Healthcare coverage and out-of-pocket medical expenses: evidence from the 2017 Tax Cuts and Jobs Act and the medical expense deduction

Abstract

ObjectivesThis study examines the link between health insurance and out-of-pocket medical expenses at the state level using data on the medical expense deduction obtained from the Internal Revenue Service. We exploit the fact that the Tax Cuts and Jobs Act lowered the threshold for the medical expense deduction in 2017 and examine whether health insurance coverage is related to the medical expense deduction based on the assumption that the lower threshold affected states with more people with large medical expenses. Study designThis was a state-level cross-sectional study. MethodsData on medical expense deductions are obtained from the Internal Revenue Service and combined with health insurance coverage data from the Small Area Health Insurance Estimates. The ordinary least squares are used to measure the relationship, and the best-fit lines are shown along with scatterplots to describe the finding. ResultsWe find that the new law that allowed more taxpayers to take the benefit of medical expense deductions increased the share of tax returns with a medical expense deduction and the total medical expense deduction amounts in all states, but the increase was greater in states with larger uninsured populations. ConclusionsThe finding highlights the role of employer-sponsored and private health insurance in reducing out-of-pocket medical expenses among the general population.