Tax advantaged savings for healthcare: good for your pocketbook, bad for your health?

Abstract

Current US law allows two types of tax-advantaged savings accounts, flexible spending accounts and health savings accounts, to pay for healthcare expenses. These tax-advantaged savings offer a financial hedge against future healthcare costs, but may have implications for individuals' choice about healthy behaviour to avoid the risk of future illnesses. We compare tax-advantaged savings to non-tax advantaged savings focusing on the impact on healthy behaviour. We find tax-advantaged savings encourages savings as a hedge against future healthcare costs, but does so at the expense of healthy behaviour, potentially increasing overall societal healthcare costs.