Cash Flow Dynamics and Family Health Care Spending

Evidence from Banking Data

A woman and man sitting next to each other; he holds a TV remote control, she is looking at a bill.

Consumer health care spending is sensitive to cash flow fluctuations, causing patients to defer health care. Improved savings tools could ensure that consumers receive health care when they need it rather than when they have the cash to pay for it.


What's the Issue?

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. Two earlier Health Policy Briefs added to that conversation with an examination of the impact of two specific economic policies on health—the Earned Income Tax Credit and the minimum wage.

In this brief, researchers highlight the health care-finance connection from a different angle 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.

These 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—some of which have long-term consequences—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, debt, and health care use.

The authors conclude that policy tools that encourage people to save may have a positive impact on health by reducing the extent to which health care consumption decisions are influenced by short-term cash flow, rather than by clinical need.

What's Next?

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 these researchers see. Instead, their 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. Their 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 consumer-driven health plans 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 wouldn’t see as large health care spending spikes as we do.

There are many reasons why families don’t 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. Front-line providers also have a role to play in addressing these problems. In designing patient care plans, providers are often unable to take costs into account. They may not know what care will cost patients and are often uncomfortable discussing finances with them.

The persistence of fee-for-service income models creates mixed incentives for physicians. That should change. Still, providers can help consumers understand how to prioritize elements of their health care planning. They can offer clear medical advice about the consequences of delay so that less urgent care gets pushed into the 75-day period after a patient receives a tax refund, and necessary care is received sooner.