Credit Cards

The Lure, and Risk, of Medical Credit Cards

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“Moving in quickly…”

The companies that promote medical credit cards say they help make medical debt more manageable. By giving consumers with no income grace periods to pay off debts with no interest, and extending the repayment period to make monthly payments low, representatives of card companies say they help people get the medical help they need.

“Benefits to consumers include the ability to plan, budget and pay for certain elective healthcare procedures over time,” said Stephen White, a spokesman for CareCredit, the largest medical credit card company in the U.S.

Meanwhile, state prosecutors and consumer advocates suspect that medical credit cards may simply make it more difficult to escape the trap of medical debt. Even though most medical credit cards offer introductory plans with zero interest upfront, “usually they will increase to a similar interest rate percentage as a regular credit card, sometimes even higher,” says José Garcia, associate director for research at Demos, a research and advocacy company.

Many popular medical credit cards are backed by some of the nation’s largest corporations and banks. CareCredit is owned by GE Capital. It has 7 million cardholders and a network of 130,000 medical providers, according to White. Other major cards include Citigroup’s Citi Health Card and the ChaseHealthAdvance Card by JPMorgan Chase.

They are getting involved because of the huge amount of debt that Americans are wracking up on medical expenses.

“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 the Access Project. “The credit card companies are moving in, and they are moving in quickly.”

How it works

With CareCredit, the largest medical card provider, consumers can choose between two different payment plans. Extended plans give them up to five years to repay. Or they can choose a deferred interest plan, giving them a grace period for up to 24 months during which time they pay no interest.

“If you pay it off within that time it’s no interest, so that interest comes out of the doctor’s pocket,” Tebby says. “So that’s good for patients. And that way the doctor can focus on what he does and not become a collection agency.”

If consumers miss a payment or cannot make a full payment anytime while the debt is owed, however, the interest rate is applied retroactively to the grace period, too, according to CareCard’s cardholder’s agreement. With some cards, the interest rate that applies in such situations is higher than what would be owed otherwise, as a form of penalty.

Advocates believe these charges amount to hidden traps for low- and moderate-income consumers. “People are being tricked by misleading offers that have them paying for services they never received as well as interest charges they never knew about,” Cuomo said.

But for most consumers who make the monthly payments, such problems never arise, according to the companies.

“The vast majority of cardholders who select to a Deferred Interest Plan payoff the balance within the term they select and don’t pay any interest,” White says.

Recruiting cardholders.

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