The moneylenders move in
Doctors Offering No-Interest Loans to Patients
By Milt Freudenheim
The New York Times
August 30, 2007
Zero-interest financing, a familiar sales incentive at car dealerships and furniture stores, has found its way to another big-ticket consumer market: doctors’ and dentists’ offices.
Of course, going into debt to pay for medical procedures is nothing new for many people.
But as the price of health care continues to rise and big lenders pursue new areas for growth, this type of medical financing has become one of the fastest-growing parts of consumer credit, led by lending giants like Capital One and Citigroup and the CareCredit unit of General Electric.
Big insurers, too, are devising new financing plans with various payback options. Upstart players have also aggressively cut deals with doctors.
The room for expansion looks ample, as rising deductibles, co-payments and other costs may force more of the nation’s 250 million people with health insurance to finance out-of-pocket expenses for even basic medical care.
“As more and more of the costs of care are shifted to consumers, people are going to need more credit,” said Red Gillen, a senior analyst at Celent, an insurance and banking research firm. “They are still going to need health care.”
The zero-interest plans are not for everyone. In fact, they are available only to the creditworthy — meaning they offer no help to those among the nation’s 47 million uninsured who are in difficult financial situations.
Even for those who can get credit approval, the plans make sense only if users are able to make payments on time and close the loan on schedule, typically within 12 months. Otherwise, the loans after defaults can carry interest rates of 20 percent or more — similar to the default penalty on a typical credit card.
Some consumer debt experts warn that as more people try to bridge widening gaps in their health insurance, paying for medical care on credit could plunge the unwary into a financial crisis. In recent years, the use of high-interest credit cards to pay big medical bills has become a leading cause of consumer bankruptcy.
Still, consumer credit companies and some insurers are now experimenting with financing plans meant specifically for medical costs.
For people who think they could not pay off a zero-interest loan within a year, most credit companies also offer longer-term medical financing deals with 12 percent to 13 percent interest payable over several years. Those plans, though, must be arranged at the outset of the medical expense; a zero-interest plan typically cannot be converted to the longer-term program if consumers find themselves unable to pay off the one-year loans.
Some insurers, including UnitedHealthcare, also have special credit plans available for insured members whose policies are linked to health savings accounts. Such policies combine high-deductible insurance with tax-sheltered savings accounts where money can roll over year to year until needed for medical expenses. But typically, the amounts of money being set aside do not go very far toward meeting even routine health expenses.
So far, among the 1.76 million health savings accounts in this country, the average balance is $1,327, according to a recent survey by Inside Consumer-Directed Care, a trade publication. To help people with health savings accounts meet the shortfall, the Exante Bank unit of UnitedHealth Group is trying out a card that extends credit at rates currently averaging about 10 percent to 13 percent, depending on the applicant’s credit history.
As for the zero-interest deals, the credit providers say that most of them end up being just that — interest-free. About 80 percent of the medical loans that CareCredit provides are paid off on schedule and incur no finance charges, according to the company’s president, Michael J. Testa.
That, the companies say, justifies the high default interest rates for late payments, since that is the way they recoup the costs of doing business. In fact, though, the credit companies make money even on the interest-free deals, because they are typically keeping 10 percent of the fee the doctor charges the patient. But for patients with low credit ratings, a (provider) eager to build a clientele might have to accept as little as 75 percent of the bill.
http://www.nytimes.com/2007/08/30/business/30medloan.html?_r=2&hp=&oref=slogin&pagewanted=all
Comment:
By Don McCanne, MD
More rhetoric from the marketplace.
Are these interest-free loans really free? Not when your complicit health care provider gives your cash discount of 10 percent to 25 percent to the moneylender, and you pay rack price. And it’s especially not free when one late payment throws you into an exorbitant default rate.
And if ever you had visions that the health insurers might be interested first and foremost in your welfare, and only secondarily in improving their business models, this should lay that thought to rest. Your billfolds and purses are no longer enough. They now want your bank accounts too.
Models of reform that build on our fragmented system dependent on private health plans will only further compound the problem of medical debt. The moneylenders will become yet one more powerful vested interest that will continue to block reform.
A couple thousand years ago, a very fine Gentleman turned over the tables of the moneylenders. Where is He now when we really need Him?