Employee Choice of Flexible Spending Account Participation and Health Plan

39 Pages Posted: 3 Sep 2008

See all articles by Barton H. Hamilton

Barton H. Hamilton

Washington University, Saint Louis - John M. Olin School of Business

James Marton

Georgia State University - Andrew Young School - Department of Economics

Date Written: January 2008

Abstract

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 through the use of a unique dataset that provides three years of employee-level matched benefits data. Motivated by the theoretical model of FSA choice presented in Cardon and Showalter (2001), 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 use of the FSA program.

Keywords: Flexible Spending Accounts, Health Insurance, Health Plan Choice

JEL Classification: I18, J33, H24

Suggested Citation

Hamilton, Barton H. and Marton, James, Employee Choice of Flexible Spending Account Participation and Health Plan (January 2008). Andrew Young School of Policy Studies Research Paper Series No. 08-23. Available at SSRN: https://ssrn.com/abstract=1260842 or http://dx.doi.org/10.2139/ssrn.1260842

Barton H. Hamilton (Contact Author)

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive, Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-8057 (Phone)
314-935-6359 (Fax)

HOME PAGE: http://www.olin.wustl.edu/faculty/hamiltonb/

James Marton

Georgia State University - Andrew Young School - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

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