Medical credit cards: Why they can cost you big

The high cost of dentistry is apparently fueling a burgeoning market in medical credit cards, with more than 4.4 million Americans financing their root canals, orthodontia and other medical and veterinary procedures this way.

These cards, which charge interest rates ranging from 10 percent to nearly 30 percent, help consumers pay for medical services that are not covered by health insurance, according to a recent study by the Government Accountability Office. And they're are great deal for the dentists, doctors, veterinarians and other medical professionals that offer them because the credit issuer provides payment to the doctor for the cost of the service, usually within 72 hours of processing the credit application, without forcing the medical provider to even wait until the service was provided.

Unfortunately, the deal provided to consumers is not as attractive. Consumers can end up paying for procedures they never received and facing retroactive interest charges as the result of poorly advertised "gotchas."

"Doctors and dentists derive a benefit from offering these rotten products," says Joe Ridout, consumer services manager at Consumer Action in San Francisco. "It introduces an element of incentivized bad behavior and distrust in a relationship that should be focused on trust."

Nearly all deferred interest credit card agreements contain two big gotchas that can force consumers to pay massive retroactive interest charges, says Ridout. The first gotcha is that if you have even a $1 balance remaining at the end of the interest-free period, you'll pay interest on the entire amount that was financed from the first day of the loan. That can add up to hundreds -- and even thousands -- of dollars.

Moreover, if the consumer messes up at any point in the repayment process -- paying a few dollars too little on the required monthly payment or making a payment late, for example -- the no-interest deal is rescinded retroactively, again forcing the consumer to pay interest on the entire amount back to the first day the loan was funded.

Worse, according to complaints received by the New York Attorney General's office, several consumers say that they were charged for the entire cost of a procedure, such as dental implants or orthodontia, long before the procedure was complete. Thus, they're paying interest on charges that shouldn't have been levied until significantly later. Indeed, one consumer said her dentist went out of business before completing the $17,000 dental implant work. (Dental implants can take up to a year to complete.) Yet, she was still forced to pay the cost, plus interest, for replacement teeth that were never received.

Ridout says consumers should exhaust more attractive payment options before agreeing to take out a medical credit card. Long-term processes, such as dental implants or orthodontia, for instance, are normally paid in installments as the services are rendered. Many hospitals and doctors offices will also set up informal monthly payment plans, allowing the consumer to pay over time without a credit agreement -- and usually without interest.

Even financing a medical procedure on a low-interest non-medical credit card can be preferable to these deferred-interest deals, he says. Moreover, since the doctor or dentist will be getting your money upfront, they may also be willing to provide a discount on the bill. If the doctor processes a medical credit card payment, he or she will pay a fee to the credit issuer. At the very least, your medical provider should be willing to cut the cost of their service by the amount of that fee, if you are using a different source of funds. How much is that fee? That's unclear. Issuers say they vary based on the volume of business your doctor brings in and other factors, but the credit card companies won't even reveal the range, claiming it's proprietary information. You, however, can ask your doctor. If the relationship you have with your medical professional isn't honest enough to get an honest answer to a direct question, you may want to switch doctors.

Meanwhile, if you're faced with an uninsured medical procedure you can't afford, make sure you shop around, Ridout adds. You may be reluctant to shop because you're in pain or embarrassed by a cosmetic ill, such as a lost tooth, but the economic pain of entering into an abusive credit agreement can last longer than a gap-toothed smile.

"If you make any mistakes with a medical credit card, there's a disproportionate penalty," says Joe Ridout, consumer services manager with Consumer Action in San Francisco. "Consumers need to be wary of these supposed 'no-interest' deals."