How Buy Now, Pay Later can help make medical debt more manageable

The high cost of health care in the United States comes with a painful corollary: high levels of medical debt that hurt both patients and providers. According to the most recent U.S. Census Bureau Survey of Income and Program Participation (SIPP), about one in five households (19%) carried medical debt at the time the survey was conducted in 2017. A more recent study in 2019 by KFF (Kaiser Family Foundation) found that one in four adults (26%) said that they or a household member had trouble paying medical bills in the prior year.

Without billing flexibility, medical debt can be hard to pay down. That’s where modern financing trends like Buy Now, Pay Later (BNPL) can help. BNPL first gained popularity with consumer product purchases, but industry leaders in health care are beginning to see the value of using BNPL within the medical payment ecosystem, particularly for orthodontics, LASIK, or other elective and cosmetic procedures.

What is Buy Now, Pay Later?

BNPL gives consumers an alternative way to make payments at the point of sale. Instead of paying directly, buyers are offered the option to break their bill up into payments, such as four payments over four months. This reduces the financial burden without the interest burden common with credit cards.

BNPL has seen accelerated growth during the last year. According to a Motley Fool survey, 56% of Americans have made a BNPL payment, up from 38% in July 2020. Thirty-six percent of BNPL users say they use the payment method at least once a month.

The growing popularity of BNPL is partly a consequence of consumers’ desire to avoid credit card debt, especially for high-dollar purchases. In addition, use of BNPL could reflect the fact that younger adults have less cash available in their transaction accounts than prior generations. According to the Federal Reserve, adults 35 and under have a median of $3,240 available in their accounts, compared to a median of $6,610 for that age group twenty years ago.

BNPL gives patients and providers greater flexibility

Navigating traditional health care payment methods can be stressful for many consumers. Even seemingly small and fairly routine procedures can cost hundreds or thousands of dollars. A person with insurance can still pay over $100 out of pocket for getting a doctor to close a small wound. For the uninsured, that same procedure can cost over $500. These high medical bills are enough to make 40% of Americans skip going to the doctor for procedures and tests, even when those visits could be potentially lifesaving.

For traditional medical procedures, most patients will be better off negotiating a payment plan with their hospital or medical provider than seeking a third-party loan. Nonprofit hospitals are required to have a financial assistance policy, and persistent patients can get their bills lowered.

Medical debt does not generally carry interest and is also treated differently than regular debt. It is considered lower-priority debt than an auto loan or back rent, and the three major credit reporting agencies generally exclude it from credit reports until it is more than 180 days delinquent. Additional protections may be in the works: A bill currently pending before the U.S. Congress would institute a one-year waiting period before a medical debt could be reported on a consumer’s credit report. Medical debts that have been paid off or settled would also be required to be removed.

A BNPL program offered by a medical institution itself, however, could arguably be entitled to the same consumer protections as other medical debt. In practice, it would function like a traditional payment plan, but without the friction of drawn-out negotiations. For elective procedures, for which medical payment plans might not be available, offering BNPL as an option could make the difference between a patient choosing to move forward or forego treatment.

Providers that combine BNPL with an online payment portal can streamline the application process and begin receiving payments immediately. By breaking up bills into affordable, interest-free payments, providers can conceivably get paid for bills that would otherwise be sent to a collection agency. At the same time, patients can benefit from credit card alternatives.

A role for third parties

Counter to the advice of consumer advocates, millions of Americans use their credit cards to pay for medical treatment. According to a 2019 LendingTree survey, 56% of credit cardholders said they had settled a medical bill with a credit card at some point in the past, and more than half said they remained in debt due to that decision. Sixty percent said that they had no other way to pay.

For individuals in this situation, a Buy Now, Pay Later option offered by a third party might be a way to avoid long-term indebtedness. In responses to a recent study by PYMNTS and Rectangle Health, 63% of consumers were interested in a payment plan, but less than half had been offered one.

“It’s really about adoption,” Mike Peluso, chief technology officer for Rectangle Health, told PYMNTS. “When a patient goes to an office or interacts with a medical office website, there is no reference to payment plans … Having things like payment plans is very beneficial to the office and to the patient. They’re beneficial to the office because they create a consistent cash flow, and they’re beneficial to the patient because they [allow them] to receive care now and pay for it over time.”

Walnut, a startup that wants to offer BNPL directly to patients, has made headway in signing up dentists and cosmetic surgeons, as well as skin care, eye care, and fertility specialists. Walnut will break up the cost of a $3,000 treatment into 30 $100 interest-free monthly payments. “I talked to a person last week who has no teeth and wants dentures but it costs $6,000,” Roshan Patel, Walnut’s founder and CEO told TechCrunch. “That person should be able to afford it, and we enabled them to pay $100 a month for it.”