Lenders Step In to Give Subprime Consumers Access to ‘Essential’ Elective Procedures

Elective dental procedures represent a $165 billion industry — on its way to $230 billion in the next few years.

And that’s in the U.S. alone. As we all get older and come out of the pandemic, we’re reexamining the cosmetic and other procedures that can help us look better and feel better and lead healthier lives.

But these procedures are not covered by insurance — there are more than a half dozen common medical treatments for which insurance coverage does not exist. Cosmetic surgeries and fertility treatments are multibillion-dollar markets.

The problem of paying for it all is not new. As far back as 2019, a lifetime ago before COVID-19 sent us all out of waiting rooms and away from all but the most urgent care, PYMNTS found that 9% of consumers considered elective care but opted out of it because of affordability. Providers left tens of billions on the proverbial table.

Versatile Credit CEO Ed O’Donnell, Genesis Credit Chief Commercial Officer Ed Haluska and Proceed Finance CEO Dave Roehr told PYMNTS’ Karen Webster that as 2023 winds on, consumers are facing some tough choices about getting the care they want and having the means to fund it.

While headlines focus on bank runs and bank assets and liquidity, the pressures facing consumers and households — namely, their own liquidity crunches — may have been put into the background. But the struggle is constant right now, said the panelists, and as has been well-documented, a majority of the population lives paycheck to paycheck. Consumers don’t have the funds to pay for the procedures or the prime credit score to access traditional financing options.

As Haluska noted, consumers have “come out of this period of time where money was falling from the sky. There was a huge amount of access to credit and a huge amount of liquidity” as government stimulus programs filled household coffers.

Now the government programs have dried up and people are faced with tough decisions, he said.

“The choice among the lower socioeconomic groups,” Haluska said, “is, ‘Do I pay for milk and bread, do I put gas in the car … or am I going to get elective medical?’”

The trade-off between want and need becomes easy: The needs take precedence, and satisfying other desires is pushed off, perhaps indefinitely.

In an inflationary environment like the one we’re in now — which has not been seen in decades — the individuals and families on the hook for paying those expenses are finding those beneficial treatments out of reach.

Lenders Pull Back

The crunch isn’t being felt by the consumers alone. The panelists noted that many lenders are shying away from offering affordable financing to consumers, as they’re not sure what lies ahead.

As Roehr said, with the perspective of financial crises through the past few decades: What lenders do in times like these is they tighten. … There’s not as much credit as would be made available to patients in order to gain access to these procedures. And that means that for the lower end of the credit spectrum, it’s difficult to get financed.”

There will be lenders, he said, that may pull back entirely or will not offer the type of credit they’ve offered in the past.

To serve patients who want these services but worry they won’t be able to get the financing they need to help pay for the treatments — and to streamline lenders’ access to the best prospects — Haluska and O’Donnell extolled the necessity of full-stack financing, covering the full range of procedures and across the FICO spectrum. Haluska said that providers must demonstrate to potential customers that they can bring in financing, yes, but a range of financing and prequalifications that help seal the deal.

“The providers who are offering these services to the consumer base need to provide expanded options,” Haluska said. He said that Genesis Credit had partly based its business model on “second look” financing, which offers financial products offered to individuals that score just below the FICO thresholds served by primary finance providers and have been turned down by those same providers.

“We’ve been able to provide that traditional access to the person who thought they may have qualified for prime, but didn’t,” he elaborated, “and who don’t see themselves as subprime.”

The result: Approval rates improve, and more patients gain access to medical and dental health care when needed. Healthcare providers boost their revenues, and all stakeholders avoid the pain points that have generally plagued healthcare.

The mantra, per Roehr: Make the payments look like car payments, not house payments — in other words, affordable and manageable.

As O’Donnell explained: The last thing would-be patients want to hear is that there’s nothing available for them in terms of payment options (other than paying in full) when they need a crown replaced.

The Platform Advantage

The platform model, said O’Donnell, can prove especially adept at matching supply and demand for healthcare financing and can bring a variety of lenders (Versatile has more than two dozen prime, near-prime and no-credit-required providers among its roster) into the mix.

“If a merchant feels like they don’t have the right financing products or solutions, or even the right lending relationships in place, we can help hem find another partner to help support their business,” he said.

Proceed Finance offers a case study of how financing through private investment backing and funding offers into providers’ coffers through unsecured term loans — in turn, enabling patient financing can help improve medical lending. Proceed Finance, he said, operated primarily within large case dentistry, where 95% of the company’s portfolio is dental loans, and financing products range from $2,500 to $75,000 (the average approval is $45,000) as they move beyond dentures and embrace implants and other high-end treatments. Those treatments have penetrated less than 1.5% of the total market, he said, “so there’s a huge runway. It’s good business but it’s also life-changing. If the consumers can figure out way to afford it, they’ll go forward with the procedures.”

Genesis Credit is also finding success in the non-prime consumer space and helping individuals get dental care without paying three or four times the total cost of the procedure by going to a subprime lender.

Looking ahead, the panelists noted that the ability to create and offer structured payment plans would appeal to a broad spectrum of consumers, no matter the income level. The explosion of buy now, pay later is a case in point, embraced by all consumers across all demographics.

“What we’ve learned through the past few years,” Roehr said, “is that even if people can pay cash, they’ll still want the financing — they don’t want to have to give up their nest egg.”

Beyond SVB

No discussion on financing would be complete without a reflection on how lending has (or has not) been impacted by the Silicon Valley Bank collapse and the regional bank contagion set in motion in the aftermath of that collapse.

“This is not the March madness that everybody was hoping to talk about,” said Versatile Credit’s O’Donnell said, adding, “There’s not been a big change thus far.” The lenders with which Versatile does business — where the focus has been on prime, near-prime, subprime and even offerings for those with no credit — have focused on risk management.

At the moment, “There’s underwriting going on with every merchant that comes through the platform, and every consumer, to some degree, is getting a loan,” he said.

Roehr concurred that the past few weeks had been a roller coaster.

But even though the company operates as a funded model (via large banks and community banks) and liquidity providers are cautious, established players like Proceed — which focuses on large case dentistry (complex and difficult undertakings) — are weathering any headwinds.

“For the people who are trying to get into this business, and accessing liquidity, it’s a major uphill battle,” Roehr said. Added Haluska: “We’ve been doing this for over 22 years … so we have good access to capital, have a diversified capital stack, so we continue to do business as usual.”