Healthcare is expensive. Next to rent or a mortgage payment, healthcare costs can be one of the biggest monthly budget items for many people. Paying medical bills can be a financial burden and a significant challenge. To help consumers address this challenge, a variety of well-known lenders and healthcare companies including GE Capital, JPMorgan Chase, CitiGroup, Capital One, UnitedHealth Group and Humana launched credit cards specifically designed to help cover the high costs of healthcare. While many of these firms have since left the business, healthcare credit cards are still available. A closer look at CareCredit, the industry’s largest provider of healthcare credit cards, provides insight into the promise and peril of healthcare credit cards.

How It Works

CareCredit has entered into agreements with a broad range of healthcare providers that will accept its card as payment for their services. The card can be used to cover traditional medical insurance copayments​ on covered services as well as for elective medical procedures that are not covered by traditional insurance plans. The providers range from doctors, dentists and surgical centers to vision care and hearing centers, and hair restoration and even veterinary services. Cardholders simply go to the CareCredit website and enter a zip code to find local providers that take the card.

By paying with the CareCredit card, consumers are eligible to participate in short-term financing offers that enable them to make payments over six, 12, 18 or 24 months with no interest charge as long as they spend at least $200 and pay the full bill within the agreed-on time period. Extended time periods up to 60 months for minimum purchase amounts of $2,500 are also available, with interest rates as low as 17.9%.

Let the Buyer Beware 

While their marketing pitches focus on providing access to affordable healthcare, CareCredit and other healthcare credit card companies are in business to make a profit. They offer no-interest financing, counting on many consumers overextending themselves and being unable to pay their bills in full, thus incurring expensive financing charges. Or consumers just misunderstand the terms. The Consumer Financial Protection Bureau (CFPB) found CareCredit to have "misled some consumers during the enrollment process by not providing adequate guidance clearly laying out the terms of the deferred-interest loans." Such loans assess interest starting from the date of purchase throughout the promotional period; if cardholders fail to pay the debt in full by the end of that period, they must pay all the accrued interest, not just interest on the remaining balance. In 2013, CFPB ordered CareCredit (a subsidiary of GE Capital at the time) to refund $34.1 million to cardholders. In response, the firm created a CareCredit Certification with its providers "in an effort to ensure that every CareCredit card applicant is given a clear, easy-to-understand explanation of financing options available."

That noted, the firm's "promotional financing options"—the ones with no-interest or a relatively low interest rate—are not available through every provider. Cardholders should check with their provider to determine the available options. CareCredit also advises cardholders that "paying only the minimum due on your account each month may not pay off your balance before the end of the promotional period" and to contact the company to ensure that you are paying the correct amount "to take advantage of your special financing promotions." Complexities like this are not limited to CareCredit’s offerings. A medical credit card survey by a group called Consumer Action found similar practices by other healthcare credit card providers.

The Bottom Line

Healthcare credit cards provide a way to make medical expenses more manageable. Of course, consumers must remember that the financing behind these credit cards is provided by for-profit companies that are in business to make money. If you're not careful, you can incur significant expenses from the associated fees. Like all credit cards, healthcare-oriented credit cards should be used in a cautious and responsible manner. This includes reading the fine print and having a complete understanding of terms and associated expenses.