Insurance choice and tax-preferred health savings accounts.
We develop an infinite horizon utility maximization model of the interaction between insurance choice and tax-preferred health savings accounts. The model can be used to examine a wide range of policy options, including flexible spending accounts, health savings accounts, and health reimbursement accounts. We also develop a 2-period model to simulate various implications of the model. Key results from the simulation analysis include the following: (1) with no adverse selection, use of unrestricted health savings accounts leads to modest welfare gains, after accounting for the tax revenue loss; (2) with adverse selection and an initial pooling equilibrium comprised of "sick" and "healthy" consumers, introducing HSAs can, but does not necessarily, lead to a new pooling equilibrium. The new equilibrium results in a higher coinsurance rate, an increase in expected utility for healthy consumers, and a decrease in expected utility for sick consumers; (3) with adverse selection and a separating equilibrium, both sick and healthy consumers are better off with a health savings account; (4) efficiency gains are possible when insurance contracts are explicitly linked to tax-preferred health savings accounts.
Cardon
James H
JH
Department of Economics, Brigham Young University, Provo, UT 84602, USA. cardon@byu.edu
Showalter
Mark H
MH
D002755:Choice Behavior; D006801:Humans; D007348:Insurance, Health; D020402:Medical Savings Accounts / Q000191:economics*; D015233:Models, Statistical; D013660:Taxes / Q000331:legislation & jurisprudence*; D014481:United States