The Medical Credit Card Trap
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Reprinted with permission from Helaine Olen, "The Medical Credit Card Trap," The American Prospect Online: August 15, 2007. The American Prospect, 2000 L Street, Suite 717, Washington, DC 20036. All rights reserved.
Michael Moore's film Sicko opens with the haunting vignette of a man who loses part of two fingers in a sawing mishap. As he lacks both health insurance and a bottomless bank account, hospital authorities give him a choice of which finger to re-attach.
It's a wonder the hospital finance office didn't simply tell Moore's hapless accident victim to apply for a line of credit -- an increasingly popular way for the cash-strapped under-insured to cover their medical expenses. Health-care chains such as Kaleida Health, which includes five hospitals and numerous outpatient facilities in upstate New York, advertise credit cards as a way for patients to commence receiving services. Kaleida helpfully notes that G.E.Money's CareCredit "lets you begin your treatment immediately -- then pay for it over time with low monthly payments that are easy to fit into your monthly budget."
In the years since the failure of President Bill Clinton's health-care reform package, credit cards have come to play an ever-expanding role in the American medical system. Not only do most doctor's offices and hospitals now routinely accept MasterCard and Visa as well as specialized cards like CareCredit, many help patients set up new accounts.
But as use of credit to pay for medical expenses becomes more and more common, a new concern has begun to worry reform advocates and other players in the system: Have we unwittingly given the nation's financial sector a seat at the table when it comes time to once again discuss restructuring our health-care system? The question takes on an even greater urgency with health care shaping up to be a significant issue in the 2008 presidential campaign.
"It's always hard to get through legislative change, and change is even harder if it is going to cost someone money," says Elizabeth Warren, the nationally known bankruptcy expert and co-author of a 2006 study on medical debt. "The consumer finance industry is becoming a stakeholder, and as they increase their profit from people who are struggling to pay their bills, it's going to make needed change much harder to accomplish. This is the central problem with these cards."
Americans are expected to spend $250 billion in 2007 on out-of-pocket medical expenses, and most observers expect that sum to grow over the coming years as employers and insurance companies continue to shift more and more medical costs onto the patient.
Many medical practices encourage patients to turn to plastic to cover their shortfalls, and those who study the issue say that it's easy for small bills to spiral into large expenses. When high-interest credit cards are used as a way of paying bills, many consumers find themselves on a financial treadmill that they find impossible to escape.
"There are hundreds of billions of dollars that patients are responsible for paying in medical costs every year, and each year health-care costs are escalating," says Mark Rukavina, the director of Access Project, a nonprofit consumer health advocacy group. "The credit card companies are moving in, and they are moving in quickly."
Numerous credit cards are pitched to consumers as a way of financing so-called "lifestyle" (read: unnecessary) medical expenses, things like Lasik eye surgery and cosmetic dentistry, on consumer-friendly terms. Take Citibank's Citi Health Card. Offered by ophthalmologists and dental practices -- and even veterinarians -- Citibank promotes the Health Card as a gentler credit card, with no annual fee, and, at least on some plans, no interest if consumers pay off their bills within a certain timeframe.
But critics point out that Citi Health cardholders who cannot pay off their debt by the end of their agreed-upon payment period face interest rates exceeding 20 percent -- beginning from the date of the first purchase. In addition, Citi Health can also be used to pay for more urgent medical procedures such as dental surgery since the practitioners who offer the card can allow patients to use it on all the services they offer, not just those deemed nonessential. As anyone who has ever had, say, a root canal knows, quibbling over treatment costs or looking over the fine print of a credit application for terms, interest rates, and penalties are not high priorities for a patient in a lot of pain.
And the still relatively new frontier of Health Savings Accounts (HSAs) and Flexible Spending Accounts has also offered financial institutions fertile ground to ply their trade. Wells Fargo, for example, has issued more than 100,000 debit cards linked to these plans. Other companies have extended credit to consumers who have not fully funded their HSAs and need to borrow the money to pay the high insurance deductibles linked to these plans.
"The financial services institutions are becoming much more active in the medical marketplace than ever before," notes Richard L. Clarke, president and CEO of the Healthcare Financial Management Association, a trade organization for financial professionals ranging from controllers to accountants in the health industry. "They see a huge volume of transactions, large dollar amounts flowing back and forth, and they see themselves as the middle person being able to process those transactions, manage that cash, and make some money."
To be fair, consumer credit allows doctors and other providers to receive payment for care quickly. But when consumers turn to plastic in lieu of adequate insurance, they unwittingly collaborate in masking the societal cost of Americans' ever-higher personal health-care expenses. "The shift from direct medical debt to credit card debt hides the degree of stress on families," Warren argues. "It looks like too many trips to the mall, not a family who couldn't pay for an appendectomy."
No one expects the gravy train to stop anytime soon. After all, banks and other issuers of credit can make money from medical services in numerous ways: collecting a fee from the medical provider for handling a transaction, charging interest on patient bills, and charging employers for acting as administrators of their HSAs and other medical spending accounts. It seems unlikely that any business would give up on this growing income stream without a fight. "If there was Medicare for all in which the private health insurance industry had little or no role, that would have a very dampening effect," Clarke observes. "The insurance companies would be much more vocal than the banks ... but the banks would be right behind the insurance companies."
Helaine Olen is a freelance writer whose work has appeared in The New York Times, The Los Angeles Times, The Wall Street Journal and numerous other publications. Her book, co-written with Stephanie Losee, Office Mate: The Employee Manual for Finding -- and Managing -- Romance on the Job, will be published this fall.