By Diana Farrell, Fiona Greig, Amar Hamoudi, JPMorgan Chase Institute
Health Affairs, Health Policy Brief, December 13, 2018
Consumer health care spending is sensitive to cash flow fluctuations, causing patients to defer health care.
Key Points
- Bank transaction data reveal that in any given year, one in six families makes an extraordinary health care payment of roughly $2,000 in a single month. They time such payments to coincide with positive cash flow events, yet they have not recovered financially even a year later, as evidenced by a lower level of liquid assets and higher credit card debt.
- Consumers increase health care spending by 60 percent in the week after receiving a tax refund, and the majority of these payments are made in personālikely for care received on that day. This increase is much larger for people in the lowest quintile of account balances.
- Health care spending is sensitive to a wide range of cash flow events, including job loss and the end of unemployment insurance, natural disasters, and mortgage interest rate changes.
- The findings suggest that many consumers make decisions about when to pay for and receive health care based on whether they have cash on hand. Further efforts are needed to reduce out-of-pocket spending for families and encourage and enable them to save. The health care system should promote cost transparency and support discussions between providers and patients about the costs of care.
A large body of literature documents the relationship between health care spending and consumer finance, including the impact of such spending on long-term debt, poverty, and use of health services.
This brief highlights the health careāfinance connection… by exploring how short-term changes in household cash flow influence consumer decisions about whether and when to seek medical care. The JPMorgan Chase Institute brings to these questions new empirical evidence based on high-frequency banking transaction data for large samples of Chase checking account customers.
Our data show that consumers immediately increase their use of health services after they receive large infusions of cash. This finding suggests that consumers make health decisions ā some of which have long-term consequences ā based on short-term financial factors. Far from affecting only low-income people, immediate cash shortages cause people at all income levels to delay care. This behavior is especially concerning in the context of rising out-of-pocket health care spending.
Policy Implications
The trend toward increased consumer cost sharing for health care shows no signs of slowing. It has substantial support from both government regulators and health care payers, based largely on the belief that asking consumers to pay for more of the cost of their health care will cause them to seek care only when they need it, evaluate providers using price as one consideration, and avoid unnecessary treatments. Yet that is not what we see. Instead, our findings suggest that health care consumers are rationalizing consumption, but not in the ways that stakeholders expected. Consumers are making decisions based on whether they have cash in their pocket right now, not based on a longer-term view of what they could afford over time. Assuming that at least some of the delays in care are for necessary services, which is consistent with the findings of others, these delays have the potential to increase long-term costs for the entire health care system, since poorly managed chronic conditions often result in health care costs many times higher than well-managed conditions do.
Our findings also point to the importance of tools that encourage people to save. People who have cash reserves fare better when faced with an extraordinary expense, in that their finances do not show the same persistent adverse consequences of large payments. The health savings accounts and other savings vehicles that are often paired with CDHPs are a positive innovation in that regard. Yet consumers clearly do not have enough savings in them to cope with health costs. If they did, they would put cash into them when they had a cash infusion and spend money in them when they had a health need, which means that we wouldnāt see as large health care spending spikes as we do.
There are many reasons why families donāt save. They may not have the financial slack, or there may be a mismatch in timing between when they have a reserve and when they have a health need. In addition, health savings and reimbursement accounts can be used only for health expenses, which may discourage their use among people who need more flexibility. For these reasons, consumers need savings tools that are automatic, low risk, and uncomplicated.
https://www.healthaffairs.org…
Comment:
By Don McCanne, M.D.
This study of cash flow dynamics in health care spending is a little bit different from most other health policy studies in that it uses banking data from JPMorgan Chase rather than data from the health care industry. Although it is understandable that JPMorgan Chase would focus on money management, it must be kept in mind that the application of money management to access and affordability of health care can have a significant effect on health care outcomes.
Although, in our current system, some attention might naturally be given to money management tools, at today’s more advanced state of health policy science, directing attention to our health care financing system that uses cost sharing (deductibles, copayments, coinsurance) should lead to policy decisions that would be more beneficial in ensuring that people receive the health care that they should have.
Cost sharing has been clearly shown to impair access to beneficial health care services. One reason can be that the individual may lack ready cash reserves. The solution here is easy. Eliminate cost sharing. Provide care with no additional payments required at the time of service. Instead, pay for the entire health care system in advance, using progressive tax policies so that individuals automatically pay only what they can afford. Readers already know that’s exactly the way Single Payer Medicare for All is designed to work. There are plenty of other legitimate roles for banking without intruding unnecessarily into the personal financing of health care.
Another important conclusion that can be gleaned from this report is that the highly touted health savings account (HSA) falls far short of being an ideal tool for cash management in health care. Regarding HSAs and other savings vehicles that are often paired with high-deductible health plans, the authors state, “consumers clearly do not have enough savings in them to cope with health costs. If they did, they would put cash into them when they had a cash infusion and spend money in them when they had a health need, which means that we wouldnāt see as large health care spending spikes as we do.” Also, families “may not have the financial slack, or there may be a mismatch in timing between when they have a reserve and when they have a health need. In addition, health savings and reimbursement accounts can be used only for health expenses, which may discourage their use among people who need more flexibility.”
It’s fine to have savings vehicles that earn income, if you can manage to fund them, but we should not have to rely on them as a ticket to accessing health care. Single Payer Medicare for All would take care of that need for all of us just fine.
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