Exclusive: Are Hospitals and Medical Credit Cards a Match Made in Heaven?

By Tami Kamin Meyer

“There is a lot of win for hospitals” that accept healthcare credit cards, says Melanie Musson, an insurance and finance expert with Clearsurance.

According to a new Commonwealth survey, more than half of American adults who contracted COVID-19 or lost income during the pandemic are also saddled with unmanageable medical debt. And, while the pandemic is easing and more people regain medical insurance through their employment, Blacks and Latinx adults continue to struggle with financial challenges stemming from the chronic lack of affordable health care.

One relatively new solution for patients facing financial difficulties relating to medical treatments is healthcare credit cards. These unsecured credit cards are not like a Health Savings Account (HSA). With HSAs, a patient pays for medical services or prescriptions using a debit card linked to their HSA bank account. The debt is paid immediately from the account balance. Deposits are tax-deferred and are limited annually in amount by the IRS.  

A healthcare credit card works just like an actual credit card in that when a medical debt is charged, the monthly balance increases. This type of credit card “does not offer special terms to people facing health crises. Instead, they’re just another way for credit card companies to market their services,” says Musson.

Why hospitals are accepting medical credit cards

In Musson’s mind, there are few downsides for hospitals and other medical facilities when they accept a healthcare credit card for payment.

With a healthcare credit card, “the hospital gets paid. Once a hospital gets their payment, they don’t care if the creditor gets paid,” says Musson.

The circumstances change if the hospital or medical facility assumes the risk and issues the credit card to the patient herself. Another way a hospital takes a chance when extending credit to a patient is if it enters into a shared agreement with the credit card issuer. That means the medical facility agrees to share the financial liability for non-payment with the credit card company. In that scenario, “there is a risk of the hospital not getting paid back,” Musson says.

Other benefits of a hospital accepting a medical credit card payment include:

  • Less concern about collections
  • Receiving quicker payment for medical services

Cons of medical credit cards

Entities offering private-label credit cards to patients for medical services typically charge a higher interest rate than a standard credit card. That’s to counter the “higher risk to the lender,” says David Shipper, a Strategic Advisor with Aite-Novarica.

“They typically perform worse than open-loop credit cards,” says Shipper. To minimize their liability, healthcare credit card issuers limit the use of the card to medical services only.

A hospital or medical facility considering offering a healthcare credit card itself or with a financial partner should know that, generally, the people who seek this type of payment capability don’t have good credit.

“The interest rate is in line with the risk,” says Shipper.

There is another downside of a hospital entering into a shared agreement. If the patient files for bankruptcy, they can receive a discharge of the balance owed. If the hospital does not enter into a shared agreement, but instead merely advertises a healthcare credit card to its patients, the medical facility is not impacted by the bankruptcy. It already got its money from the credit card company, so a subsequent bankruptcy filing affects only the healthcare credit card issuer.

Even if a medical facility enters into a shared agreement to offer a healthcare credit card to patients, Shipper says it doesn’t have too much to worry about.

“Sometimes there are risks when there are shared agreements, but that is in the minority of situations. The risk of loss is nominal to a hospital,” he says.

Unfortunately, there is no way to monitor how many shared agreements are in existence and what their terms might be, including whether a contracting hospital gets to share in the profits from accrued interest on a debt charged to a medical credit card.

That’s not to say the medical provider can’t try and collect a past due debt if it alone extended the credit. But, if the debtor/patient files for bankruptcy, the issuer of the unsecured credit card will be out of luck.

Benefits to patients

Why would a patient seek a healthcare credit card when, for one, its interest rate exceeds those of most other credit cards? For many, it’s their only option.

“The need for medical care is often sudden,” says Shipper.

According to the Commonwealth Study, more than one-third of patients, both insured and uninsured, faced a billing issue or medical debt. Moreover, in the past year, 18% of households had a member unable to access medical care for a serious medical condition, although 78% had insurance.

In a July 2021 article, JAMA reports nearly 18% of Americans had medical debt in collections in June 2020 (reflecting medical care prior to the COVID-19 pandemic). More specifically, residents of the Southern U.S. and in the poorest zip codes accrued the most medical debt during that same time.

Another benefit to patients approved for a medical credit card is that it allows them to segment their debts from one another, says Shipper.

Tips for hospitals considering a healthcare credit card payment option

Before a hospital or medical facility contracts with a credit card company to extend credit to patients, “read the contract carefully. Be sure to have your legal counsel read and explain the terms of the contract” before signing, cautions Shipper.

Musson says the notion that hospitals put themselves at increased financial risk by offering a medical credit card is actually off-base.

“By providing medical services, the hospital is already assuming the risk,” if the patient applied for the credit card after receiving medical treatment, she says. By adding medical credit cards to the mix of payment methods accepted by the hospital, the facility is actually “increasing its chances of getting paid,” says Musson.

Another consideration for hospitals to mull before entering into the medical credit card fray is the potential impact on its reputation.

“If the credit card company is perceived as being unfair to the patient in some way, it could reflect poorly on the hospital,” says Musson. That’s true even if the hospital only advertised the credit card, but wasn’t the actual creditor. Patients usually don’t realize or know that and blame the hospital for any billing or payment challenges, she says.

Tami Kamin Meyer is an Ohio attorney and freelance writer.

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