Credit cards: Many go deep in debt for health
care
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More than half of the households who were in debt
in the study have been contacted by bill collectors and have taken
out a second mortgage on their homes to pay down the debt.
"Fifteen percent of medically indebted households have to declare
bankruptcy, compared to 11 percent of those who are not medically
indebted," says Cindy Zeldin, one of the authors of the study.
Warren
says the report backs up a report she had co-authored called, "Illness and
injury as contributors to bankruptcy," which looked at debtors in bankruptcy
courts.
"Both studies show that medical problems are a significant
factor in Americans' debt loads," says Warren.
Warren's
report found more than one-quarter of participants cited illness or injury as
the main reason for bankruptcy, in a survey, and nearly the same amount reported
medical bills exceeding $1,000. Medically
indebted
Christie, of Orlando, and her husband became medically indebted
while living in California when her husband was diagnosed with Bell's
palsy, which was caused by an infection in his gums.
He needed $8,000 in dental work. The dentist suggested
they apply for credit through GE Money CareCredit. Christie says
the interest rate on the card jumped from a rate of 17.25 percent
within two months to 53.47 percent. The high interest was on a balance
of $4,719.
"That month we paid $217.96 in finance charges alone,"
she says. She called the company to protest the amount and was able
to reduce the interest rate to 19.02 percent.
Christie
and her husband soon discovered that the interest rates on their other credit
cards were hiked from 15 percent to 32 percent. They learned the credit card companies
had reassessed their credit and determined that they had a high debt-to-income
ratio because of their previous credit balance. The couple,
now back in Florida, has been able to take out a consolidation loan through a
local credit union at an 11 percent interest rate. Making
up for gaps in health care
Demos' researchers believe debtors are falling into gaps in the
health care system. Health care costs are rising and employers are
looking for insurance options that feature greater employee cost
sharing, such as higher deductibles or dropping coverage altogether.
Demos' researchers say over the years higher deductible
health plans have become more widespread, but most consumers in
the plans are not opening and funding the health saving accounts,
or HSA, that were put in place to give consumers alternatives to
traditional health insurance.
Researchers say hospitals are anticipating that patients
won't be able to pay, so they are seeking co-pays and deductibles
upfront.
The credit card industry has developed
"medical credit cards," and health insurers and financial institutions
are teaming up to offer products featuring high deductible health insurance and
lines of credit. Researchers say HSA servicers have integrated lines of credit
into their products, which they believe is a bad move.
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The public policy group is calling on Congress to: |
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Distinguish medical
debt from consumer debt. |
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Limit the entry
of medical providers into financial services. |
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Increase oversight
of medical credit cards and lines of credit attached to
health savings accounts. |
| • | Improve
screening for eligibility in public or private financial assistance programs,
and enact a borrower's security act. | |
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