Monday, September 22, 2008

Consumer Reports: it's bad to lend people money for chemotherapy

Note: non-sports, non-numbers post. Proceed at your own risk.

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I subscribe to Consumer Reports magazine, and I trust them when they test material things. I think their engineers know what they're doing when they figure out ways to see how well microwaves work. And I believe that they are unbiased in the sense that they don't favor one brand of hair dryer over another.

But when it comes to issues that don't involve testing products in a laboratory, their opinion isn't necessarily any better than anyone else's. A case in point is an article in the July, 2008 issue called "Overdose of Debt."

Apparently financial companies have come out with new lines of credit to enable people to pay for medical treatment. Consumer Reports is aghast. Why? I'm not sure -- there's no actual argument as to why using credit to pay for medical care is a bad idea. There's anecdotes and innuendo, but no actual logic on the point.

The impression I get is that CR wishes everyone had insurance, or that government paid for all health care (and if I'm not mistaken, they have called for a Canadian-style health-care plan). But they don't address that point explicitly.

The closest I can get to an actual argument is that, if consumers didn't have the ability to pay for health care on credit, hospitals and doctors would have to provide their services for free. And patients would benefit from that kind of charity. But, again, that's not stated explicitly. And CR does write that

"Medical providers should certainly be paid for reasonable costs …"

So they don't seem to be arguing for more charity.

What they *are* arguing are several points unrelated to the issue of consumer credit as applied to health care. I'll deal with them one at a time.

1. Credit card interest rates are high.

CR tells us that one medical credit card charges "as much as" 27.99 percent interest. But so what? Isn't that what department store cards charge, and what some Visa or Mastercards charge? That's not completely out of line, especially with the "as much as" clause that CR weasels in.

And why is this a special drawback of medical credit? The implication is that it's OK to pay high interest rates for a flat-screen TV, but not for chemotherapy. Shouldn't it be the other way around? If you haved to borrow money at high rates, shouldn't it be for something that can save your life?


2. Companies offer low rates that disappear if you miss a payment.

CR writes,


"Interest rates can jump to as much as 27.99 percent retroactively. That's the rate ChaseHealthAdvance's zero-interest plan charges, for example, if you … don't pay off the debt in the promotional period. By contrast, the average fixed-rate credit card charges 11.9 percent …"

Aha! So the "up to" 27.99 percent occurs if you don't pay off the balance in time. The true situation is that the credit card will waive your interest -- all of it! -- if you pay off the balance within a certain time. That's pretty normal … here in Canada, it's what furniture and electronics stores do when they offer you zero interest. And if you have good enough credit to qualify for the 11.9% card, here's what you do: you take the zero interest, and at the end of the promotional period, you take an advance at 11.9%, pay off the debt on the other card, and start paying it off at 11.9% starting today. That way you avoid the 28% rate, you pay no retroactive interest, and you got an interest-free loan for a year for medical care that you needed! (In fact, CR actually advocates doing this, in a sidebar.)

So why aren't they *advocating* the use of credit, given that it's being offered at 0%?


3. Consumers feel pressured to borrow.


"Consumers report that they sometimes feel pressured by medical providers to finance needed medical care, in some cases when sedated or recovering from treatment."

What does this have to do with credit? What about consumers who pay cash? Don't they sometimes feel pressured by medical providers to *approve* needed medical care, for which they will have to pay? What's the difference if it's cash, cheque, or credit?

And don't doctors discuss the possibility in advance that further treatment might be required? If you put your colonoscopy on your credit card, doesn’t it cross your mind that if the doctor finds something malignant, it's going to wind up costing more? Shouldn't you discuss this possibility with your doctor before undergoing the first procedure? If you don't, why is it the credit card's fault?

And, unfortunately, God wasn't kind enough to suspend the requirement to make medical decisions "while recovering from treatment." It would be nice if, after your exploratory surgery that found cancer, you had a couple of months for your scars to heal before you had to take the next step. But cancer doesn't take time off while you heal. It's perfectly usual, if unfortunate, that you may have to make critical medical decisions while unwell.

As for the "while sedated," some doctors might be jerks that way. But what does that have to do with the financial arrangements?


4. The more patients can afford, the more expensive treatments doctors will recommend.


"Doctors and dentists have financial incentives under these arrangements to encourage patients to sign up for more expensive treatments …"


Again, what does this have to do with credit cards? Does the conflict of interest somehow disappear when the patient pays cash? (Boy, I'm glad my used car salesman doesn’t take Visa, or he'd have tried to sell me a more expensive car!)

And wouldn't doctors have more incentive to extract money from rich people, rather than poor people relying on financing?

Most importantly: if credit was not available, CR thinks that doctors would, out of necessity, prescribe cheaper treatments. But what if the more expensive treatments are better? How many patients' lives are being saved by giving them the ability to finance their treatment? Why does CR see only unnecessary expensive procedures, and not the necessary ones? How many unnecessary debts does it take, in CR's view, to balance each unnecessary death?

I see it the opposite way CR sees it. The availability of credit allows patients to afford more of the treatment they need. This is a BENEFIT of medical credit, not a cost. In fact, this is the main reason that patients would borrow money -- so they are more likely to get well! I am totally perplexed at why CR doesn't see this.


5. Doctors will not offer the best financing alternatives to their patients.



"Doctors and dentists have financial incentives … to steer [patients] into extended financing plans that take a smaller cut of the practitioner's fee."


So, doctors try to get as much money out of their patients as they can. So do lawyers, and electronics salespeople, and car dealers, and furniture stores. Consumers understand that they have to make the right decision on financing their TV, and not to blindly accept the first one the salesman offers; it's not a big step to apply the same diligence to financing medical care.

I can see how it might offend CR that doctors are trying to squeeze a few extra dollars out of their patients. And, to be honest, it does bother me that some patients may be too intimidated to look for financial options other than what the doctor offers. But the answer isn't to eliminate one of the patient's choices -- because, after all, it might wind up being the best choice. A better solution would be to require the doctor to lay out the financial options he offers, and give the patient enough time to evaluate them all.


6. CR has some kind of vague discomfort with using credit to pay for medical expenses.

How else can we interpret this:


"But paying for chemotherapy on credit isn't quite the same as charging a plasma TV …"


Really? It seems the same to me? Why wouldn't it be? What's the difference, apart from the fact that it appears somehow to offend CR's sensibilities?

Well, I can think of one big difference. Chemotherapy is a necessity; a plasma TV is not. If you have no other options, having a source of financing for your chemotherapy is a matter of life or death.

And that's why it's a GOOD thing. Indeed, CR immediately admits that credit is a matter of life or death!



"[credit is] … last-resort financing for uninsured or under-insured patients with urgent medical needs [says health-care activist Claudia Lennhoff] … "The consumers who come to us for help when they are struggling with [medical credit] debt are desperate people who were required to provide payment for an appendectomy or cancer treatment at the time of service.""

Exactly! The medical credit card *saved these people's lives*! And now the patients are "struggling" to pay it off. So let me get this straight:

-- these patients had medical emergencies that were life-threatening.
-- they had no money to pay for treatment.
-- the credit card companies came to the rescue and offered them financing.
-- the credit card company assumed all the risk, which means the doctor got paid in full and was willing to treat the patients.
-- the patients got the treatment they needed.
-- but the patients are so poor that they can't even pay off 2% of their debt per month, so the credit card company is probably going to take a loss.

Sure, the patient is in financial straits trying to pay off as much as he can. But the alternative was worse -- perhaps death -- as evidenced by the "desperate" (CR's word!) patient taking on the debt rather than refusing treatment. What made the patient poor was not the credit card company, but the illness. If anything, the credit card company is the only one losing on the deal, probably having to settle with the patient for less than the amount owed. The patient gains, by getting his care, and getting it cheaper (although admittedly the cost is still a financial burden). The doctor breaks even, getting paid for his work. And the credit card company takes the loss.

So why is Ms. Lenhoff slagging the credit card company? I suspect it's because she doesn't like credit card companies, and she hasn't thought it through. She adds:



"Health-care providers steered them into these finance plans with rates they didn't understand."

How does she know the patients didn't understand the rates? Are sick people dumb? Are poor people dumb? Is there any evidence that these lines of credit weren't the best option available?


7. Many patients can't take advantage of the low rates, and credit card companies lie about this.



"GE Money spokeswoman Cristy Williams says almost 80 percent of its medical-financing customers pay off the full amount in the promotional period. But … figures show almost 60% of households with regular cards carry a revolving balance."


Those numbers are fully consistent if you assume, unlike CR, that consumers have a brain and know how to use it. Patients are rationally choosing to pay off the medical card that would otherwise charge them large amounts of retroactive interest, but keeping balances on the card that charges non-retroactive low interest. This is not rocket science.


8. Patients will lose their promotional zero interest rate if they're not careful.

CR writes,

"… there is plenty to be cautious about. Chase's online marketing aimed at patients proclaims that "you can enjoy the option of paying no interest at all." It could be a good deal if you pay it off within the promotion time. But if you don't or miss a payment, you'll be hit with interest rates of up to 27.99 percent."


Wow. Free interest if you pay on time every month? I suppose you have to be "cautious" that you don't forget to mail the cheque, but that's a small bit of vigilance to receive 0% interest. Wouldn't you take a mortgage like that? I'd just hire three separate people to call me every month and remind me to pay.

Geez, the things that CR finds to complain about.


9. Doctors promoting these credit cards are abusing patient trust.

Specifically:


"Some experts worry about blurring traditional lines of responsibility. "When you have doctors promoting cards and loans with unconscionable finance terms … it raises serious ethical issues, given the trust patients place in physicians …" says Gina Calabrese, a clinical law professor at the nonoprofit Elder Law Clinic at St. John's University School of Law in New York City."


-- What makes Ms. Calabrese an "expert"? This is a matter of philosophical opinion, not fact. (Who is the abortion "expert," Roe or Wade?)

-- 28 percent is not an "unconscionable" rate, especially when (a) it's zero percent if you pay it early, and (b) it's financing an urgent medical procedure.

-- As I mentioned, there is a larger conflict of interest in that doctors can prescribe unnecessary treatment to rich patients, and make a lot more dirty money than pushing credit on poorer patients.

-- Patients place trust in physicians because the doctor is an expert, and they're not. On finance, patients are actually more 'expert' in their own financial situation than the doctor is. I am certain that I know as much about finance as my own doctor. The idea that patients need to place blind trust in doctors on non-medical matters is one I find troublesome.

-- Even if some doctors are unethical, I'd bet that the overwhelming majority of doctors who do promote those credit cards do so with their patients' welfare in mind. If you need treatment, and you don't have money, those cards are a godsend.


10. The cards are promoted to doctors as a way for them to make more money.

I think it's OK for doctors to make money, and I think it's OK for doctors to want to make sure they get paid. But CR doesn't:

"The potential conflict is underscored by how the financing plans are pitched to health care providers.

For example … "Patients are more likely to book full comprehensive treatment plans" because of the financing" … [another card ] emphasizes [to doctors] how offering the card "can significantly impact
your bottom line."

[another brochure tells doctors] patients are likely to delay treatment because "the average American has only $300 available credit on their consumer credit cards."


Right! With the cards, patients can finance all the treatment they need, doctors can be sure they'll get paid, and patients could only afford part of the treatment without them.

Isn't this a good thing, providing patients with means to receive treatment? Is it somehow a bad thing that doctors make more money because they don't have to spend valuable time as part-time bankers and collection agencies to their patients?

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Anyway, I'm getting tired and frustrated, and I'm only halfway through the article … I'm just going to quote and comment until this is done.

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"If a patient were to finance … [on a] no-interest, 18-month payment plan, the dentist would pay 13.5 percent of the total as a 'processing fee'. The processing fee for merchants is usually 2 percent or less."

It's "usually" 2 percent or less because when you use your MasterCard at Best Buy, they don't offer 0% financing for 18 months. Isn't that kind of obvious?



"If the patient opted for an extended-payment plan over two to five years, CareCredit would take only 5 percent of the dentist's fee, and the patient would pay interest at an initial annual rate of 11.9 percent that could rise to 23.9 percent if he or she failed to pay off the balance in the specified time."


See? When it's not zero percent, the doctor pays less. And 11.9% is below market for a typical credit card, which, again, is why the fee is more than two percent.

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"Doctors thus are given a financial incentive to have patients stretch out payments at double-digit interest rates from the start."


1. Virtually all credit card rates are "double digit". CR should get used to it. Also, cars normally cost "five digits" and Happy Meals cost "three digits."

2. Doctors also have an incentive to charge $500 for a checkup instead of $300. But they're limited to what the market will bear. That's because most patients have some idea of what things cost -- even medical services. And most patients will understand that zero percent is better than 11.9%. And that using their home equity line of credit, if they have one, costs them only 5 or 6 percent.

3. CR has a financial incentive to have subscribers renew every year instead of every three years, since the three year subscription costs less. Do we need an independent third party to advise us on our subscription, since CR has a conflict of interest?

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"The American Dental Association is among many professional medical groups that endorse CareCredit, adding to patients' perception that financing is a wise choice."


For God's sake, it IS a wise choice! "Geez, you know, I like that zero percent interest on the chemotherapy, but if I miss a payment it'll cost me a couple of hundred dollars. So I think I'll just opt for the palliative care and hope for a painless death. Nice try, Doc, but you can't fool me. I know about your conflict of interest!"

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"When Siya Kuweza … took her 17-year-old daughter to a dentist …" [long story ensues about how she applied for credit and then the dentist did bad work.]

Which has nothing to do with the credit card, she just got a crappy dentist. Why is this story even in the article?

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"Hospitals increasingly are checking patients' credit reports … [which] allows hospitals to determine whether patients have any available credit on existing credit cards. Thus they can try to persuade them to put the charges on their cards [instead of giving them charity]."


Why is that bad? Hospitals necessarily have a limit to how much charity care they can give, no? Shouldn't they concentrate on patients who have no way to pay at all? And not everyone who needs to use credit is poor. I've known people with six-digit incomes living paycheck-to-paycheck. If they get sick, isn't it right that they put it on a credit card instead of expecting free treatment?

Paying for medical care is not cruel and unusual punishment. Neither is paying interest.

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"If you finance medical bills on a credit card, you lose leverage to negotiate payments with health-care providers, who may charge self-paying patients up to five times more."

Huh? Why would they refuse to negotiate? Do they only negotiate with poor people? That's not negotiation, then, is it? It's charity.

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This is a long story, but I have no idea what CR's point is in recounting it:

"The pressure to 'charge it' may come when you're most vulnerable … [continues with story of man who was taken by ambulance to hospital A, which charged him, instead of hospital B, which had previously offered him free care.] After he returned home, hospital representatives began calling him several times a week bout the $28,000 bill … they did not discuss whether he qualified for the hospital's charity care program or offer to negotiate a reasonable monthly payment plan. The hospital obtained a copy of Wilkinson's credit report, which showed he had … available credit of $13,000 [on a credit card he had forgotten he had]. …

'The people from the hospital were threatening to put a lien against our home or freeze our bank account if we didn't agree to use the card for the hospital bill," he says. The couple agreed to charge $13,000 on the card, which the hospital accepted as payment in full. They made the first two months' payments of about $260 but could not keep up and sought legal help."

"I've been doing legal aid work for 20 years and I've never seen anything like this," says Dale Pittman, their attorney. "This is a couple with a good credit history, raising two kids and dealing with a devastating illness, yet still managing to hold it together until the hospital puts the wolf at their door by pushing them into a card with predatory terms. The credit card's annual percentage rate is up to 29.99 percent …"


Okay, this story confuses me in many ways.

1. If the couple owns a house -- the house the hospital threatened to put a lien against -- why can't they get a home equity loan for $13,000? Maybe it's a very small home?

2. The "predatory" interest rate is on the couple's own credit card, not one of those special medical credit cards that CR is decrying.

3. The hospital accepted $13,000 as payment in full on a bill of $28,000. That's better than half price. Isn't that quite a bit of goodwill on the part of the hospital?

4. What's a "reasonable monthly payment plan" on $13,000? I'd think $260 a month qualified, but the couple can't afford even that.

5. The article said that the couple had two children, and a combined income of $18,000 a year. On that basis, 30% is a reasonable interest rate, given the high probability of default (and, in fact, the couple did default after only two months). It doesn't matter if you have a "good credit history" if you now can't afford to pay.

6. Is CR suggesting that the hospital was obligated to have given Mr. Wilkerson free care?

7. Is CR suggesting that things would have been better if Mr. Wilkerson had refused treatment or the hospital had refused to treat him?

8. If the couple has a "good credit history," why can't they get a better interest rate than 29.99 percent?

And the bottom line: who should pay for the $28,000 in care Mr. Wilkerson received? What, exactly, is CR's objection? I'd be happy to agree that it's tragic that he's fighting cancer, and it's unfortunate that his financial situation is so grim. But he did receive $28,000 in services from the hospital, and the hospital did agree to cut that down to $13,000. Isn't Mr. Wilkerson responsible for the other $13,000? Isn't it reasonable to ask him to do what he can to pay it? And isn't it nice that the credit card company was willing to lend it to him?

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Finally, the last bit of the article is the story on a couple who fell into dire financial straits after their daughter got very sick. It's a sad story, and illustrates how expensive medicine can be. But it seems to me that the family is very lucky to have access to credit to pay for their daughter's medicines. I'm glad they found someone to lend them money for that. Because it wouldn't be me. I sure wouldn't risk lending them money, even at 29% interest -- they're now broke and are in the process of losing their home.

Why CR chose to run this anecdote, I'm not sure. If it were an argument for government health care, I could understand it. But as an argument against medical credit, the story serves to undermine its own argument.

In fact, the moral of CR's last story is:

11. Health care is expensive and the cost can really screw up your life.

Well, with respect to CR, we already knew that. And that's what credit is for -- to help spread out the cost, to make treatment affordable, and to help patients save their lives!

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So I'm not sure where CR is coming from in this article. Yes, health care is expensive. Yes, if you don't have money and want to borrow some, you have to pay interest. Yes, interest rates can be high if you have bad credit. Yes, doctors and hospitals want to be paid. And, yes, unexpected medical expenses can be a great hardship.

We know all this. What I want CR to tell me is why suddenly blame all this on the credit card companies -- the only ones that will finance urgent care for people who would otherwise be at the mercy of their illness.

You know what I think is happening? I think CR just doesn’t like the idea that medicine costs money, and that people make money off sickness. I think CR recoils at the idea of having to paying high interest for necessities. I think CR can't get over its aversion to the fact that poor people have to pay higher interest rates. And so I think they strung a bunch of anecdotes and pseudo-arguments together without thinking too hard about the issue.


And, in my opinion, they wound up wrong on almost every point.

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5 Comments:

At Monday, September 22, 2008 9:48:00 AM, Blogger Jeff J said...

It is amusing to watch the contortions of mainstream US publications and media as they struggle to reconcile a fundamental moral issue - caring for the sick - with the fundamental cultural tenet - Markets Work. It's simply not possible to publish something that might be construed as promoting "socialized" medicine, so they bend over backward trying to express their distaste with the current system without openly criticizing the free market.

The article is a real mess. I can just imagine the back and forth that must have taken place between the writer(s) and editor(s) for that piece.

 
At Tuesday, September 23, 2008 10:56:00 AM, Anonymous Brian said...

Seems almost unfair to the credit companies. Many of these people will undoubtedly die before the debt is paid, or are severe risks for bankruptcy in the near future. They likely won't have assets to be claimed by debtors either. If they did, they'd use equity loans instead of credit cards.

The credit companies must be using actuarial tables to determine rates and credit limits. Very high interest rates are probably justified in most cases.

 
At Tuesday, September 23, 2008 11:57:00 AM, Blogger Tangotiger said...

Jeff I think hit it.

The credit card companies have three service levels: one is to acquire your business, in a sometimes loan-shark type way, one is to actually lend you money very seemlessly, and the other is to collect the money, in a sometimes loan-shark way.

So, credit card companies, theoretically, provide great service. But, they have shady practices which make them look very bad, and so, are an easy target.

So, take the one that looks like a loan shark, couple that with possibly shady practices from a minority of doctors and hospitals, and as Jeff points out, start with a clear bias against the market system, and you get the mess of an article.

It could practically write itself!

 
At Tuesday, September 23, 2008 11:59:00 AM, Blogger David said...

I've always thought it was interesting that people have no problem taking out a loan on a $30,000 car, but taking out a loan for $30,000 worth of medical treatment is a real hardship. Are we all Jack Benny now?

 
At Wednesday, September 24, 2008 1:32:00 AM, Anonymous Brian said...

When people use credit to shop for a house or car or HDTV, they usually take care to get the best value. When people use insurance to pay for medical care, all they know is how much their premium is. It seems to me that credit, which allows consumers to shop by price, would be more effective at controlling costs than relying on a third party payer.

 

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