JPMorgan Chase Institute: Americans are Deferring Healthcare Until Tax Refunds Arrive

Today the JPMorgan Chase Institute released a first-ever study showing American families are deferring healthcare treatments until tax refunds arrive in bank accounts-underscoring the role of liquidity in spurring access to healthcare. The report finds the overall level of healthcare spending is 60 percent higher in the week after receiving a tax refund payment than in a typical week over the 100 days before. In the week after receiving a tax refund, out-of-pocket healthcare spending on debit cards increased by 83 percent, while there was no offsetting change to credit card spending—suggesting the cash infusion provided by the tax refund was a major determining factor driving changes in healthcare spending behavior. Moreover, 62 percent of the additional healthcare spending triggered by the tax refund was paid in person at healthcare providers. This means that cash flow dynamics influenced not just when consumers paid for healthcare but also when they received it.

The change in healthcare spending triggered by the arrival of a tax refund was even more pronounced among families with a low cash buffer. Account holders in the highest checking account balance quintile (more than $3500) only increased healthcare spending 11 percent after the arrival of a tax refund, while account holders in the lowest quintile (less than $536) increased healthcare spending 220 percent after a tax refund arrived—a spending reaction nearly 20 times larger in magnitude.

"We already knew that many families don’t have enough of a cash buffer to cover the cost of a major medical emergency. Now we also see that a significant number of Americans put off going to the doctor and other routine health services until they actually have cash in their account, even when they know that it is coming," said Diana Farrell, President and CEO, JPMorgan Chase Institute."In addition to being a major personal finance issue, this link between healthcare and cash flow could have significant consequences for public health. We need to better understand the connection between financial health and physical health, including evaluating the consequences of deferring care while waiting for cash to arrive."

The report, Deferred Care: How Tax Refunds Enable Healthcare Spending, shows that families consistently delay healthcare payments until they receive tax refund payments, even though once they file they know how much to expect. The report leverages data on daily healthcare spending for 1.2 million checking account holders in the JPMorgan Chase Institute Healthcare Out-of-Pocket Spending Panel (JPMCI HOSP) who received a tax refund in each year from 2014 to 2016. Spending in many categories seems to increase when a tax refund payment arrives, but healthcare is special because there could be consequences to delaying it.

Some of the report’s key takeaways include:

• Cash flow dynamics, and specifically tax refunds, are a significant driver of out-of-pocket spending for healthcare. Even when consumers know with near-certainty the size and source of a major cash infusion, they still wait until the cash infusion arrives before spending.
  • The overall level of healthcare spending is 60 percent higher in the week after receiving a tax refund payment than in a typical week over the 100 days before. The response to the cash infusion tails off after about 75 days. In the week after receiving a tax refund, out-of-pocket healthcare spending on debit cards increased by 83 percent, and electronic payments increased by 56 percent. There was no offsetting change to credit card spending.

• Cash flow dynamics drive when consumers receive healthcare, and not only when they pay for it. This is especially true for dental treatment.
  • Consumers who spent more when they receive their tax refund spent those funds disproportionately on in-person healthcare services that were likely deferred from the period before the refund arrived.
  • Dentist and doctor visits accounted for more than half of the deferred care that would have been received earlier, if the tax refund payment had come earlier.
  • Dentists received 32 percent of the refund-triggered additional spending, a disproportionate share. By contrast, during the period prior to the tax refund payment, only 27 percent of in-person payments to service providers went to dentists.

• Cash flow dynamics have an outsized impact on healthcare decisions for consumers with low liquidity or no limited access to credit.
  • The cash infusion from a tax refund triggered a significantly sharper increase in healthcare spending among account holders who had lower checking account balances or who did not have a credit card prior to receiving their tax refund. We also observe that consumers who had more liquidity or access to credit were less likely to delay their healthcare spending until their tax refund arrived.

The JPMorgan Chase Institute Healthcare Out-of-Pocket Spending Panel (JPMCI HOSP), was first constructed in September 2017. The asset follows a sample of 2.3 million de-identified regular Chase customers aged 18 to 64 from January 2013 until December 2016. The Institute defined out-of-pocket healthcare spending as any observed payments to healthcare providers and drugstores, including co-payments, co-insurance, deductibles, and other point-of-service medical, dental, or drug spending.

Key Findings: Deferred Care: How Tax Refunds Enable Healthcare Spending

• Finding 1: Consumers immediately increased their out-of-pocket healthcare spending by 60 percent in the week after receiving a tax refund payment. Spending remained elevated for about 75 days; during this entire period of elevated spending, consumers spent a total of 20 percent more out of pocket on healthcare than over a comparable period before the tax refund.
  • This increase is driven by two dynamics—larger healthcare payments in a typical day, and more account holders making healthcare payments in a typical day.
  • The typical spender spent 11.1 percent more in a typical day during the period of elevated spending, compared with the pre-refund period. This increase in the average payment was driven in large part by an increase in the largest payment amounts (account holders spending $150 or more in a single day). The cash infusion generated by a tax refund payment triggered additional spending on large healthcare ticket items that consumers could have least afforded out of their pre-refund cash flow.
  • The number of spenders on a typical day increased by about 7.5 percent.

• Finding 2: In the week after receiving a tax refund, out-of-pocket healthcare spending on debit cards increased by 83 percent, and electronic payments increased by 56 percent. There was no offsetting change to credit card spending. This suggests that the liquidity provided by the tax refund enabled customers to pay for unmet healthcare needs or unpaid healthcare bills.
  • Moreover, unmet needs for healthcare appear to be greater, in aggregate, than other spending needs after the tax refund: non-health spending on debit cards increased by 54 percent in the week after the tax refund (compared to 83 percent for healthcare spending).

• Finding 3: In-person payments to healthcare service providers represented 62 percent of tax refund-triggered additional healthcare spending. This indicates that the timing of a cash infusion affected when consumers received healthcare, not just when they made a healthcare payment.
  • Payments in person at service providers were 54 percent higher during the seven days after account holders received their first tax refund payment than a typical week prior to the refund.
  • Remote payments to service providers were elevated by 79 percent, but off a smaller base and for a shorter period of time than in-person payments. Payments to providers of stockable healthcare goods increased by only 22 percent.

• Finding 4: The tax refund caused consumers to make visits to dentist and doctor offices and pay outstanding hospital bills they had likely deferred from the period prior to the refund payment.
  • Dentists received a disproportionate share of the refund-triggered additional spending – 32 percent. By contrast, during the period prior to the tax refund payment only 27 percent of in-person payments to service providers went to dentists.
  • The refund-triggered additional spending was less likely to go to doctors or hospitals, 23 percent and 6 percent respectively, compared to 27 percent and 7 percent of spending during the pre-refund period respectively.
  • The remaining 39 percent went towards other healthcare services, including nursing service providers, ambulance service providers, medical laboratories, opticians, optometrists, and chiropractors. Hospitals received disproportionate share of refund-triggered remote payments to service providers (31 percent, compared with 28 percent during the pre-refund period).

• Finding 5: Cash flow dynamics had less effect on the out-of-pocket healthcare spending patterns of consumers who had higher balances in their checking accounts or who had a credit card before the payment arrived.
  • Among account holders whose average daily checking account balance was less than $536 (the lowest quintile), weekday healthcare spending was 220 percent higher in the week after receiving the first tax refund payment compared with a typical week prior to the refund payment.
  • For account holders with average daily balances over $3,577 (the highest balance quintile), healthcare spending increased by only 11 percent with the cash infusion.
  • Weekday healthcare spending increased more sharply among those who did not have a credit card (104 percent) than among those who did (48 percent).

Click here to read the full report

The JPMorgan Chase Institute is a think tank dedicated to delivering data-rich analyses and expert insights for the public good. Its aim is to help decision makers–policymakers, businesses, and nonprofit leaders–appreciate the scale, granularity, diversity, and interconnectedness of the global economic system and use timely data and thoughtful analysis to make more informed decisions that advance prosperity for all. Drawing on JPMorgan Chase & Co.’s unique proprietary data, expertise, and market access, the Institute develops analyses and insights on the inner workings of the global economy, frames critical problems, and convenes stakeholders and leading thinkers. For more information visit: JPMorganChaseInstitute.com.