Here’s Why You’re Wasting Money Using a Credit Card to Pay for Medical Bills
Paying for purchases on your credit card can have some big benefits (hello, hotel points and airline miles) but what happens when you have a medical expense that skyrockets to over $1,000? If you can’t pay for it right away, your bill just grows. Check out these tips for saving money on medical bills by using other monthly payment methods.
If you’re like over half of Americans, you have a healthcare plan with a deductible of at least $1000. (What’s a deductible?). That means that, even if you’ve got health insurance, it’s not very helpful until you’ve already paid a big chunk of money out of your own pocket. These kinds of plans, unsurprisingly called “High Deductible Health Plans” or HDHPs, are often preferred by younger, healthier people – or really anyone who thinks they won’t go to the doctor much – because even though their coverage kind of sucks, they don’t cost very much monthly. The whole idea is that if you’re fairly healthy you don’t need to use your insurance very often – and, according to HDHP proponents (which is pretty much everyone in government - they call it a “Consumer Directed Health Plan”) when you had better insurance (if you ever did) you were probably wasteful and frivolous with it anyway. Back about 10 or 20 years ago, when all of our insurance was “too good” the theory goes, healthy people wasted a lot of insurance company money going to the doctor all the time for dumb, whiny reasons just because it was free – or at least fully covered. As medical costs rose, employers and insurance companies both were like, “Hey why are we paying $800 for this guy to get a splinter taken out?” So a new kind of healthcare plan was created where the costs would be shared with patients so that they’d have “skin in the game” and make more judicious use of their doctor visits. Of course, no one questioned why anyone was getting charged $800 to take a splinter out in the first place, but medical pricing is one of the most closely-guarded secrets in the modern American health system and it’s super controversial so we’re not going to get into all that in this article…
Anyhoo, the way it works now is pretty much like a healthcare cost game of whack-a-mole. (See the fun game below!) You are going to share healthcare costs; the only question is whether you want to have it come out of your paycheck every month or you want to pay a big out of pocket bill when you actually go to the doctor or hospital.
You have a high deductible plan! Click me to lower your deductible!
You have a high premium plan! Click me to lower your premium!
Fine. So we’re sharing costs now. All of this would be workable if it weren’t for the fact that about half of Americans who have an HDHP don’t actually have enough money to pay for their giant deductibles when they need to use their healthcare plan. 63% of Americans say they can’t cover an unexpected expense of just $500… and the legal definition of an HDHP is a plan with an individual deductible starting at $1350 (it goes up – very far up – from there). Clearly there’s a problem here. So rather than liquidating their savings (or in some cases, in addition to liquidating their savings), many people with HDHPs put all or part of their medical bills on their credit cards. That is a big mistake. Credit cards typically charge much higher interest than what you or a third party can negotiate with the provider or hospital and because their interest compounds daily (or if you’re lucky, monthly), you could end up paying over twice the original medical bill cost if you can only afford low monthly payments. Here’s an example of how things can quickly get out of hand when you put your medical bill on a credit card:
So what are your other options? Try this first:
- Make sure you’re being charged correctly.
- Compare your itemized bill (request this from your provider) with the “explanation of benefits” you’ll get in the mail from your insurance provider (confusingly, it’s the thing that looks like a bill but says “This is not a bill” on it). If you don’t understand what you’re being charged for, contact your provider and ask them to explain it. If something is billed as “out of network” make sure you understand why. You can often hire a medical bill advocate (try these: AdviMedPro, AdvoConnection) to review your bill for accuracy, which could potentially save you thousands - especially if you see a mix of in- and out- of-network charges on the same bill.
- Do you qualify for charity care or financial assistance?
- Sounds weird but a lot of hospitals are required to give away a percentage of their services for free each year to those who can prove they have low enough income or otherwise qualify as a hardship. Ask your hospital how to apply for this if you think you might qualify. A lot of hospitals will even offer help on a sliding scale so it’s worth asking.
- If you owe more than $1000 (altogether), apply for a 0% interest payment plan.
- Yes, this will sound like a shameless plug, but Parasail is the only company we know of that offers a 0% interest payment plan where you can spread payments out up to 36 months. It’s called a ProPatient plan and it costs you nothing but can save you thousands in interest and fees. You can apply here; it only takes about a minute and it’s free. If we can pre-qualify you for a payment plan, you text or upload your medical bills to us and we negotiate a no-interest, no-fee payment plan for you. Patients get 0% interest locked in for the entire payment term – and it doesn’t change even with a late payment. There is no credit card in the world that offers anything close to it.
- SIDE NOTE: Hospitals hardly ever offer a payment plan for terms over 1 year because it hurts their wallets too much. That means, if you can’t realistically pay off your medical debt in a year, you’re going to be paying interest or going to collections – but there’s still a few more options to try before you rack up credit card debt!
- If that doesn’t work, contact your hospital or provider directly.
- If you don’t qualify don’t give up! Most providers realize that it will be very difficult to collect the full amount of large balances owed to them and they don’t really want to send patients to collections (they got into medicine to help people after all) so they are usually open to discounting your bill and setting up a payment plan with you directly. Just remember what we said about the shorter-term plan options. If you can prove that there is no possible way you can pay the total owed though, the hospital may consider settling for a lower amount.
- INSIDER TIP: If you make some kind of good-faith payment to them monthly throughout the process, they’ll probably show you a little more leniency.
- Got a reduced bill but still can’t pay the rest?
- If you’re able to successfully get the provider to reduce the total amount you owe that’s great…. Unless you still can’t pay the reduced amount either. Imagine having a $20,000 bill and celebrating your negotiation skills getting the hospital to knock off 25%... only to realize you still owe $15,000. Even worse, Christmas is approaching, you’ve got kids and you only have about $5,000 in your savings account. If you can relate to this, you’re not alone. In fact, you’re in the majority.
- If this happens try launching a crowdfunding campaign or seeking help from non profit groups devoted to your issue if applicable. While you’re waiting for these longer-term solutions to pan out, consider getting a personal medical loan. How is this different from using a credit card? Personal loans typically use “simple interest” rather than “compound interest”, meaning that your interest is accrued yearly rather than daily or monthly so it grows more slowly over time. Consider using the free Parasail Select medical loan search engine here – it’s free to you and applies for simple-interest, fixed-rate loans from multiple top lenders simultaneously using a one-minute application that doesn’t affect your credit. Since each lender uses different criteria for approving applicants, we can offer loans to people with all different credit scores and you can compare monthly payments and interest rates from multiple lenders in minutes.
- When is it a good idea to use a credit card for medical costs?
- Well basically you only want to use credit cards for any amount you can pay off quickly… like within the next month or two. This includes your normal office co-pays and buying prescriptions. If you can put the expense on your credit card and pay it off before your next payment due date and snag those credit card points, do it! If not, then you’re going to pay interest. And because credit card interest usually compounds daily, if you’re only able to make minimum payments you’ll quickly end up with a much higher bill than you started out with (check out that comparison chart above again!). If you’re not SURE you will pay it off fast, you’ll come out ahead going for the 0% interest payment plan instead of the credit card points.
- What about a 0% introductory APR medical credit card?
So the best-case scenario with one of these is that you’ll get the same deal as you’d get with a 0% interest payment plan… except that it expires within 6 - 12 months typically. If you’re SURE you can pay the entire balance by that expiration date, maybe it’s worth the risk. But be warned; these kinds of cards have had judgements against them for misleading consumers. Buried within the pages of small print you’ll find that part of their terms state that even if you’ve paid all but the last dollar of your balance before the promotional period ends, they will charge you accrued interest on the entire original balance from the original charge date… so overnight you can lose your 0% interest as well as get a bill for up to a year of 26%+ interest on the original balance!
To sum up, if you have good enough credit to have a credit card, you’ve got a lot of other options that will save you a lot of money paying your medical bills. Sure, credit cards are convenient and easy – and we all reach for them instinctively when we need to pay for something expensive – but healthcare is different. There are a lot more options you should consider first that can save your credit, cost you less and make sure you only pay what you actually owe for your medical bills… sometimes even less!