August 30, 2007
Patients Turn to No-Interest Loans for Health Care
By MILT FREUDENHEIM
Zero-interest financing, a familiar sales incentive 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.
Of course, going into debt to pay for medical procedures is nothing
new for many people. And this type of financing is still only a
fraction of the nation's $900 billion market for consumer revolving
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
Big insurers, too, are devising new financing plans with various
payback options. Upstart players have also aggressively cut deals with
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
"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
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 after
defaults can carry 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 those who are able to make their payments, though, the plans can
make it possible to receive treatments that otherwise might be out of
"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
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
Still, consumer credit companies and some insurers are now
experimenting with financing plans meant specifically for medical
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.
Some insurers, including UnitedHealthcare, also have special credit
plans available for insured members whose policies are linked to
health savings accounts. Such policies combine high-deductible
insurance with tax-sheltered savings accounts where money can roll
over year to year until needed for medical expenses. But typically,
the amounts of money being set aside do not go very far toward meeting
even routine health expenses.
So far, among the 1.76 million health savings accounts in this
country, the average balance is $1,327, according to a recent survey
by Inside Consumer-Directed Care, a trade publication. To help people
with health savings accounts meet the shortfall, the Exante Bank unit
of UnitedHealth Group is trying out a card that extends credit at
rates currently averaging about 10 percent to 13 percent, depending on
the applicant's credit history.
UnitedHealthcare is also testing a medical credit card that would
offer reduced rates.
"There's a place for credit solutions that are integrated within
traditional health insurance programs, when an individual hits that
out-of-pocket expense," said Tom Beauregard, a senior vice president
at UnitedHealthcare. "The key is to make it voluntary, to make it
simple and to offer favorable credit terms."
As for the zero-interest deals, the credit providers say that most of
them end up being just that - interest-free. About 80 percent of the
medical loans that CareCredit provides are paid off on schedule and
incur no finance charges, according to the company's president,
Michael J. Testa.
That, the companies say, justifies the high default interest rates for
late payments, since that is the way they recoup the costs of doing
business. In fact, though, the credit companies make money even on the
interest-free deals, because they are typically keeping 10 percent of
the fee the doctor charges the patient. On a $5,000 cosmetic nose
operation, for instance, the plastic surgeon might receive only
Another of the medical finance companies, HELPcard, says that for
dentists whose customers are good credit risks, the lender's
commission might be only 4 percent to 5 percent. But for patients with
low credit ratings, a dentist eager to build a clientele might have to
accept as little as 75 percent of the bill, said Pat McGee, HELPcard's
senior vice president for sales and marketing.
The CareCredit unit of G.E., too, has special deals for patients whose
credit is not well established. Stephanie Waterman, a coordinator for
Dello Russo Laser Vision, a laser-surgery practice with offices in New
York and Bergenfield, N.J., said patients deemed less creditworthy
were required to pay $600 in cash and to agree to have 12 months of
zero-interest payments taken directly from their bank accounts.
One Dello Russo patient, Senior Airman Derrick Fields, 31, stationed
at Dover Air Force Base in Delaware, said that in June he paid $600
down on a $3,500 surgery bill for both eyes - a reduced charge the
practice offers to members of the military.
"They take about $250 a month from my bank account," said Mr. Fields,
who said he soon expected to not wear eyeglasses for the first time
since the second grade. "I owe $2,900."
Copyright 2007 The New York Times Company