Optimal Contributions to Flexible Spending Accounts

Published in: Economics Letters, v. 76, no. 1, 2002, p. 129-135

Posted on RAND.org on January 01, 2002

by Jay Bhattacharya, Michael Schoenbaum, Neeraj Sood

Flexible spending accounts (FSAs) permit tax-free healthcare spending. FSA dollars at year-end are lost. Given no alternative for leftover money, rational consumers spend to zero. Optimal FSA contributions should emphasize tradeoffs between utility from pre-tax medical expenditures and post-tax non-medical consumptions.

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