Biden Administration Warns Consumers About Medical Credit Cards
The Biden administration recently cautioned the public about the growing risks of credit cards and other loans for medical bills, warning that high interest rates can negatively impact their financial security.
In its new report, the Consumer Financial Protection Bureau (CFPB) estimated that, from 2018 to 2020, people in the U.S. paid $1 billion in deferred interest on medical credit cards and other medical financing. These interest payments had the potential to inflate medical bills by almost 25%.
In an investigation conducted with National Public Radio, Kaiser Family Foundation (KFF) Health News explored the scale and impact of the nation’s medical debt crisis. A KFF poll found that, in the past five years, more than half of U.S. adults have gone into debt because of medical or dental bills. And, a quarter of those owe more than $5,000.
This burden is forcing families to cut spending on food, clothing and other essentials, and millions are being driven from their homes or into bankruptcy. Many individuals have taken on extra work, changed their living situation or sought aid from a charitable organization.
Medical debt also is placing additional hardships on people with cancer and other chronic illnesses, and is blocking patients from care. Debt levels in U.S. counties with the highest rates of disease can be three to four times of those in the healthiest counties, according to an Urban Institute analysis.
Medical debt is also deepening racial disparities and preventing people from saving for retirement, investing in their children’s educations or taking steps for a secure future, such as buying a home. Debt from healthcare is nearly twice as common for adults under 30 as for those 65 and older.
Although the 2010 Affordable Care Act expanded insurance coverage to millions of Americans, it also paved the way for increased prices and profits for the medical industry. As health insurers shifted costs to patients through higher deductibles, many people deepened their debt.
Today, a growing patient financing industry is capitalizing on consumers’ inability to pay for care. Some hospitals and medical providers are encouraging patients to put millions of dollars into credit cards and other loans. This means patients suffer from higher interest rates, while lenders generate profits exceeding 29%.
Millions of patients sign up for medical credit cards that are often marketed in the waiting rooms of physicians’ and dentists’ offices. These cards typically offer a promotional period during which patients pay no interest, but if patients miss a payment or can’t pay off the loan, interest rates can skyrocket.
Patients are also increasingly being routed by hospitals and other providers into loans administered by financing companies. These loans, which often replace the no-interest installment plans formerly offered by hospitals, can add thousands of dollars in interest to the debts patients owe. The risks are even higher for lower-income borrowers and those with poor credit.
Pacific Federal is a Zenith American company and subsidiary of Harbour Benefit Holdings, Inc.
