Why You Don’t Want to Mess with Americans’ Tax Refunds

Plus, Obamacare’s premium problem

Why You Don’t Want to Mess with Americans’ Tax Refunds

Amid the controversy over the tax refunds the IRS is paying out this year, new research from the JPMorgan Chase Institute underscores the important role tax refunds play in the financial lives of millions of American families.

Examining roughly 1 million bank accounts that received or paid taxes between 2015 and 2017, analysts found that tax-related transactions had “a significant and long-lasting impact on spending and saving patterns” for many households.

Here are some key findings from the report:

  • About 80 percent of families in the study received one or more refunds and made no payment, while only 8 percent made payments.

     
  • Families that received refunds had lower average take-home incomes ($49,992) than families that made tax payments ($71,091).
  • Tax refunds were worth nearly 6 weeks of take-home pay on average ($3,602) in households that received them.

     
  • Tax payments were worth roughly 2.5 weeks of take-home pay on average ($2,923) in households that made them.

     
  • Families receiving refunds started spending them quickly, with most (72 percent) of the money spent within 180 days. At the same time, refunds had a lasting impact, with most accounts still above their pre-refund baseline six months later.

     
  • In the week following receipt of the rebates, families increased spending on durable goods such as cars and appliances (101 percent above baseline), credit card balances (85 percent above baseline) and cash withdrawals (164 percent above baseline).

Tax refunds had a much bigger impact on families receiving large payments relative to their cash holdings (see the chart below). For these families, cash withdrawals, credit card bill payments and purchases of items like cars, appliances and electronics more than triple in the week after the first tax refund is received, the report said.

Why it matters: The report shows the extent to which American families use the tax system as a way to build up lump sums of cash. Those lump sums then play an important role in how families spend and save in the following weeks, and the effects can last for months.

Quotes of the Day: Gridlock Ahead

“[O]ne should expect the legislative bare minimum this year and next - and that could even be a bridge too far considering the government has only been open for 39 of the last 74 days. … Trump is an extremely visceral politician who takes everything personally. It strikes us as extremely unlikely that Trump will be willing to cut deals with House Democrats who seem to be targeting his family members and all aspects of his life.”

– Chris Krueger, Cowen Research Group

“It's a disgrace to our country. I'm not surprised that it's happening. Basically, they've started the campaign. So the campaign begins. Instead of doing infrastructure, instead of doing health care, instead of doing so many things that they should be doing, they want to play games.”

– President Trump, speaking to reporters Tuesday

Deficit Rises 77% Over First 4 Months of Fiscal 2019

The budget deficit between October 2018, when the current fiscal year began, and January 2019 was $310 billion, a 77 percent increase from the same period a year earlier, the Treasury Department said Tuesday. Shifts in the timing of payments and outlays explained about half of the increase; without those shifts, the deficit would have increased by about 40 percent.

Federal spending rose 9 percent during the period, while total receipts fell 2 percent.

“The tax code overhaul that took effect last year has constrained federal revenues over the past year, while a two-year budget deal has boosted government spending, particularly on defense,” The Wall Street Journal’s Kate Davidson wrote. “On a 12-month basis, revenues declined 1.5%, while outlays have risen 4.4%.”

Obamacare’s Premium Problem

Affordable Care Act premiums are becoming unaffordable for many middle-income Americans who don’t qualify for federal subsidies, according to a new analysis by the Kaiser Family Foundation. The affordability problems are especially acute for older adults with incomes above 400 percent of the federal poverty line, particularly those living in rural areas, the analysis finds.

Most people who buy health insurance through the Affordable Care Act’s exchanges qualify for tax credits to help them afford their plans, and as their premiums rise, their subsidies do as well. But eligibility for those subsidies is cut off for people with incomes of at least 400 percent of the federal poverty level. That “subsidy cliff” has left some middle-income people struggling to afford ACA plans; while the number of subsidized enrollees grew from 8.7 million in 2015 to 9.2 million in 2018, the number of unsubsidized enrollees over that same timeframe fell from 6.4 million to 3.9 million.

The Kaiser report says that there is a “substantial decline in affordability” of ACA plans between those with incomes of $45,000 (eligible for subsidies) and those with incomes of $50,000 (not eligible).

  • In about one fifth of counties, a 40-year-old making $50,000 would have to pay more than 10 percent of their income for the cheapest plan available through the Affordable Care Act’s exchanges (those counties tend to be rural, so they represent just 8 percent of total ACA marketplace enrollees).
  • Across much of the country, a 60-year-old making $50,000 would have to pay more than 20 percent of their income for the cheapest plan available. Nebraska is the most extreme example: “in the 28 Nebraska counties with the highest premiums, a 60-year-old making $45,000 would pay nothing in monthly premiums and the same person making $50,000 would pay $1,314 (32% of income) for the lowest-cost plan,” the analysis says..

Why it matters: These details “underscore why the Trump administration and other Republicans are pushing inexpensive insurance that bypasses ACA rules and protections — and why Democrats are pursuing strategies to make ACA plans more affordable,” The Washington Post’s Amy Goldstein says.

But don’t expect real progress anytime soon: “So far, while there seems to be a consensus that individual market premiums are out of reach for some middle-class people ineligible for ACA subsidies, there is little consensus around what to do about it,” the Kaiser analysis concludes.



And lawmakers are showing little interest in trying to find that consensus. “For all the lip service lawmakers still pay to improving the Affordable Care Act, there’s little path forward this year for any bipartisan legislation to improve the affordability of plans,” the Post’s Paige Winfield-Cunningham reports. “It’s like Democrats and Republicans are still residing on totally different planets when it comes to the ACA.”

‘Skin in the Game’ Doesn’t Make Patients Better Health-Care Shoppers: Survey

Proponents of high-deductible insurance plans argue they make consumers better health-care shoppers. The idea is that asking patients to cover more of their health care costs — to have “skin in the game” — will lead them to make more prudent, cost-conscious decisions about their care.

Only it doesn’t work, according to a new study published in Health Affairs. The latest study adds to previous evidence that consumers don’t shop around for the best health care value, even when they’re spending their own money. And concerns have grown that patients with high-deductible plans end up delaying or forgoing care they can’t afford.

The new Health Affairs report details the results of a survey of 1,637 Americans in high-deductible health plans. It found that:

  • Just one in four enrollees in high-deductible plans had talked to a health-care provider about how much a service would cost.

     
  • Less than 15 percent compared prices across multiple locations.

     
  • Less than 15 percent compared quality measures for a service at different locations.

     
  • Just 6.5 percent tried to negotiate a price with their provider.

The most common reason people didn’t try these “consumer behaviors” is that the idea never crossed their mind. Nearly a third of those surveyed hadn’t considered discussing costs with their provider, for example (and a similar percentage said such a discussion wouldn’t have changed their decision about care). Forty-four percent of those surveyed said they hadn’t thought to compare prices — and nearly 40 percent said that comparing prices wouldn’t have changed their care choices.

Why it matters: “These results raise important questions about the extent to which patients in HDHPs are willing and able to function as consumers in the health care marketplace,” the report’s authors write. But they also say that the survey results indicate there may still be room for employers, insurers and providers to better promote “consumer behaviors.”

Read more of Health Affairs’ March issue on patients as consumers, including this blog post on the ‘new’ health care consumerism and this commentary piece on why patients shouldn’t be viewed as consumers.

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18 Proposals to Reduce Health Care Costs

In response to a request from the Senate Committee on Health, Education, Labor and Pensions, analysts from the Brookings Institution and the American Enterprise Institute have proposed a set of policies that they say could reduce health care costs in the U.S.

The team of experts — Henry Aaron, Matthew Fiedler, Paul Ginsburg, Loren Adler and Alice Rivlin from Brookings and Joseph Antos, Benedic Ippolito and James Capretta from AEI — offer 18 specific policy proposals designed to slow the rate of increase in health care costs and potentially gain bipartisan support.

“We believe that many policies have potential to make the market for medical care more efficient through a combination of pro-competitive reforms and the use of regulation,” the group said. “Many such policies are relatively well-understood but have not been pursued for a variety of reasons, including stakeholder opposition.”

The proposals have four main goals: improving private insurance, increasing competition in state insurance markets, improving incentives in the Medicare system and promoting competition in the pharmaceutical market. Some of the specific policies get fairly deep into the weeds of health care law — calling, for example, for “restricting Risk Evaluation and Mitigation Strategies (REMS) abuse” and “encouraging development of all-payer claims databases (APCSs)” — but others offer broad proposals that have widespread backing, such as enforcing anti-trust laws in an increasingly consolidated health care market and prohibiting surprise medical billing.

Review the full set of proposals here.

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