By Ann Garnier, Chief Operating Officer, CarePayment
High-deductible plans and rising out-of-pocket expenses and premiums have precipitated a major shift in medical financial responsibility to patients. While it may have helped slow healthcare cost increases in recent years, having patients shoulder a growing share of medical costs is leading to unhealthy outcomes for both individuals and providers.
Patient liability was 24% of allowed charges in 2013, according to CarePayment, which offers patient financing through hospitals, physician groups and other providers. Tellingly, the liabilities were split almost evenly between those without insurance, at 13%, and those who owed a balance after insurance, at 11%.
But these medical services are increasingly unaffordable for both the uninsured and the insured:
- 30% of U.S. adults say they, or a family member, deferred medical treatment in 2013 because of the cost, according to Gallup.
- Unpaid medical bills are the leading cause of personal bankruptcy, NerdWallet found in 2013.
- Patients with higher co-payments were 70 percent more likely to stop taking their cancer medications, according to a 2014 study by the University of North Carolina.
One consequence is that providers end up treating sicker patients who put off care as long as possible, undercutting population health management efforts. Moreover, providers face an increasing financial burden from bad debt. They collected just 17% of patient liabilities in 2013, according to CarePayment, with a rate of only 5% for uninsured patients and 30% for self-pay after insurance.
In fact, Moody’s Investors Service recently warned that bad debt is becoming a hot spot for hospitals, in part because of the proliferation of high-deductible health plans that make consumers foot a greater portion of their health-care bills. “Today’s high deductibles are tomorrow’s bad debt,” the report states.
This situation prompted a recent commentary, “First, Do No (Financial) Harm”, in the Journal of the American Medical Association, which called for doctors to address financial concerns with patients. For a growing number of providers, one strategy is to offer patient financing:
“Patients with financial hardships may be delaying treatment because they’re concerned about these costs and their ability to pay. The people in this region want to pay their bills — they’re responsible and have a strong work ethic,” says Lisa Johnson, Vice President Public Relations and Marketing for Blue Mountain Health System in Lehighton.
Blue Mountain recently added affordable financing options for patients. “When patients come to the hospital they already feel bad,” Johnson said. “Now we can alleviate their anxiety over affording the care they need.”
Currently, there are four main financing options for patients:
Medical Credit Cards
They are generally used for elective procedures, such as cosmetic plastic surgery and LASIK, but some cover medically necessary treatment. They often come with a “teaser” rate that puts interest on hold for a designated period of time. But if the full payment is not made during that period or if a payment is missed, the interest charged can jump overnight as high as 26.99% and even apply retroactively. Medical credit cards require an application with a credit check, so patients who don’t make the minimum monthly payment could hurt their credit score and hear from a collection agency.
Installment Loans
They are usually available only for elective treatment. They require a credit application, so not everyone will qualify. Interest rates can be significantly above market rates—reaching more than 30% APR for those with poor credit history and thus substantially increasing the total cost of treatment. An installment loan is made for a single procedure or package of procedures, and new services can’t be added without amending the contract.
Internal or Vendor-Managed Payment Plans
Some providers offer this option for medical services but not elective procedures. Generally, patients are not charged interest and are eligible regardless of credit history or employment. There’s no credit application, so these plans don’t impact a patient’s credit report. However, many healthcare organizations do not offer financing. And those that do can be putting themselves at substantial regulatory risk unless they follow consistent policies and terms for offering financing to patients and comply with numerous consumer credit laws and regulations.
Credit Lines
A growing patient-friendly option for financing medical care (although not typically elective care) is a line of credit. As a rule, all patients are eligible and there’s no application fee or credit check. Interest rates can be as low as 0%, and some programs extend payments up to 72 months, making them budget-friendly. For example, a $500 balance may require a monthly payment of only $25.
How to choose? A patient-friendly financing solution is one that most closely addresses the needs and expectations of the patient while removing financial obstacles to obtaining care. For providers who want to help patients get the care they need—and get paid for the medical services they deliver–patient financing can be the key.
Ann Garnier has more than 25 years of experience in health care strategy, product and market development, operations and marketing.
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