Medical Credit Cards: Proceed with Caution

For someone who is slapped with a large out-of-pocket medical bill, a medical credit card may seem like a good idea. But it may not be the best financial option.

Medical credit cards, which are offered by companies like Wells Fargo, JP Morgan Chase, Citigroup and GE Capital, provide a credit line to cover medical treatments and procedures for the entire family, including pets.

With rising health care costs, credit cards that are designed to meet health care needs are becoming more popular, but state attorneys general and consumer advocates are speaking out about the cards and warning that they can increase a cardholder’s debt rather than reduce it.

“Ironically, these cards may be best suited to people who already have financial resources,” said Mark Rukavina, executive director of the Access Project, a consumer advocacy group in Boston, and co-author of a study on medical debt. “But it’s usually people with limited resources who sign up,” he told The New York Times.

How Medical Credit Cards Work

Medical credit cards work similar to other credit cards. The cardholder takes out a loan to pay for medical treatment, and then pays it back over time. Medical credit cards can be used for most medical care, vision care, dental visits, cosmetic treatments and surgeries, hearing care and veterinary care.

Patients typically sign up for the cards at their health care provider’s office. The cards may come with zero interest as long as each new charge is paid within a certain time period, typically 6 to 24 months. Some cards offer extended payment plans up to 60 months with a fixed interest rate.

Beware of the Fine Print

When someone faces a $1,000 emergency dental bill, medical credit cards that promise no interest may seem like a great solution. But most cards require a minimum monthly payment, and if even one monthly payment is late, the interest rate can dramatically increase. And if the full balance is not paid by the end of the promotional period, the interest rate could jump up to 30 percent.

To avoid interest, cardholders must make monthly payments on time and pay off each charge within the allowed time period. If the balance reaches beyond the promotional period, the cardholder will be subject to high interest rates that can range from 24 percent to 30 percent of the original purchase amount, retroactive to the date of purchase.

There is some concern that patients sitting in a doctor’s office may not have time to read the fine print and may not have enough information to make an informed decision.

“You’re dealing with people in the most vulnerable state,” Mark Rukavina, principal at consulting firm Community Health Advisors, in Chestnut Hill, Mass., told Kiplinger. “Most people go into a health care provider with pain and concern, and they’re not there to make a financial-services decision.”

Patients may also assume that their health care provider is simply offering a payment plan, rather than a credit card. In fact, many health care providers do offer no-interest payment plans, as well as discounts for paying with cash.

A medical credit card may help you avoid a medical debt collection, but it most likely isn’t the best solution. Consumers need to be fully aware of their options before signing up for a medical credit card.