CFPB report shows medical credit card debt is 'a symptom' of U.S. health care, expert says
As U.S. health care costs continue reaching enormous levels, many Americans have turned to medical credit cards as a way to finance their medical bills.
A new report from the Consumer Financial Protection Bureau (CFPB), however, is warning about the high fees and costs that come with those cards.
“The growing promotion and use of medical cards and installment loans can increase the financial burden on patients who may pay more than they otherwise would pay and may compromise medical outcomes,” the report stated. “When people are unable to pay their medical bills, research shows this can deter them from seeking needed healthcare in the future. The use of medical cards and installment loans, and their promotion by medical providers, has ripple effects on the broader cost of healthcare, consumer wellbeing, and the economy.”
An estimated 41% of Americans are grappling with medical debt of some kind. Medical credit cards typically offer deferred interest payment period for many of these charges. Between 2018 and 2020, however, people paid $1 billion in these payments for charges, according to the CFPB findings, on top of $23 billion in overall expenses.
The total fees vary by credit score as well. For example, people with credit scores below 619 incurred interest for roughly 34% of their health care purchases, with the CFPB report noting that those with lower credit scores may be more likely to incur interest since they’re also more likely to have shorter periods before being charged deferred interest.
“These cards are a symptom of the serious growing affordability problems people are encountering who have health plans that don’t provide them with the cost protection they need to access timely care,” Sara Collins, vice president for health care coverage and access at The Commonwealth Fund, told Yahoo Finance. “Medical credit cards are definitely not the solution to health care cost drivers and are leaving many poor and middle class people with interest payments in addition to their health care bills they may struggle for years to pay off, if ever.”
Why people would 'likely be better off' without them
Experts have attributed the increased reliance on medical credit cards to the larger issue of U.S. health care costs, with national health expenditures touching $4.26 trillion in 2021.
“The uses of medical credit cards and other deferred interest products have shifted significantly over time from treatments and procedures that were typically not covered by insurance to services that typically are covered by insurance,” a CFPB spokesperson told Yahoo Finance. “Today, these products are used to cover a range of medical costs, including co-pays and costs associated with emergency care. As a result, it’s likely that even people covered under Medicare, ACA marketplace plans, or under employer-based insurance may feel the negative impact of these products.”
Out-of-pocket costs are continuing to rise, averaging $1,315 per capita in 2021. For those with employer-sponsored insurance, the average single deductible has increased by more than 57% since 2013 while the average family deductible has risen by more than 55%.
“In moments of distress and uncertainty, people want to resolve medical bills swiftly and may sign up for medical credit cards that offer lower interest rates or deferred interest opportunities,” Eva Stahl, vice president of public policy at RIP Medical Debt, told Yahoo Finance.
The average annual percentage rate (APR) — which is defined by CFPB as "the cost you pay each year to borrow money, including fees, expressed as a percentage" — is 23.84% for general purpose credit cards. For medical credit cards, it’s roughly 27%.
According to the latest Commonwealth Fund Biennial Health Insurance Survey, in 2022, 39% of individuals who reported problems paying medical bills or that they were paying off debt indicated that they had taken on credit card debt. Though the survey didn’t distinguish what type of credit cards, Collins noted that it’s indicative of “how many people are paying off medical debt at high interest rates.”
“These products often replace cheaper forms of credit, such as low-cost loans offered by the medical providers themselves, or interfere with some patients’ rights to obtain financial assistance that many hospitals are required to provide,” the CFPB spokesperson said.
Collins and Stahl both stressed that patients should consider speaking with their health care providers before turning to a medical credit card, since some providers offer payment plans with no interest rates or fees.
“People would likely be better off without these cards, as the report shows, because they might be eligible for a financial assistance program through the health care institution, and if a bill is in error, they’re in a more difficult place to challenge it since they’re now dealing with a third party,” Collins said.
Medical debt is 'a debt of necessity'
Last year, national credit reporting agencies announced that medical debts under $500 would be wiped from people’s credit reports, which was welcome news to many whose credit scores had been impacted by health care bills.
Stahl noted, however, that people can be stripped of that benefit if their medical debt becomes credit card debt.
“This is problematic for multiple reasons,” she said. “Firstly, it hinders the ability of policymakers to truly understand the depth of the medical debt crisis since these debts are ‘transformed’ so to speak into a different kind of debt. The same thing happens when people borrow from friends and family to pay medical debts.”
This is because there’s no way to distinguish what is specifically driving credit card debt for credit reporting agencies, meaning that the number of those in medical debt could be even higher due to underreporting.
“The whole health care financing system is broken,” Stahl said. “This is not a single-problem issue. Health insurance does not meet people’s needs, leaving them unable to weather medical bills. Patients are asked to pay amounts they generally can’t afford which discourages them from seeking care at all.”
According to a 2022 survey from the Kaiser Family Foundation, 43% of U.S. adults said they or a member of their household postponed or put off needed health care due to cost. Separately, 47% of adults with medical debt have been contacted by a collection agency while 35% indicated their debt has negatively impacted their credit score and 3% were forced to declare bankruptcy.
“Health systems need to do more to make sure patients can easily access charity care — financial aid — when they’re eligible, and we need to re-evaluate our debt collections laws as they relate to medical debt,” Stahl said. “Medical debt is not a debt of choice. It’s a debt of necessity.”
Adriana Belmonte is a reporter and editor covering politics and health care policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at adriana@yahoofinance.com.
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