US doctors luring patients with no-interest loans

Big insurers, too, are devising new financing plans with various payback options. Upstart players have also aggressively cut deals with doctors. “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, a US 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 the uninsured who are in difficult financial situations. And creditworthiness is starting to be judged even more stringently, in light of the US subprime mortgage crisis’s impact on the debt markets. 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 per cent 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 Richard J Mercurio, a dentist in Lincroft, New Jersey. He arranges patient financing through the CareCredit unit of GE, the leader in consumer medical financing. Mercurio says he knows of at least two patients who missed payments and received monthly bills charging high interests. “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 reach. “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 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,” Schlachter said. But the dentist’s office arranged 12-month zero-interest financing. “It was the only way I could do it,” she said.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 US 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 US research and consumer advocacy organisation that helps people with their medical debts.

Still, consumer credit companies and some insurers are now experimenting with financing plans meant specifically for medical costs. 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 per cent to 13 per cent 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.

As for the zero-interest deals, credit providers say that most of them end up being just that — interest-free. About 80 per cent 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 per cent of the fee the doctor charges the patient. On a $5,000 cosmetic nose operation, for instance, the plastic surgeon might receive only $4,500.

Another medical finance companies, HELPcard, says that for dentists whose customers are good credit risks, the lender’s commission might be only 4 per cent to 5 per cent. But for patients with low credit ratings, a dentist eager to build a clientele might have to accept as little as 75 per cent of the bill, said Pat McGee, HELPcard’s senior vice president for sales and marketing.