American healthcare is more complicated (and costly) than ever.
Though insurance helps, high deductible plans are locking millions of people out of the system.
While we recently explored five great ways to cut healthcare costs, there’s another solution we’d like to present: healthcare financing.
In this article, we will reveal the financing options available that can help you mitigate the burden of expensive medical bills.
We will investigate the landscape of U.S. healthcare debt, highlight the differences between two common financing programs—recourse vs. non-recourse—and offer a brief word of warning on medical credit cards.
Let’s get started.
The Landscape of Healthcare Debt in the U.S.
Getting sick or injured is bad enough.
Unfortunately, dealing with the healthcare system isn’t much better. Long after medical symptoms fade, the costs of appointments, tests, and procedures linger.
The statistics are tough to read.
Nearly 100 million Americans are saddled with $200 billion in medical debt, of which $88 billion is currently in collections.
In fact, according to the Consumer Financial Protection Bureau (CFPB), nearly 60% of debts in collections are unpaid medical bills.
While medical debt is a leading cause for bankruptcy, the ramifications don’t stop there.
Healthcare is so expensive that 34% of Americans avoid doctors and hospitals altogether. In other words, many patients are choosing to live in pain and discomfort, rather than risk going into debt for essential healthcare.
These pressures are felt on an institutional level.
While patients are getting priced out, providers are also getting squeezed—over 600 healthcare providers may shutter across the country in the coming months.
The cost of care has infected the industry.
Fortunately, healthcare financing options can help people receive the medical attention they need—without jeopardizing their future.
Healthcare Financing Options: Recourse vs. Non-Recourse Loans
Patient financing is revolutionizing healthcare.
To combat high costs and missed payments, providers are partnering with lending agencies to provide alternative funding options to patients.
While patient financing comes in many forms, recourse and non-recourse lending are the most common options.
Though they have several notable differences, recourse and non-recourse loans both deliver two key outcomes following medical service. They:
- Pay the healthcare provider immediately and in full.
- Empower the patient to make smaller payments over longer periods of time.
Generally speaking, recourse loans are the more inclusive and accessible form of financing.
Here’s why: with recourse loan programs, the healthcare provider must pass the lender’s underwriting criteria—not the patient.
Therefore, a low credit score won’t be a barrier to qualification for recourse loans.
Conversely, most non-recourse lending models depend on the patient’s eligibility, require hard credit checks, and frequently reject applicants with imperfect credit scores.
Still, there’s an even better reason to favor recourse loans: non-paying accounts are returned to the healthcare provider, not the lender.
In other words, if you’re unable to consistently make payments, the health system or hospital you visited will decide how to proceed (rather than the lender).
Because you have established a personal relationship with the provider, they are more likely to provide lenient repayment terms. For example, some providers might choose to write off an unpaid account as bad debt, while others might even provide a meaningful discount.
Remember: the provider has a vested interest in your physical well-being, your loyalty to their business, and their reputation within the community.
Such deference is less likely with the non-recourse lending model, where the lending agency bears all losses and can aggressively pursue restitution.
In other words, most third-party lenders will not hesitate to antagonize patients with debt collectors and credit reporting threats.
A Quick Word on Costs
While individual numbers depend on the provider and the service requested, most recourse loan programs offer low-interest rates and affordable monthly payments.
Conversely, non-recourse loans often have high-interest rates and fees to offset the lending agency’s perceived risk.
Though both programs have value, recourse loans are the preferable option as they deliver:
- Protection from predatory loan practices.
- Higher acceptance rates (with no minimum credit score requirements).
- Lower interest rates.
- More affordable monthly payments.
- Flexibility to pay over time (rather than all at once).
- Direct communication with the healthcare provider in the event of default.
As you weigh your options, be sure to ask your provider which healthcare financing options are available to you.
Stay Away From Medical Credit Cards
Many healthcare providers are combating surging costs with an appealing, but dangerous tool.
Medical credit cards are being offered in primary care clinics and hospitals across the country.
On the surface, these “deferred interest” credit cards seem great, especially if you’re staring down a costly medical bill.
With 0% introductory APR, why not open an account and charge your bill to it, right?
Though that plan might make sense in theory, it’s potentially ruinous in practice.
Here’s why: if patients carry any balance after the zero-interest promotional period ends, they will be forced to pay all of the deferred interest that accrued from the purchase date.
According to the Consumer Financial Protection Bureau (CFPB), a medical credit card could increase the cost of a bill by over 25%.
For example, let’s say you had a $10,000 operation and charged it all to the medical credit card. Despite your best efforts, you were unable to pay off the bill and had a revolving balance of $10,000 after the promotion ended.
If the card’s APR was 25%, your bill would then be $12,500.
Though this is an extreme example, stories like this explain why Americans paid $1 billion in deferred interest payments on medical credit cards between 2018 and 2020.
According to Rohit Chopra, Director of the CFPB, “lending outfits are designing costly loan products to peddle to patients looking to make ends meet on their medical bills. These new forms of medical debt can create financial ruin for individuals who get sick.”
Nevertheless, there’s a secondary risk to using a medical credit card. As ironic as it may seem, any debt accrued on a medical credit card is not actually considered medical debt.
After all, the outstanding balance isn’t owed to a medical provider—it’s owed to a bank.
Therefore, your medical credit card debt is not eligible for consumer protection laws and will negatively affect your credit history (and your FICO® score).
While medical credit cards are tempting, patient financing offers more benefits with less risk.
Fortifying Your Family
Health is wealth.
While medical bills are costlier than ever, it’s easy to forget that every dollar spent on healthcare is an investment in your own well-being and future.
You and your family are worth the cost.
Before we go, we wanted to provide two additional resources. To learn about:
- How to apply for medical financial assistance programs.
- How to negotiate medical bills in collections.
We hope this article was helpful, and we look forward to bringing you more financial insights into the medical world.
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