Employee choice of flexible spending account participation and health plan

Despite the fact that flexible spending accounts (FSAs) are becoming an increasingly popular employer‐provided health benefit, there has been very little empirical study of FSA use among employees at the individual level. This study contributes to the literature on FSAs using a unique data set that provides three years of employee‐level‐matched benefits data. Motivated by the theoretical model of FSA choice presented in Cardon and Showalter (J. Health Econ. 2001; 20(6):935–954), we examine the determinants of FSA participation and contribution levels using cross‐sectional and random‐effect two‐part models. FSA participation and health plan choice are also modeled jointly in each year using conditional logit models. We find that, even after controlling for a number of other demographic characteristics, non‐whites are less likely to participate in the FSA program, have lower contributions conditional on participation, and have a lower probability of switching to new lower cost share, higher premium plans when they were introduced. We also find evidence that choosing health plans with more expected out‐of‐pocket expenses is correlated with participation in the FSA program. Copyright © 2007 John Wiley & Sons, Ltd.