As inflation-weary shoppers try to make ends meet, many are turning to a modern twist on the layaway plan: buy now, pay later. But while platforms like Afterpay and Affirm were originally built to take the sting out of online shopping, these new financing options are beginning to creep into the world of health care.
“Buy now, pay later is a small fraction of the health space, but it is exploding,” said Jay Zagorksy, an economist at the Questrom School of Business at Boston University.
Buy now, pay later loans for health services and products increased from $10 million in 2019 to $230 million in 2021, according to a September report from the Consumer Financial Protection Bureau that surveyed five lenders. They’re pitched as a solution for patients overwhelmed by spiraling out-of-pocket costs or an easier way to pay for health care that insurance doesn’t cover. Some health services have started offering payment plans through leading e-commerce lenders, and a new crop of companies has also emerged to offer such plans explicitly for medical bills.
But consumer advocates have raised the alarm that the approach could put buyers and patients alike at risk of overextending themselves, without providing the same consumer protections they’d get with existing highly-regulated financial products.
“When people are vulnerable and they feel that they need health care services and are being offered a pathway to access those services — even though it might be outside of what is covered by their insurance or are typically covered by insurance plans — it can be risky,” said Eva Stahl, the vice president of public policy at RIP Medical Debt.
So far, the buy now, pay later plans have mostly cropped up in payments for elective procedures, especially high-ticket treatments or procedures that insurance will not typically cover, including cosmetic and fertility services. “Consumers are telling us, I pay everything else on installment plans, interest-free,” said Brian Doyle, a vice president at Rectangle Health, which launched its buy now, pay later product this year in partnership with Healthcare Finance Direct. “Why can’t I do that for my Lasik or for my veneers?” Its largest markets are dental and veterinary care, followed by orthopedic and vision care.
Other buy now, pay later platforms are targeting telehealth, particularly cash-pay, direct-to-consumer programs with high price points. Walnut, a health care financing platform that raised $110 million in a Series A round this year, lists several DTC companies as clients, including several startups providing off-label prescriptions for ketamine to treat mental health disorders. Those startups can charge hundreds of dollars for a multi-treatment subscription. Virtual weight loss programs prescribing GLP-1 receptor agonists have also offered buy now, pay later as a payment option for subscription plans that approach $2,000 a year, minus medication costs.
“It seems like a pretty reasonable, logical kind of flow from e-commerce to health care,” said Itzik Cohen, co-founder and CEO of PayZen, which raised $220 million for “care now, pay later” and other products this year. “Health care is being consumerized, and there’s a lot more digital health companies that could potentially have that type of integration.”
Deferring payment can seem like an attractive option for patients, especially those who don’t qualify for credit cards or traditional financing plans. Many companies boast approval rates near 100%, and payment plans are often advertised as having no fees, no interest, or both.
That also helps companies make a case to their real clients, the providers, who may pay the lender a percentage of each patient’s payment plan, akin to a store shelling out a processing fee when a customer swipes a credit card. In return, health care companies get the potential to treat more patients, often while increasing the predictability of their cash flow; in some cases, lenders pay the providers in full as soon as a patient pays their first installment.
But as CFPB director Rohit Chopra pointed out this September, these options can introduce a number of risks for consumers. “The problem with buy now, pay later is it really causes people to overspend,” said Zagorsky, because breaking up payments makes a product seem more affordable than it is. “If you’re not really understanding how they’re trying to fool you into making the price seem so much cheaper, you can get into deep financial trouble.” Even if a payment plan is truly fee-free, it is often paid automatically through a credit card or checking account, so an overextended patient can still get dinged for overdrafts or late payments.
Health and medical compliance guidance from Affirm, a consumer-focused platform, appears to recognize those risks. It instructs clients, “Don’t market Affirm to encourage customers to seek more healthcare than needed or in a manner that may abuse insurance.”
The CFPB report also highlighted concerns that these platforms harvest and leverage consumer data in invasive ways, and that the young industry often does not offer the same consumer protections as credit cards, like the ability to dispute transactions, clear disclosure of loan terms, and limits on exorbitant penalty fees. Without those guardrails, consumer advocates worry that patients could be lead into financial decisions that aren’t in their best interest — especially when introduced in a medical setting.
“It sets up a whole different type of dynamic when you start being peddled a financial instrument in a physician’s office,” said Patricia Kelmar, who directs health care campaigns for U.S. Public Interest Research Group. “There might be this added sense of trust that isn’t warranted.”
Some buy now, pay later platforms trade on that trust explicitly, offering white label options that allow a payment program to appear like a service of their medical provider, not a third party. “White labeling enhances their trust and credibility as providers and improves the overall patient experience,” reads a press release for one such product from Healthcare Finance Direct.
But some companies see that trust as a reason why the payment approach will work differently in heath care than in e-commerce. “There is more to it than an impulse buy on a retail product,” said Doyle, who doesn’t believe over-leveraging will be a significant risk for patients paying through Rectangle. “Because of the relationship between provider and patient and the need for health care, it’s safer and it’s more advantageous for everybody involved to have open dialogue.”
Advocates counter that those conversations can always happen between patients and providers — and that passing off payment plans to a third party could lead some patients to miss out on available financial assistance programs. “We’re already not seeing great compliance with providers screening patients for the kinds of programs that they might be eligible for,” said Kelmar. “This will be a shortcut for them to get paid, and then it just drives the patient into further debt.”
As this holiday season introduced buy now, pay later options to even more consumers, the CFPB has signaled interest in taking action to rein in the new industry, which could eventually have ramifications for health care payment providers. But no matter how the industry evolves, lenders and consumer advocates agree on one thing: The current system of medical billing and collections simply is not working.
”The root cause here is that people don’t have coverage that is both comprehensive and affordable,” said Stahl. “That’s the problem we need to solve — not create more financing options for something that is just not affordable in the first place.”