Tax Refunds Drive Out-Of-Pocket Healthcare Spending Spikes

Jack O'Brien, January 11, 2018

Consumers delay health procedures until receiving their tax returns, followed by influx in out-of-pocket spending.  

Americans spend significantly more out-of-pocket on healthcare services after receiving their tax returns, according to analysis released this week by the JPMorgan Chase Institute.

Since an estimated 80% of the country is expected to receive a tax cut next year as a result of the reforms President Donald Trump signed into law late last month, according to the independent Tax Policy Center, healthcare providers should prepare for a possible spike in spending.

While consumers utilize increases in liquid assets to afford healthcare services, whether to pay down outstanding debts or cover the cost of treatment, questions remain about what effect the delays in treatment are having on public health.

The JPMorgan Chase Institute’s report, entitled “Deferred Care: How Tax Refunds Enable Healthcare Spending,” found that out-of-pocket spending increases by 60% within a week of individuals receiving their tax returns, which suggests consumers are delaying medical procedures until they can afford it.

Over the same period of time, electronic payments on healthcare increase by 56%, debit card spending increases by 83%, while there was no change in credit card spending.

This elevated rate of out-of-pocket healthcare spending continues for about 75 days at about 20% above pre-refund levels.

"In addition to being a major personal finance issue, this link between healthcare and cash flow could have significant consequences for public health,” said Diana Farrell, president and CEO of JPMorgan Chase Institute, in a statement. “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."

Healthcare spending has continued to increase nationwide in recent years, accounting for 17.9% of the gross domestic product in 2016, according to CMS. Out-of-pocket costs, meanwhile, rose at the fastest rate since 2007, and are now responsible for 11% of overall health spending.

The current situation poses an obvious challenge for consumers, who have deferred treatment options in light of limited available money.

Andrew Goodman-Bacon, PhD, an assistant professor of economics at Vanderbilt University who specializes in research on the long-term effects of health policies, says the report should encourage health system executives to anticipate higher demand concentrated in March, after most people have received their tax refunds, and staff accordingly.

“There’s other research out there suggesting when more people become eligible for Medicaid or CHIP, visit lengths can get shorter because doctors have to accomodate more patients,” Goodman-Bacon tells HealthLeaders Media. “Alternatively, if it does seem the deferred care is meaningful and has real health consequences, knowing that this pattern exists out there and getting a handle on who is driving it could help organizations work with patients to alleviate financial pressures and ensure they’re getting the care they need in a timely fashion.”

The JPMorgan Chase report advises providers to account for the outlined cash-flow considerations while designing treatment plans. Providers are also urged to help patients prioritize elements of their healthcare while offering medical advice regarding the ramifications of delaying treatment.

While Goodman-Bacon applauded the size of JPMorgan's dataset, he said the report did not have enough information to indicate what kind of care patients were delaying and whether discretionary care was driving the trend.

Aside from the medical and financial risk factors, the report details several opportunities for financial service providers to bridge the gap for healthcare providers and consumers. This includes introducing new payment and savings methods that are consumer-friendly to ensure patients receive the amount of care necessary regardless of whether they have available funds.

 
Jack O'Brien

Jack O'Brien is an associate editor at HealthLeaders Media. 

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