Forget vacations, new wardrobes or money toward a new car — when people get their tax refunds, health care spending rises 60% immediately in the week following, according to a recent study.
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Health care continues to be the top expenditure with these tax refund payments over the next 100 days, according to the report “Deferred Care: How Tax Refunds Enable Healthcare Spending” by J.P. Morgan Chase Institute. Cash-strapped families are more likely to use the money towards health care — out-of-pocket medical expenses on debit cards increased 83% following a tax refund check, instead of no real change to credit card spending, suggesting the people who needed the money were the ones making the transactions after receiving a refund. Account holders in the top quintile (who had more than $3,500 in their accounts) saw an 11% rise in health care spending after receiving the refund, while people in the lowest quintile (with less than $536 in their accounts) increased health care spending by 220%.
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It isn’t clear if they waited to pay their providers, or if they waited to go to a doctor until the money came in, but 62% of the tax refund-triggered health care spending was done in-person, potentially indicating they paid at the time of receiving care, said Diana Farrell, president and chief executive officer of J.P. Morgan Chase Institute. “We should care about that,” she said. “It means often they’re not getting the best treatment they can.”
Other health care spending sparked by tax refunds: dentists and outstanding hospital bills. Almost a third of people spent money after receiving their tax refund on dentists, compared to 27% of in-person payments before receiving a tax refund. Another 39% of spending went toward nursing service providers, ambulance service providers, medical laboratories, opticians, optometrists and chiropractors. People were less likely to spend on doctors or hospitals than pre-tax refund payment.
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The cost of health care rises every year, and there’s no indication that will stop anytime soon. What’s even more harrowing, a lot of that happens in retirement — an American couple retiring last year could expect to spend $275,000 in health care through retirement, up 6% since 2016, according to Fidelity. Not only is it expensive, but it is confusing — most Americans don’t understand all the plans and insurance policies available, and tend to shut down before trying to comprehend it. To avoid going broke in retirement cause of health care, experts suggest saving for it specifically (such as through an HSA), paying as you go and adopting a healthy lifestyle — the sooner the better.