Struggling to pay your medical bills? This remedy can cause 'financial ruin,' CFPB warns.

By Emma Ockerman

Patients being marketed 'specialty financial products' to cover medical costs may have better, cheaper options, Consumer Financial Protection Bureau says

U.S. patients are being sold "high-cost specialty financial products" to cover medical care even in circumstances where existing insurance coverage or financial-assistance programs would have served them for less, a new report from the government's consumer watchdog says.

The Consumer Financial Protection Bureau warned Americans on Thursday that medical credit cards and installment loans, which are being tapped more and more by people struggling to afford the rising cost of healthcare, may hurt -- rather than help -- their pocketbooks.

While interest rates on medical credit cards and installment loans vary, they're generally higher than those attached to more standard credit cards and can climb to 25% or more, the agency said. And although some of the products come with deferred-interest promotions, that arrangement may wind up costing consumers more if they're unable to pay their full balance within a certain timeframe, since they'll owe interest on their entire purchase amount, according to the CFPB.

"Many people would be better off without these products for two reasons: thefinancial burden can be higher and their ability to challenge an inaccurate bill iscomplicated when they are working through a third party financial institution," the report said.

Between 2018 and 2020 alone, patients paid $1 billion in deferred-interest payments, the CFPB said. People with credit scores below 619 incurred interest more frequently, perhaps because "they were more likely to have shorter periods before they were charged deferred interest," the agency added in its report.

"Fintechs and other lending outfits are designing costly loan products to peddle to patients looking to make ends meet on their medical bills," CFPB Director Rohit Chopra said in a statement. "These new forms of medical debt can create financial ruin for individuals who get sick."

Medical credit cards started off as a way to address the health costs that regular insurers typically don't handle, according to the CFPB -- for example, fertility treatments, dental services and auditory devices. Installment loans, on the other hand, have historically been offered before treatment to cover a certain medical expense.

But as the cost of care has soared in the United States -- health spending made up 18.3% of the nation's gross domestic product in 2021, up from 13.3% in 2000 -- financial companies have marketed the products to medical providers as a way to reduce their financial risk and receive quick payments from patients.

Approximately half of U.S. adults say they wouldn't be able to cover an unexpected $1,000 medical bill within 30 days, according to one 2022 survey. High-deductible health plans, which offer lower monthly premiums but require consumers to foot the bill for their care until they reach a certain spending threshold that can total thousands of dollars for families, are increasingly common. As a result, some hospitals have said they struggle to get paid.

That's where medical credit cards and installment loans come in, the CFPB said in its report. The companies behind those products also often offer medical providers "sales and marketing training, promotional flyers, and materials explaining their financial products," as well as "financing application software."

"Medical financing products are marketed as reducing the medical providers' costs," the CFPB wrote. "When a patient cannot pay their bill upfront, the medical provider typically takes on the costs associated with mailing statements, processing accounts receivable, handling disputes, and engaging debt collectors to recover the amounts they bill patients."

But "when a patient pays for medical services out-of-pocket or via credit card or installment loan, the medical provider avoids many of these costs and generally receives payment immediately or within days," the CFPB added. "This is particularly advantageous for medical providers that serve patients who are uninsured or underinsured, do not have a credit card, or have insufficient cashflow to cover the cost of medical treatment."

That's not always good news for the customer, the CFPB warned. Medical financing companies may tell providers they can sell consumers extra or expensive treatments by offering their products, according to the CFPB's report.

Patients may also struggle to understand what it is they're being sold, particularly when they're preoccupied with their healthcare: Consumers have reported to the CFPB they were caught off guard by deferred interest, were not made fully aware of the terms and conditions attached to financial products, and even signed up for a payment plan they said they didn't consent to.

Rick Gundling, the senior vice president of policy and practice at the Healthcare Financial Management Association, a professional membership organization for finance leaders in healthcare, told MarketWatch in an interview about the CFPB's findings that it's important for consumers to try and save up enough money to cover the cost of care before they meet their deductibles, as well as inform themselves of all the financing options available to them if they need assistance paying bills. Medical credit cards and installment loans are just one piece of that puzzle, he said, and can be a good option for some patients.

"I've seen it used as just one tool in the toolbox," Gundling said.

The CFPB mentioned in its report several companies that provide medical financing products like credit cards or loans, including CareCredit, offered through Synchrony (SYF); Wells Fargo (WFC); AccessOne; PrimaHealth Credit; and others.

In a statement, AccessOne CEO Mark Spinner said the company "partners with healthcare providers to offer patients flexible, affordable financing options when they need them."

"For more than 20 years, we've helped over 1 million patients afford and get access to their medical care," Spinner said. "AccessOne is not a medical credit card, we do not report patients to credit bureaus, and do not credit check so that we can help the most amount of patients who need it. Additionally, AccessOne does not offer patients 'promotional periods' on our programs -- as described in the CFPB report. Rather, by offering flexible payment options, AccessOne enables patients to choose what works best for their family and financial situation."

Brendon Kensel, the chief executive officer of PrimaHealth Credit, also said in an interview that the goal of his patient finance platform is to "democratize access to healthcare." As a former operator of an orthodontic dental-service organization, he added, he's seen people struggle to both pay out-of-pocket expenses and get approved for financial services.

"We're really focused on bringing more care to more people with honest finance," Kensel said.

The CFPB's report said that PrimaHealth Credit "offers installment loans for people with 'challenged' credit quality" and, though it pays providers up front for services given to people with good credit, it sends payments to providers as they're collected for customers with lower credit scores.

"This can create an incentive for providers to avoid offering care to people assumed to have limited access to credit or designated by a financial company as being a high-credit risk including people with limited English proficiency, older Americans, and people with lower incomes," the CFPB report said.

Kensel, however, said providers wouldn't offer payment plans to customers with "credit challenges" if they didn't want to, and countered that they choose to provide those services "to help more patients access the care that they need."

"I don't think their view that it creates a perverse incentive is correct," he said.

Representatives for WellsFargo, Synchrony and other companies mentioned in the report did not immediately return MarketWatch's requests for comment.

-Emma Ockerman

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05-06-23 1122ET

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