Flexible Spending Accounts as Insurance

James Harold Cardon () and Mark H. Showalter ()

Journal of Risk & Insurance, 2003, vol. 70, issue 1, pages 43-51

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"-super-*, is increasing in the consumer's level of risk aversion; (2) "F"-super-* is increasing in the level of the maximum loss; If utility is decreasing in absolute risk aversion (DARA), then "F"-super-* is (3) decreasing in income and (4) increasing in the marginal tax rate. Copyright 2003 The Journal of Risk and Insurance.

Date: 2003
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