Patients Turn to No-Interest Loans for Health Care

Skip to next paragraph

Patient Money

Articles in this series focus on the pocketbook and other consumer considerations in choosing and paying for medical care.

Go to series »

Zero-interest financing, a familiar come-on at car dealerships and furniture stores, has found its way to another big-ticket consumer market: doctors’ and dentists’ offices.

For $3,500 laser eye surgery, $6,000 ceramic tooth implants or other procedures not typically covered by insurance, millions of consumers have arranged financing through more than 100,000 doctors and dentists that offer a year or more of interest-free monthly payments.

Such financing for medical procedures is hardly a new concept. And it is still only a fraction of the nation’s $900 billion market for consumer revolving credit.

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.

And creditworthiness is starting to be judged even more stringently, in light of the subprime mortgage crisis’s impact on the debt markets, according to David Robertson, publisher of The Nilson Report, a newsletter for the credit card industry.

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 can carry default interest rates of 20 percent or more — similar to the default penalty on a typical credit card.

“We are very careful to tell patients upfront, ‘Be sure you can make your payments,’ ” said Dr. Richard J. Mercurio, a dentist in Lincroft, N.J. He arranges patient financing through the CareCredit unit of G.E., the leader in consumer medical financing.

Dr. Mercurio says he knows of at least two patients who missed payments and received monthly bills charging high interest rates. “They were not happy,” he said.

For people able to keep up their payments, though, the plans can make it possible to receive treatments that otherwise might be out of reach.

“There was no way I had $6,000 right out of my pocket,” said Nancy Schlachter, 40, who has dental insurance through her job as an accounts payable manager for a national construction company. She went to Dr. Mercurio for a series of dental procedures including a new crown, fillings and a tooth implant.

“The implant was very expensive, and it was not covered,” Ms. Schlachter said. But the dentist’s office arranged 12-month zero-interest financing. “It was the only way I could do it,” she said.

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.

“Unless they are at risk of losing life or limb, people should be very cautious about putting medical bills on credit cards,” said Mark Rukavina, executive director of the Access Project, a research and consumer advocacy organization that helps people with their medical debts.

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.

• 1
• 2

Next Page »