Thursday, August 30, 2007

Consumer Debt, Health Care and You

The International Herald Tribune reports today about a growing trend in the U.S. "Patients in U.S. turn to no-interest loans for health care." Most procedures financed are elective or not covered by insurance (vision procedures and dental). But the article notes possibilities for expanding the practice as consumers face more and higher out of pocket costs within insurance plans.

Capital One and Citigroup and the CareCredit unit of General Electric offer revolving credit accounts and special no-interest plans (the sort you might tap for a dishwasher) with steep penalties for missed payments or default.

As you might expect, lenders and insurers pitch this market in terms of offering a needed service to society:

'"There's a place for credit solutions that are integrated within traditional health insurance programs, when an individual hits that out-of-pocket expense,' said Tom Beauregard, a senior vice president at UnitedHealthcare. 'The key is to make it voluntary, to make it simple and to offer favorable credit terms.'"(from the IHT article)

Here are some problems with this approach:

1. Credit increases the cost of doing business.
2. Credit reduces the profit per transaction. According to the article, dentists might receive only 75% of the bill in the case of clients with poor credit who default.
3. Growth of credit in the health care industry skews the understanding of medical care further toward a business model.
4. With appallingly low levels of financial literacy (as demonstrated by the subprime fiasco) possibilities for fraud or default are obvious. CareCredit reports that 80% of the interest free loans are paid on time. That means 20% incur penalties (remember, a mortgage default rate of .5% shakes the industry from top to bottom).

Do we really want to further financialize our lives?