How to Compare Medical Credit Cards, Loans

Several big lenders have retreated from health-care financing in recent years, but surprise! Some of the existing lenders have lowered rates or changed terms to make their deals better for consumers who need to borrow to pay medical debts.

Since the recession, for example, Chase, Capital One and Humana have all dropped their health-care lending programs. (Humana still offers a health-care debit card, but discontinued its medical credit card.)

"Before the recession, there were lots of players," says Mark Rukavina, founder of the health care consulting group Community Health Advisors. "They were aggressively marketing the product and extending it to people who were having a difficult time paying for care."

While the big players retreated, some smaller lenders have popped up in their places, and a number of them are focusing on lower rate installment loans, rather than open-ended cards with hefty APRs.

Safer Loans for Some

For example, American Healthcare Lending, based in Salt Lake City, now markets itself as a simpler, more cost-effective alternative to high-interest medical cards. The company briefly experimented with a revolving line of credit that was similar to other deferred interest medical cards, says Graham Anderson, vice president of business development and marketing. But they quickly discontinued it -- in part because of the controversial financial burden it placed on some of the card's borrowers. "We just felt like it wasn't a healthy option for the patients," says Anderson. Now, the company only offers installment loans with interest rates starting at 5.99%. It no longer offers interest-free financing.

Similarly, the South Carolina-based lender East Bridge Funding launched a health-care financing program in early 2014 called SimpleSelect Patient Finance. The company exclusively offers closed-end installment loans and, like American Healthcare Lending, markets itself as a safer alternative to costly medical cards. "The patient finance industry has needed a facelift," said East Bridge Funding's Daniel O'Connor in a January 2014 press release. "Medical credit card programs have dominated the patient financing space for a long time. They are useful for financing smaller, repeat transactions, but are not the right loan product to finance a large-ticket elective medical procedure." Interest rates for the loan start at 14.99 percent, which is higher than other installment loans available. But the company also offers interest-free financing for up to 18 months.

Meanwhile, some of the companies that still offer a revolving line of credit are also lowering their card APRs and offering safer products to new cardholders. For example, Wells Fargo cut the standard APR on the Wells Fargo Health Advantage card by more than half in late 2013, lowering it from a 27.99% interest rate to 9.99%.

Cardholders still have the option of deferring their payments for up to 18 months. But they will no longer be hit with a nearly 30% interest rate if they're unable to repay their balance by the time the promotional period expires.

In addition, the North Carolina-based financing company AccessOne has also begun offering a lower rate card to most applicants. For example, depending on your health-care provider, you may be offered an APR as low as 8 percent on the AccessOne MedCard -- down from 9.25%. However, the card is only available to applicants who live in the Deep South.

High-Interest Medical Cards Still Dominate

Despite the lower rate options available to some health-care borrowers, many of the medical cards that patients see advertised in doctor's offices are for higher rate cards.

That's because the medical financing company CareCredit -- which charges a 26.99% APR on revolving balances -- still dominates the patient financing landscape.

According to the company's promotional materials, the CareCredit card is currently accepted at 175,000 locations across the country -- up from 125,000 locations in 2010.

Meanwhile, one of CareCredit's leading competitors, Citibank, charges cardholders up to 28.99% on purchases and is also widely accepted at health care offices nationwide.

The cards' high-interest business models aren't popular with everyone, however.

CareCredit, in particular, has received critical attention from regulators and consumer advocates for its hefty APRs and promotional practices. And according to American Healthcare Lending's Graham Anderson, health care financing executives are watching CareCredit closely to see what happens next with the company.

"The CareCredit situation is a big topic behind closed doors of health care financing companies right now," says Anderson.

CareCredit's parent company GE Capital tried unsuccessfully to sell CareCredit in the summer of 2013. Around the same time, the company reached a settlement with the New York Attorney General's Office, which was investigating CareCredit for deceptive practices, and agreed to revamp some of its enrollment practices.

Soon after, the Consumer Financial Protection Bureau (CFPB) ordered CareCredit to refund cardholders more than $34 million after the consumer watchdog discovered numerous consumers were being enrolled in CareCredit's deferred interest financing program without fully understanding how it worked.

In prepared remarks to reporters, CFPB director Richard Cordray chided CareCredit for its enrollment practices and warned that the CFPB will be keeping a close watch on deferred interest credit cards. "We will continue to monitor these products carefully, and most especially we will not tolerate financial companies that take advantage of patients and their loved ones," said Cordray.

What's Next

The increased scrutiny from federal regulators could make some companies reluctant to introduce more high-interest medical cards to the market.

But American Healthcare Lending's Graham Anderson says the demand for affordable health care loans remains high, thanks in part to growing health care costs. So you could see more alternatives in the future.

Before the Affordable Care Act went into effect, some experts speculated that the market for health care loans would shrink because the law caps how much consumers have to pay out-of-pocket for any service or procedure covered by their insurance.

But Anderson disagrees. "Yes, more people have insurance. But in the end, patient financing wasn't just going to people who didn't have insurance," he says. In many cases, people use health care loans to finance elective procedures that aren't covered by their insurance company, such as cosmetic surgery or in-vitro fertilization.

In addition, he says, some people will continue to pay a substantial amount out-of-pocket before they hit the ceiling on their deductible and will need extra help filling in the gaps.

"There are people out there that need help paying for some of those bills, for sure, and we very much think that the industry is going to continue to grow," says Anderson.

Medical credit cards: Treatment today, payment headaches tomorrow