Patients Increasingly Arrange Interest-Free Loans for Services Typically Not Covered by Health Insurance

Zero-interest financing has increased in popularity in a "big-ticket consumer market: doctors' and dentists' offices," the New York Times reports. According to the Times, "millions" of consumers have arranged financing for procedures not typically covered by insurance -- such as laser eye surgery or ceramic tooth implants -- through more than 100,000 physicians and dentists that offer a year or more of zero-interest financing.

Interest-free financing has become "one of the fastest-growing parts of consumer credit" and likely will increase "as rising deductibles, copayments and other costs ... force more of the nation's 250 million people with health insurance to finance out-of-pocket expenses for even basic medical care," according to the Times. The loans only are available to the "creditworthy" and "only if users are able to make payments on time and close the loan on schedule, typically within 12 months" because "[o]therwise, the loans after defaults can carry interest rates of 20% or more," the Times reports.

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," noting that in recent years, the "use of high-interest credit cards to pay big medical bills has become a leading cause of consumer bankruptcy," according to the Times (Freudenheim [1], New York Times, 8/30). The "big problem" with using credit cards to pay medical bills is that the "interest rates on credit cards can be hard to predict" because the rates "may rise sharply if a cardholder falls behind on payments -- even payments on another card or, for that matter, on any other debt," according to the Times (Freudenheim [2], New York Times, 8/30).

However, zero-interest financing "can make it possible to receive treatments that otherwise might be out of reach," the Times reports. For CareCredit, the leader in consumer medical financing, about 80% of medical loans provided are paid off on time and incur no finance charges, according to company President Michael Testa. Red Gillen, a senior analyst at Celent, said, "As more and more of the costs of care are shifted to consumers, people are going to need more credit," adding, "They are still going to need health care" (Freudenheim [1], New York Times, 8/30).