Employee cost-sharing and the welfare effects of Flexible Spending Accounts

William Jack (Georgetown University), Arik Levinson (Georgetown University), and Sjamsu Rahardja (World Bank) ()
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William Jack (Georgetown University), Arik Levinson (Georgetown University), and Sjamsu Rahardja (World Bank): Department of Economics, Georgetown University, http://www9.georgetown.edu/faculty/wgj/
Authors registered in the RePEc Author Service: Arik Levinson

Working Papers from Georgetown University, Department of Economics

Abstract: In recent years, employees have been shouldering an increasing share of the costs of traditional employer-provided health insurance. At the same time, more and more employers have been allowing employees to pay their out-of-pocket health care costs using pre-tax earnings, through tax-subsidized flexible spending accounts (FSAs). We use a cross-section of firm-level data from 1993 to show empirically that these FSAs can explain a significant fraction of the shift in health care costs to employees, and to evaluate the welfare impact of this shift. Correcting for selection effects, we find that FSAs are associated with insurance contracts with coinsurance rates that are about 7 percentage points higher, relative to a sample average coinsurance rate of 17 percent. Meanwhile, coinsurance rates net of the subsidy are approximately unchanged, providing evidence that FSAs are welfare-neutral.

Keywords: Health expenditure subsidies; moral hazard; Flexible Spending Accounts (search for similar items in EconPapers)
JEL-codes: D60 H21 I18 (search for similar items in EconPapers)
Date: 2005-05-12
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Citations: View citations in EconPapers (2)

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Journal Article: Employee cost-sharing and the welfare effects of flexible spending accounts (2006)
Working Paper: Employee Cost-Sharing and the Welfare Effects of Flexible Spending Accounts (2005)
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