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6 ways to finance a medical procedure

Jennifer Nelson

March 16, 2016

Need an expensive medical procedure, but can’t pay for it? Seems people from all walks of life are in the same shaky financial situation — and not just the uninsured. Many people with insurance have high-deductible plans, large co-pays or co-insurance that leave them racking up medical debt.

A Kaiser Family Foundation and The New York Times January 2016 survey of more than 1,200 adults ages 18-64 found about 26 percent of people in the U.S. can’t pay for medical expenses. And 66 percent of those struggling with medical expenses were dealing with a one-time injury or illness, not a chronic condition.

What’s more, some people borrow money to pay for co-pays or co-insurance costs, something they never had to do previously.

“A procedure that might have had a $250 co-insurance scenario in the past may now have an $800-$1,000 co-insurance or co-pay,” says Kirk Chewning, partner and co-CEO of financial management consulting practice Cane Bay Partners VI. “Consumers, depending on their financial situation, or if they’re living paycheck to paycheck, have to make a decision between declining having the medical procedure done … or financing those co-insurance payments.”

If you’re facing a medical expense you need to finance, here are five options to consider:

1. Hospital loans and payment plans
Talk with the financial representative at the hospital or center where you’re being treated. Some offer medical installment loan payment plans without interest.

A medical installment payment plan may have payments as low as $100 per month, says Pam Webb, a certified counselor with Transformance, a consumer credit counseling service based in Dallas. With a medical installment plan, any delinquency isn’t typically reported to the credit bureaus immediately but returned to the health care provider for collections.

“Many specialized cards will offer a 0 percent interest rate offer as a hook. If you pay the balance in full during the specified period, you pay no interest. If you don’t, they charge a much higher rate of interest on the initial balance.”
— Kevin Haney,
A.S.K. Benefit Solutions

If the hospital offers an interest-bearing loan through a finance company it’s affiliated with, verify the interest rate and payment terms. Such a medical loan typically is a nonrevolving line of credit used to finance a single procedure. These loans can help finance a knee replacement or appendectomy, or any remaining balance not covered by your insurance.

You might also be able to negotiate a “cash settlement.” For example, in many cases, Chewning says, if there’s a bill for $10,000, the insurance company may pay about $4,000. The patient may have a $1,000 deductible or co-insurance payment. That leaves a $5,000 bill. But the hospital may be willing to write off that $5,000, if the patient asks, or reduce it to half or less if a cash offer is extended (provided the procedure was medically necessary as opposed to an elective procedure).

2. Bank or credit unions
Next up, check with your bank or credit union. Some specialize in underwriting unsecured loans up to $5,000 with fairly low interest rates. If yours does, check interest rate and payback terms.

Many banks and credit unions, though, don’t offer these signature (no collateral) loans anymore. It all depends on whether the lending institution considers these loans to be financially viable to offer, Chewning says.

3. Online lenders
Online lenders such as LendingClub, Prosper and LightStream offer personal loans. These loans offer various terms, depending on your credit rating, with loans ranging from $10,000 to $35,000.  Chewning says average APRs typically range from 5.5 percent to 10 percent.

With LendingClub, for example, you’ll pay a loan origination fee of 1 percent to 5 percent depending on the loan amount. So a $6,000 loan with a 36-month term at an APR of 6.68 percent has an interest rate of 5.93 percent and a 1.11 percent origination fee of $66.60. You’d receive $5,933.40 (loan amount of $6,000 minus the $66.60 origination fee). Payback is 36 monthly payments of $182.34 for a total cost of $6,564.24.

4. Medical credit cards
Medical credit cards, commonly offered to patients who seek elective care, such as cosmetic surgery or Lasik eye surgery, are open-ended revolving credit lines.

“Many specialized cards will offer a 0 percent interest rate offer as a hook. If you pay the balance in full during the specified period, you pay no interest,” says Kevin Haney, an insurance and credit bureau industry expert at A.S.K. Benefit Solutions in New York City. “If you don’t [pay off the balance in time], they charge a much higher rate of interest on the initial balance,” Also, if you miss a payment, interest can exceed 25 percent. Rates return to 12-21 percent depending on credit after the introductory period.

“Specialized medical lenders may vary their underwriting and interest rate charges based upon the type of medical procedure,” says Haney. “A patient needing money for orthodontia presents a different risk profile compared to a woman funding IVF.” For example, the orthodontia patient does not miss any work, or experience side effects that lead to additional medical expenses, while a successful IVF procedure leads to more medical expenses, such as maternity care, labor and delivery costs.

“Most credit cards today have teaser rates. Obviously, if the term you’re trying to pay off is shorter than the teaser rate, this may be the lowest cost option.”
— Kirk Chewning,
partner and co-CEO
Cane Bay Partners VI

5. Personal credit cards
You can use a personal credit card to fund a medical procedure or open a new one.

“Most credit cards today have teaser rates,” Chewning says. “Obviously, if the term you’re trying to pay off is shorter than the teaser rate, this may be the lowest cost option.”

However, he adds, after the introductory period expires, the APR jumps anywhere from 15-20 percent. Chewning says with good credit you may be able to get an online loan product for 6-7 percent APR, making using your personal credit card far from the best deal — unless you can get a 0 percent interest card for a term long enough for you to repay.

6. Brick and mortar lenders
These are traditional installment lenders,  such as Springleaf Financial and OneMain Financial,  most of which are brick and mortar in nature and licensed by state rather than national charters. These lenders provide the same types of loans as online lenders, however they may add additional fees online lenders don’t. For example, they may require credit life or credit disability insurance or other services that boost the overall cost of borrowing.

You also can find predatory lenders among both online and brick-and-mortar lenders with interest rates at 200 to 700 percent APR and automatic or constant loan renewal practices. These are not loans you want.

Regardless of how you finance a medical expense, always compare and review both the interest rate and the terms of the loan. Also, the better your credit score, the more favorable terms you’ll receive. Select the financing option with the lowest overall costs.

“The cost for a lender to acquire a consumer has gone up and has made it more competitive, which frankly, helps the consumer get a better rate and a better product,” says Chewning. That’s good news for you if you do need to finance medical expenses.

SEE ALSO: 5 ways to tame your medical bills

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