Americans Are Using Their Tax Refunds to Cover Healthcare Costs

Inside Subprime: April 23, 2019

By Lindsey Frankel

Now that tax day has passed, those who will receive a tax refund will get their money in the near future if they haven’t already received it, and for many American families, the average $2,995 that they receive will be a lifeline. That amount is equivalent to almost six weeks of earnings for the average family.

Many people will use that money to pay down debt, according to a a recent survey. 27 percent of respondents said their refund would go to paying off payday loans, credit cards, and other types of debt. And a report from JP Morgan Chase and Co. Institute suggests that many Americans will put the money towards past medical bills that they were unable to pay earlier. The report shows that families who get a tax refund spend 60 percent more on healthcare in the following week, and health care spending remains high for 75 days following receipt of a refund.

“The cash infusion represented by a tax refund payment allowed more people to make more purchases of healthcare goods and services, but, even more consequentially, it facilitated larger payments,” the report said. “This implies that 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.”

Not only are U.S. families paying off medical bills with their tax returns, but they’re actually seeking medical care they may have avoided in the past due to unaffordability. The report showed that 62 percent of the extra money spent on healthcare costs post-refund went to in-person payments to healthcare service providers.

Health care costs continue to rise quicker than wages, so it’s not surprising that many families are finding that they can’t cover the cost of medical care. One in four adults said they avoiding seeking medical treatment in the last 12 months because it would have been too costly, according to a Gallup survey. But sometimes, costly medical care can’t be avoided, leading many families to borrow money. In 2018, Americans borrowed a total of $88 million to cover medical treatments. And for those with bad credit, predatory interest rates on alternative financial services like payday loans merely exacerbate financial fragility.

Tax season impacts cash-strapped families by helping them pay off bills for past medical services, allowing them to pay down debt they incurred to cover past services, or encouraging them to finally get the care they were unable to afford previously.

That Americans wait for their tax refunds to seek medical care indicates a need for a policy change. A sweeping innovation such as universal healthcare could solve the problem, and proposals to expand the Earned Income Tax Credit and let low-income families receive some of that money in advance would go a long way as well. Too many Americans rely on their tax refund to finally access healthcare services when preventative visits would decrease costs significantly.

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