Whether it’s the thought of earning thousands of reward points, or just the sheer convenience (at a time when you’re probably feeling vulnerable), it’s understandable that you’d consider putting medical expenses on a credit card.
“Especially when it’s a large bill, a lot of people just panic and want to take care of it as fast as possible,” says Thomas Nitzsche, a credit educator at non-profit credit-counseling organization ClearPoint.
Before you hand over the plastic, though, make sure you’ve come to terms with the realities of charging medical expenses.
Yes, you can earn rewards on medical expenses IF you’re strategic and savvy
A medical bill and rewards card could help you turn lemons (surgery) into lemonade (cash back or free travel). But only patients who fit one of the below requirements should even be thinking along this vein, says Kevin Haney, president and founder of A.S.K. Benefit Solutions, an insurance agency specializing in voluntary employee benefits:
- You’re using your card for manageable expenses: “You’re picking up your deductible, co-insurance, co-payments and small amounts that people can handle and pay off,” Haney says.
- You’re paying for big expenses but know your insurance company will reimburse you: Many people are used to handing over their insurance card to their medical provider’s office and letting it handle the billing (and all the complicated medical coding involved). However, you can have the provider bill you directly (and pay with your rewards card) – and then file a claim with your insurance company yourself to get reimbursed.
The success of this technique, however, rides entirely on you knowing that 1) you can get your provider to accept from you the lower wholesale rate it’s negotiated with the insurance company; and 2) the insurance company will cover that particular expense and reimburse you promptly. Therefore, this strategy works best for people who have reoccurring, predictable medical expenses – and who aren’t bothered by filing the claim paperwork.
“So, it’s a very aggressive approach and it’s not for everybody,” Haney says.
You can lose your negotiating power if you pay with card
If you’re uninsured, have a big deductible or got stuck with an out-of-network bill, you have the ability to negotiate with the provider.
Because you’re not getting the wholesale rate charged to insurance companies that contract with the provider, you’ll probably see a bill that makes your stomach drop.
“It’s an absurd number that no one will ever pay, that very few people can ever pay,” Haney says. “… [Health care providers] know that number is inflated, so you can negotiate down from that.”
If you’ve already handed over your card, though, you lose that ability to negotiate.
“Once they have the money in their hands, you’ve lost all negotiating power,” Haney says.
Some hospital patients might also qualify for financial aid, which can lower your bill significantly – Nitzsche got a bill roughly halved, for example. As with negotiating, though, you’ll need to apply for aid before plunking down your card.
It’s also prudent to examine your bill carefully for errors before you pay, Nitzsche notes, rather than trying to get money back after putting it on your card.
Even 0 percent cards may not be the best deal
Once you’ve negotiated your bill down, you’ll want to get the longest repayment period you can at the best interest rate. And it may come as a surprise that 0 percent cards aren’t the first place you should look. Health care providers can provide some very generous terms that exceed the average 0 percent intro periods on U.S. cards.
Nitzsche, for example, got turned down by a second hospital for financial aid, meaning the bill itself wasn’t lowered. However, it granted him a lengthy repayment period.
“They indicated that, simply because I applied [for financial aid], that allowed them to give me a longer repayment period, at 0 percent interest,” he says. “So I was able to repay over 24 months with the hospital directly instead of putting it on a card and paying interest.”
In addition to having more time than a credit card may give you, working with the provider directly means no extra inquiry on your credit report – and no high utilization on a card. In fact, as long as you stay current on payments, the financing deal you get from the provider should have no credit impact.
“It doesn’t mess with your credit at all because it’s not reporting at all,” Nitzsche says.
If you fall behind, the provider might send your account into collections, which can gravely affect your credit score – but the same risk exists with cards anyway.
If you’re looking for truly low-cost financing for a planned procedure (braces on your teeth, for example) and have a flexible spending account (FSA) through your employer, use your FSA as financing instead of a card, Haney recommends. Your employer has to fund qualified expenses you pay for with your FSA, even if you haven’t fully funded your account yet, Haney says. So if you time an elective procedure at the beginning of the year, it will be funded and you’ll have the rest of the year to pay it off – with pre-tax dollars (since you fund your FSA directly from your paycheck before taxes are deducted).
“That’s the best form of medical financing,” Haney says. “It’s the only below-zero interest rate available.”
Be careful with CareCredit – and other medical credit cards
Small practices and those that offer elective procedures (such as plastic surgery) may try to steer you toward a medical credit card instead of offering you a repayment plan directly.
“It’s logical for them because then they’re getting their full payment up front,” Nitzsche says. “It actually saves them a lot of time and money, because they’re handing you an application and then, once you’re approved, it’s then between you and CareCredit.”
The practice might be willing to arrange a direct repayment plan with you, if you ask, Nitzsche says. And it’s to your advantage to do so, as medical cards often come with retroactive interest. This means, that if you have any balance left on the card after the introductory 0 percent period (and many consumers do, because they make only the minimum payments, Nitzsche says), you’ll be charged interest on the whole balance, backdated to the day you made the initial charge.
If you have a $10,000 bill for cosmetic surgery, for example, and pay off $9,999 within the interest free period, you’re still a dollar short.
“So you’ll be charged interest on $10,000,” Haney says.
Know the credit consequences
If you put a big bill on a credit card, the most immediate credit effect will be on your utilization; using up a large amount of your available credit will damage your score.
But there can be more potential ill effects if you put an old medical bill on a card. At first glance, paying an old medical debt off with a card may seem like a good way to get collectors off your back. However, you need to pay attention to two things: The age of your debt and your state’s statute of limitations.
The first comes into play because delinquent accounts automatically fall off your credit reports within seven years of getting charged off. So, if you pay off a six-year-old debt that went into collections with a card and then fall behind on that card, too, you’ll have a brand-new collection account – and seven more years to wait for it to fall off.
“All you’ve done is replace one bad mark with another,” Haney says. “You’re extending the time a negative mark would be on your file.”
Meanwhile, the statute of limitations (which will vary by state) dictates how long a creditor has to sue you over a debt. If you replace an old medical debt with a new one (thanks to a credit card) and then fall behind with that card, you might be replacing a debt that was about to enter the no-sue zone with one you can be sued for, for several years to come.
“You’re starting the clock ticking all over again,” Haney says.
You could be sacrificing protections of FICO 9
FICO’s latest model, which not all creditors are using yet, is more forgiving of medical debt. If you use a credit card, however, that medical debt is transformed from a “medical” debt into a revolving line of credit on your credit reports.
“FICO wouldn’t have any way of telling what kind of debt that was if it’s been put on a card,” Nitzsche says.
The same goes for medical credit cards (CareCredit and similar).
“Even though they’re designed as health care cards, they would still show up under revolving lines of credit,” Nitzsche says.