Bad for Your Health? Pros and Cons of Medical Credit Cards

By Eva Maria Norlyk

As the economy continues to slide, credit card companies have found an attractive new market for their services: medical credit cards. Americans spend an estimated $294 billion each year on out-of-pocket medical costs, and already about one fourth, or $74 billion, of this is charged to regular credit cards.

Enter medical credit cards, a new breed of rewards credit cards, which offer specialized rewards for medical charges. The idea behind medical credit cards is that they enable consumers to earn cash back or discounts on their health care expenditures, such as prescription drugs, dental, or vision care, when they pay medical expenses with credit cards.

Examples include CitiBank’s Professional small business card, which offers 10 to 60% discounts on some prescription medications, and for an additional $8.95 a month, a similar discount on vision and dental expenses. In addition, the Aetna Healthy Living card, available to consumers covered by an Aetna insurance plan, offers cardholders three points per dollar spent on health-related purchases and one point per dollar spent on all other purchases. These points can be redeemed for cash directly deposited into a savings account or other rewards.

But although medical credit cards may offer attractive incentives, such as rewards programs or discounts, are they a good idea? Like for any rewards credit card, the answer depends on how the card is used. On the one hand, medical credit cards do offer consumers a way to both finance non-negotiable health expenses and throw in added rewards benefits.

On the other hand, reward and rebate programs only provide savings for consumers who are able to pay off their credit card balance each month. Consumers who can’t afford to wipe the slate clean will end up paying interest rates of 10% APR or higher, for many only compounding their financial problems. Worse, it may take little more than a late payment to see that interest rate bumped up to a punitive default rate of 25% or higher.

This highlights the main danger of using credit cards for health-related expenses: the middle-to-low income individuals that will find them most attractive are the ones who should most avoid taking on more debt. Lacquering on rewards programs and significant credit lines may create a false sense of security that can encourage more health-related spending than is absolutely necessary or affordable.

More to the point, credit card debt can be dangerous for your financial health. Credit card debt is unpredictable, and therefore harder to manage than other types of debt. One little misstep, and consumers may find themselves saddled with impossibly high interest payments and/or higher monthly payments. For cash-strapped consumers already struggling to make ends meet, sudden changes in credit card terms can be enough to push them over the brink into financial hardship. Already, nearly 60% of this year’s projected 1.5 million bankruptcy cases are tied to medical expenses.

Consumers struggling to pay their medical bills might do better to first look for alternatives that don’t involve commercial lenders. Hospitals and doctors are sometimes willing to negotiate payment schedules or even bills for patients in need. Furthermore, some medical providers may offer “charity care”-free or reduced charges-to patients in a financial bind.

Ultimately, planning ahead is your best bet for dealing with medical expenses. Tucking away $3,000 to $5,000 in a medical fund now can fund a future, unforeseen medical expense. And let’s face it: unforeseen medical expenses crop up with an almost predictable inevitability.

Published: October 13, 2009