announced that it was developing new rules that would lead credit reporting agencies to stop reporting unpaid or past-due medical collection bills. 

The Consumer Financial Protection Bureau (CFPB), the federal agency tasked with issuing consumer protection guidelines in the financial sector, warns against using medical credit cards. Medical credit cards often use deferred (delayed) interest to lure consumers into using them. With the deferred interest feature, medical credit card issuers will charge 0% interest for a period (usually one year) but add the deferred amount to the entire balance after that grace period. Consumers are set up to struggle exponentially if they cannot pay their balance in full during the deferral period. This is a predatory financial practice, and consumers need to be vigilant about this feature.

The company issuing the card often puts off or defers repayments for a set period before you have to start paying back money used advances for medical expenses. At the end of this deferment period, high-interest rates go into effect, quickly leading to a high total balance when applied to any outstanding amount.  

Consumers with medical credit card debt, which encompasses 32% of American workers, are more likely to default due to an inability to repay or risk falling under the poverty line if they prioritize repayment but neglect other financial needs, like paying for housing and food. Card issuers are the ones who stand to profit.

Consumers who cannot make payments on their medical credit cards will usually get it reported on their credit report, which lowers their credit score. Credit reports today make no distinction between a credit card used for everyday purchases and one used to access medical care. Reporting needs to change to help consumers benefit most from recent updates in how major credit reporting agencies handle medical debt. This needs to change to maximize the impact for consumers of the latest changes in how the major credit reporting agencies report medical debt. In 2023, the three major credit reporting agencies announced that they would enact changes, removing paid medical collections from credit reports. Later that year, the CFPB announced that it was developing new rules that would lead credit reporting agencies to stop reporting unpaid or past-due medical collection bills. 

Medical credit cards are not substitutes for health insurance. An individual covered under a health insurance policy can access medical care as long as they pay their premium. Health insurance usually helps individuals pay lower out-of-pocket fees for medical care. 

Medical credit cards do not allow consumers to access the full scope of medical services that health insurance affords. Unlike health insurance, they also increase the cost of care through interest charges for amounts that are not paid in full before the end of the deferment period. Consumers who are covered under a health insurance policy and still carry a medical credit card balance do so to cover uninsured care services.

Black, Indigenous, and People of Color (BIPOC) communities use medical credit cards to bridge the gap in their medical care at higher rates than the general population. According to a Brookings Institute study, 27% of Black households hold medical debt, with a subset being held through medical credit cards, compared to 16.8% of non-Black households. The Brookings Institute further notes that BIPOC essential care workers are more likely to lack healthcare insurance or be underinsured than BIPOC and non-BIPOC community members performing nonessential work. They are more likely to accrue medical debt through medical credit cards when their health insurance is insufficient to cover their needs. 

Medical credit cards do not allow consumers to access the full scope of medical services that health insurance affords. Unlike health insurance, they also increase the cost of care through interest charges for amounts that are not paid in full before the end of the deferment period. Consumers who are covered under a health insurance policy and still carry a medical credit card balance do so to cover uninsured care services.

Alternatives to medical credit cards:

• Payment plan negotiated with a healthcare provider
• Charity Care/Financial Assistance programs at nonprofit providers
• Budget and save – for example, through a Health Savings Account (HSA)
• 0% interest credit card without deferred interest
• Medical loan with a lower interest rate
• Borrowing against home equity or retirement plan

According to OSPIRG, in 2019, 60% of individuals in Oregon who filed for Chapter 7 or Chapter 13 bankruptcy had medical debt, with a vast majority holding over $10,000 in medical debt. Medical debt is a heavy burden on US consumers, and the increasing use of medical credit cards is increasing that burden.

The CFPB and other US federal agencies are warning consumers to reduce their purchase of healthcare services through medical credit cards. Financial institutions that offer medical credit card products rely on healthcare providers to promote and encourage consumers to use medical credit cards. Consumers are more likely to sign up for medical credit cards when they receive information from a trusted party, such as their doctor or nurse. Relying on such trusted relationships to encourage medical credit card adoption is an example of predatory practices used by medical credit card issuing institutions. 

Before getting a medical credit card, take the following steps:

• Read and understand the terms and conditions
• Use a medical credit card calculator (which includes a loan deferment cost calculator) to understand the total cost paid
• Shop and compare providers and healthcare services
• Determine if you are eligible for financial assistance 
• Assert your rights to medical credit card institutions

As a consumer,  avoid getting yourself into medical credit card debt by taking the time to consider helpful and appropriate alternatives. Consumers usually have better-suited options. If other options are unavailable to you, ensure you understand the terms and conditions of the medical credit card in detail. Don’t feel pressured to decide at the doctor’s office; it can be stressful and interfere with your decision-making. You have the right to know all your options and get the information you need to make the best decision for your situation.

The article was written by Max Derenoncourt, MD (he/him), an OCJ policy intern during the 2023-24 school year.