The Biden administration’s investigation into medical credit cards has drawn praise from consumer groups, but they want it to move quickly — and more broadly — to address the issue of medical debt.

About 20 percent of Americans have medical debt, according to the Consumer Financial Protection Bureau. The issue has garnered increased attention as health care costs continue to rise, providers get criticized for questionable billing practices and insurers get blamed for denying coverage and raising copays and deductibles. 

The Biden administration is trying to address the issue in part by targeting medical credit cards, which have been around for decades but are becoming more prolific as more providers promote them in their offices as a way to pay for care and out-of-pocket costs not covered by insurance.  

People spent $23 billion on health care expenses using the medical credit cards and paid $1 billion in deferred interest payments from 2018 through 2020, according to the CFPB. 

But the problem is much bigger; an analysis by the health think tank KFF estimates that Americans’ collective medical debt totaled at least $195 billion in 2019.

“We are in a medical debt crisis right now in our country,” said Mona Shah, senior director of policy and strategy at Community Catalyst, a health justice organization based in Boston. “We appreciate what the Biden administration is doing, but we absolutely need and want them to do more.”

She said the IRS and Treasury Department should issue new rules stipulating when hospitals must provide charity care. They also want the CFPB to ban unpaid medical debt from appearing on credit reports.

Speaking at a CFPB meeting last week, Director Rohit Chopra indicated the agency is considering a variety of measures. 

“We are very seriously looking at a range of rule-making changes under the Fair Credit Reporting Act,” he said.

Addressing rising out-of-pocket costs is also crucial, said Eva Stahl, vice president of public policy at RIP Medical Debt, a nonprofit organization that erases medical debt by buying it from health care providers and forgiving the balance. 

“People who have insurance — many of who we’re able to help — their debts are their out-of-pocket costs. So I think we’d love to see more of a focus and an effort to address the out-of-pocket cost issue that’s really weighing heavily on people,” Stahl said. 

Credit cards

More than 11 million cardholders use CareCredit — the most popular medical credit card — and 250,000 providers and health facilities accept it, according to the company.

Users say it helps them pay for care they might not be able to receive otherwise. 

The Biden administration worries that the cards typically come with high interest rates that are deferred for a certain period of time known as a “promotional period.” But if patients can’t pay a bill during that period — or forget to — they get hit with the interest on the full amount. 

“Medical credit cards and loans often lead to higher costs without consumers fully understanding the risks,” a fact sheet on the actions read.

On July 7, as part of a wide-ranging series of actions aimed at reducing health care costs, President Joe Biden announced a collaboration between the CFPB, Treasury and Health and Human Services to determine if efforts to promote such products “are operating outside of existing consumer protections and breaking the law.”  

Synchrony, which offers the CareCredit card, argues its product is mostly used for elective services not covered by insurance. A company spokesperson said it denies applications from people who appear unlikely to pay.

It is not yet clear what will come from the administration’s inquiry. Advocates and some members of Congress would like the CFPB to ban the promotion of medical credit cards in health care settings, including in dental offices, and eliminate deferred interest practices.

“The CFPB must take immediate action to protect patients from these shady practices, starting with putting an end to deferred interest for medical credit cards,” said Sen. Elizabeth Warren, D-Mass., in a statement. 

Dental debt

CareCredit’s use is particularly widespread in dental offices, with 53 percent of health and wellness interest and fees on loans in 2022 tied to dental services.

Synchrony announced in April a 10-year partnership extension with the American Dental Association Member Advantage, making CareCredit the only financing solution endorsed for ADA members. Synchrony said contracts with associations like the ADA are confidential but may contain sponsorship payments or royalty payments. 

CareCredit said it is integrated in the “top dental practice management software solutions, making it easy for dental teams to offer to patients and for patients to apply.” 

There may be an incentive to get patients to charge dental bills to a credit card rather than helping them sign up for Medicaid, which typically has low provider reimbursement rates, Shah said.

But the company is also starting to work more with health care providers. CareCredit partners with 17 health systems, the company said on a 2022 earnings call, advertising the product as a way to “increase cash flow” for providers while reducing the “burden of collecting payment.” 

In total, about 300 hospitals participate in CareCredit’s network, and made up less than 1 percent of the card’s purchase volume in the last year.  

“As health care costs continue to rise and the burden of out-of-pocket expenses intensifies with the growth in high-deductible health care plans, there is a clear and growing need for consumers to have access to the financial solutions that empower them with choice,” Brian Doubles, president and CEO of Synchrony, said during the call.

Disclosure issues

CareCredit said it provides training for providers and requires all consumer-facing employees and promotional materials to explain how the promotions work. But health care providers don’t always tell patients about the potential downsides, like the risks of deferred interest, advocates said. 

“They just feel really vulnerable and pressured, especially if they need ongoing care from that provider,” said Jennifer Holloway, a fellow at Tzedek DC, which provides legal help to low-income people with medical debt, at the CFPB meeting last week. 

“They feel like they have to pay the bill in this way that the provider is offering if they want to keep seeing them. … They’re presented with a bill but they’re unable to pay, and they’re not always or often told about financial assistance.”

In 2022, about 23 percent of CareCredit transactions and 20 percent of Wells Fargo’s Health Advantage products were not paid off within the promotional period and were assessed interest, according to an investigation by Warren and others. 

Unpaid debt that is sold to collection agencies could end up on credit reports, potentially hurting someone’s ability to get a mortgage or other loans. Synchrony told Warren it doesn’t disclose delinquency rates, but as of Sept. 30, 2022, 3.28 percent of outstanding balances on Synchrony credit cards were 30 or more days past due. 

While the three main credit bureaus announced earlier this year that medical debt under $500 will no longer appear on credit reports, that policy does not apply to medical debt on credit cards, including medical credit cards.

Putting medical debt on a credit card also removes some of the patient protections in place around medical billing, Shah said. 

“Once you purchase or use these credit cards, it is no longer considered medical debt,” Shah said. “Patients have more options when the debt stays with the hospital.” 

When medical debt stays with the provider, patients can contest billing errors and try to work out a no-interest payment plan. 

“Patients should be able to access the financing arrangements without a medical credit card — the ones that have existed forever,” said Patricia Kelmar, senior director of health care campaigns for U.S. Public Interest Research Group. 

Nonprofit hospitals are required by law to provide charity care, but those processes can be lengthy for patients and providers, disincentivizing its use, while CareCredit is advertised as being a simple process that takes seconds.  

“It’s too easy for them to skip that step, hand over a credit card application and tell patients to use that,” Kelmar said. “The benefit to the provider is they are paid immediately and are taken out of the equation.” 

St. Luke’s University Health Network, a nonprofit health system headquartered in Pennsylvania, and AdventHealth, a nonprofit based in Florida, advertises CareCredit on their websites as a way to pay deductibles, copays and out-of-pocket expenses that are “not covered by insurance,” telling patients they can “simply apply online” and “get a credit decision within seconds.”

The webpages mention nothing about interest rates or deferred interest, but information about charity care is available elsewhere on their websites.

Synchrony spokesperson Lisa Lanspery said CareCredit’s contracts with health systems state that it should not be offered “in part of or in lieu of a health system’s existing patient assistance or financial assistance programs.” 

“Our financing offers have been around for decades, are transparent and clear for consumers, and have saved our cardholders billions of dollars in interest over the years,” Lanspery said.