Hospital bills -- but with interest

With many Americans struggling to pay their medical bills -- and more of those bills going unpaid -- hospitals and medical providers are scrambling for solutions. They may have found at least a partial one: credit cards that can be used only for healthcare expenses.

The cards can help patients meet their deductibles and other out-of-pocket expenses, obtain elective surgery, even help pay for care that might otherwise be off-limits.

They could also increase the nation’s already staggering medical debt by increasing the amount of interest on unpaid hospital bills.

Kaiser Permanente last year began offering credit cards with $5,000 limits to customers in Hawaii and Colorado and is considering expanding the program to other states, including California. Hospital chains such as the Carolinas HealthCare System and Kansas-based Via Christi Health System are also signing up patients with cards. GE Capital has started offering credit cards to patients in several pilot programs around the country.

There are many pluses to the new cards. The primary benefit is that patients can more easily obtain procedures and tests when they’re most needed. Although federal law requires that hospitals treat patients for all emergency care, many people without insurance or with high-deductible health plans skip other necessary treatments because they can’t afford them.

In turn, hospitals and providers hope to see a reduction in patients who skip out on their bills. When patients pay with specialty credit cards, hospitals or other providers still get paid; it’s typically up to the banks that issued the cards to collect on the debt.

Healthcare credit cards “were once a trickle issue, but it’s turned into a steady business that could soon become a flood,” said Mark Rukavina, director of the Access Project, a Boston-based nonprofit group focused on consumer health access.

Still, patient advocates worry that the cards may do more harm than good. A big complaint: The cards have interest rates as high as 23%; comparatively, patients who set up payment plans with hospitals often pay nominal or no interest.

What’s more, patients who are offered credit cards may be less inclined to pursue other payment alternatives, such as researching if they’re eligible for charity care through the hospital. (The majority of hospitals around the country are nonprofit institutions and are required to give a certain amount of discounts and free care to patients.)

“These products ultimately could increase financial difficulties facing patients,” said Melissa Jacoby, an associate professor of law at the University of North Carolina at Chapel Hill who specializes in medical debt.

Many of the cards can only be used for health expenses, and hospitals typically offer them to patients after they have had medical treatment and report that they can’t pay the full tab. Other patients can ask to sign up on their own or contact banks directly to apply. Cards obtained directly through a bank can be used with any provider; those obtained through a hospital are for use there only.

Some of the cards, such as Citibank’s Citi Health card, can only be used to pay for “lifestyle” procedures such as fertility treatments or vision care. But many of the cards can pay for any healthcare charge. Some hospitals are going so far as to underwrite the cards with patients, meaning even those with poor credit are eligible. (In those cases, the hospital pays the bill if patients default.)

Many experts within the healthcare industry believe medical credit cards and other types of creative financing will become more common as health costs continue to rise and the number of Americans living without health insurance -- now at 45 million -- grows.

Also fueling the growth in medical credit cards are new consumer-directed health plans. These plans typically combine high-deductible insurance with a savings account that consumers can use to keep cash for out-of-pocket expenses. But some people are likely to have a hard time paying their initial deductible, which can be $2,000 a year or more.

The cards work in different ways. With Kaiser, for instance, patients pay 9.9% interest for the first year and then 23% on unpaid balances after that. In other programs, such as the Carolina Health System, patients who agree to pay the bill off during the first year get charged no interest, otherwise the rate is about 13%. Some providers will deduct the estimated interest on the outstanding credit balance from the overall hospital bill.

Dr. Rusty Salton, president of AccessOne, a niche North Carolina-based medical credit card provider with 30,000 clients, said that people apparently perceive a greater obligation to pay a credit card bill than an outstanding hospital bill. His clients have paid about 80% of their bills, he said, more than twice the industry average. “This isn’t about trying to make money off of people,” said Salton. “The fact is most people want to pay their bills, and this just helps them do it a little more easily.”

Kaiser Permanente chief executive George Halvorson said, “We’re helping people find a little more time to pay their deductibles and other expenses.”

Studies show that many low- and middle-income families are already strained by rising medical debt. More than half of all bankruptcies today result from unpaid medical bills.

A study released last month by the Access Project and Brandeis University found that medical debt is becoming a threat to homeownership and housing stability for many working families, including those with health insurance.

Among 1,700 people surveyed, more than a quarter of those with medical debt reported having housing problems. The most commonly reported problem was the inability to qualify for a mortgage; others reported not being able to pay their rent or their mortgage or that they had to move to less-expensive housing.

Another concern is how credit card companies will try to collect from patients who don’t pay them. After state lawmakers threatened to restrict hospitals from aggressive debt collections practices such as placing liens on people’s homes and garnishing their wages, the California Hospital Assn. agreed last year to voluntary guidelines that bar hospitals from such practices.

Said Jacoby of the University of North Carolina at Chapel Hill: “Bringing in a third party to collect the debt means we don’t really know what they are up to.”