THE ROLE OF EMPLOYEE FLEXIBLE SPENDING ACCOUNTS IN HEALTH-CARE FINANCING

Employee flexible spending accounts for health care represent one comp onent of the current health care financing system that merits serious reform. These accounts create a system of undesirable incentives, forc e employees and employers to take complicated gambles, reduce tax reve nues, and fail to meet their purported policy objectives. This paper d escribes shortcomings in these accounts from both a theoretical and an empirical perspective. Some proposed alternatives, including medical spending accounts and zero balance accounts, resolve many of these con cerns but not all of them.