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Flexible Spending Accounts as Insurance

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  • James H. Cardon
  • Mark H. Showalter

Abstract

We model flexible spending accounts (FSAs) as a special type of insurance policy. We prove the following results given losses drawn from a continuous distribution: (1) the optimal election amount, F*, is increasing in the consumer's level of risk aversion; (2) F* is increasing in the level of the maximum loss; If utility is decreasing in absolute risk aversion (DARA), then F* is (3) decreasing in income and (4) increasing in the marginal tax rate.

Suggested Citation

  • James H. Cardon & Mark H. Showalter, 2003. "Flexible Spending Accounts as Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(1), pages 43-51, March.
    • Handle: RePEc:bla:jrinsu:v:70:y:2003:i:1:p:43-51
    DOI: 10.1111/1539-6975.00046
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    Cited by:

    1. Barton H. Hamilton & James Marton, 2008. "Employee choice of flexible spending account participation and health plan," Health Economics, John Wiley & Sons, Ltd., vol. 17(7), pages 793-813, July.
    2. Cardon, James H. & Showalter, Mark H., 2007. "Insurance choice and tax-preferred health savings accounts," Journal of Health Economics, Elsevier, vol. 26(2), pages 373-399, March.
    3. Richard Peter & Sebastian Soika & Petra Steinorth, 2016. "Health Insurance, Health Savings Accounts and Healthcare Utilization," Health Economics, John Wiley & Sons, Ltd., vol. 25(3), pages 357-371, March.
    4. Steinorth, Petra, 2011. "Impact of health savings accounts on precautionary savings, demand for health insurance and prevention effort," Journal of Health Economics, Elsevier, vol. 30(2), pages 458-465, March.
    5. James H. Cardon, 2010. "Flexible Spending Accounts and Adverse Selection," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 145-153, March.

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