Deferred Care: How Tax Refunds Enable Healthcare Spending

Abstract

The JPMorgan Chase Institute draws on its Healthcare Out-of-Pocket Spending Panel (HOSP) to investigate how a specific and important cash infusion—a tax refund payment—drives the timing of out-of-pocket expenditures on healthcare. We analyze average out-of-pocket healthcare expenditure on over a dozen categories of healthcare goods and services for each day in the 100 days before and after a tax refund payment, for 1.2 million checking account holders in the JMPCI HOSP who received a tax refund between 2014 and 2016. This represents the first ever daily event study documenting how families’ out-of-pocket healthcare spending responds to the arrival of this significant cash infusion. Our analysis uncovers five key findings illustrating that consumers’ spending on healthcare was significantly affected by cash flow dynamics. First, consumers immediately increased their total out-of-pocket healthcare spending by 60 percent in the week after receiving a tax refund. Spending remained elevated for about 75 days, during which consumers spent 20 percent more out of pocket on healthcare than before the tax refund. Second, in the week after the tax refund, out-of-pocket healthcare spending on debit cards increased by 83 percent, and electronic payments increased by 56 percent. There was no change to credit card spending. This suggests that liquidity from the tax refund enabled the increase in healthcare spending. Third 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. Fourth, the tax refund caused consumers to make visits to dentists’ and doctors’ offices and pay outstanding hospital bills which they had deferred. Finally, Cash flow dynamics had less effect on the out-of-pocket healthcare spending patterns of consumers who had higher balances in their checking account or who had a credit card.