Shark Bait

Business Week magazine has an alarming article in their December 3, 2007 edition. “Fresh Pain For The Uninsured” is a story of medicine and capitalism on a collision course, with the patient squashed squarely in the middle.

For years, people without health insurance have been able to repay medical bills in small amounts, without interest charges, and without being sent to collections as long as they were making at least some sort of payment on a regular basis. But as medical costs have soared, along with the ranks of the uninsured (currently at 47 million according to the article), hospitals have increasingly become more proactive in getting their money.

For many hospitals and medical providers, the solution has been a growing sector of third-party financial companies that buy the debt from the hospital and then seek to recoup it from the patient. In effect, the patient now has a credit card from the third party company, with an interest rate that is determined based on credit scores and the amount of the debt. Introductory rates can be as low as 0% or 5%, but rates are more often in the 15% range, and often go as high as 27% – a jump that can be triggered by one missed payment.

It’s understandable that hospitals cannot just loan money to people indefinitely, with no interest charges. But to turn the debt over to the financial sector – renowned for their less-than-ethical practices with late fees and interest rates – doesn’t seem right. GE, Citigroup, and Capital One are some of the big-name players in the medical financing world, and they are joined by a host of smaller companies. These companies obviously want to make a profit. If they buy a $10,000 medical debt from a hospital for $9,000 and then eventually get $13,000 from the patient after interest charges and late fees, they’ve come out $4,000 ahead. This money doesn’t go to the hospital – they got their money when they sold the debt, and they lost $1,000 on the deal. The interest charges go back to the financial company that bought the debt.

For people without health insurance, the prospect of the medical bill alone is daunting enough. But when the debt gets sold and essentially converted to a credit card, with minimum payments, late fees, and double digit interest rates, daunting can become impossible. And it seems highly unethical for a third party to be profiting at the expense of uninsured people who have suffered a medical problem and are struggling to pay for it.

Medical financing is not all bad. Here at the Colorado Health Insurance Insider, we’ve had our own experience with it. A few years ago, Jay needed a dental bridge replaced, and the initial estimate from our dentist came to about $4500. Dental insurance won’t cover anywhere near that amount, so we knew we’d be paying for the procedure ourselves. We could have saved the money over the next year, but Jay was having to carry denture glue with him everywhere he went, waiting for his broken bridge to fall out (which it did several times). He asked the dentist about financing, and she offered Capital One. We applied and got approved for a $5000 line of credit, with no interest in the first year. If we paid back the full amount owed within 12 months, we wouldn’t owe any interest. After that, the interest would have been somewhere around 20%. Of course, the minimum payment amount each month was far less than one twelfth of the total, so paying only the minimum would guarantee that after 12 months, hefty interest charges would kick in. We tightened our budget and made sure that we paid off the balance within 12 months, and we never paid any interest on the bill. For us, the card was a huge help, as it enabled Jay to get the dental work he needed right away, and let us pay for it over the next year.

But in our situation we had the luxury of being able to read the fine print on the Capital One agreement at our leisure, before applying, and the total bill was less than $5000. What about a person who ends up in an emergency room – with frantic family members blindly signing the hospital admittance forms, including the details about financing – and incurs $30,000 in medical bills? Is it right that a credit card company will be raking in interest charges from that patient for years to come? Interest rates on medical debt – if any at all – should be similar to federal student loans. The rates should never exceed single-digit numbers, and the bills should not be treated as consumer debt. And there shouldn’t be any third-party agencies skimming money out of the pot – keeping things between the medical provider and the patient is a good way to keep interest rates low, since there aren’t as many people looking to make a profit.

Lesson one here is that skipping health insurance is always a bad idea – no matter how much money you think it will save to avoid health insurance premiums, the alternative can be much worse. Lesson two is that we desperately need to do something to fix our health care system, since selling off medical debt to credit card companies is a bit too mafia-like for a supposedly civilized society.

I’ll leave you with some words of wisdom from Chris McLean, chief financial officer of Methodist Le Bonheur Healthcare in Memphis (where self-pay patients get a 50% discount and can pay their bills over five years, without accruing interest):

If we heal somebody medically, but we break them financially, have we really done what is in the best interest of the patient?

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

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