Flexible Spending Accounts as Insurance

9 Pages Posted: 21 Mar 2003

See all articles by James Cardon

James Cardon

Princeton University - Department of Economics

k H. Showalter

Brigham Young University

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

Cardon, James H. and Showalter, Mark H., Flexible Spending Accounts as Insurance. Available at SSRN: https://ssrn.com/abstract=388537

James H. Cardon (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Mark H. Showalter

Brigham Young University ( email )

Provo, UT 84602
United States

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