Optimizing Healthcare Flexible Spending Account Contributions Using Inventory Management Theories: An Interdisciplinary Study

The healthcare Flexible Spending Account (FSA) offers employees significant tax benefits by allowing the use of pre-tax funds for healthcare expenses, but it also carries the risk of forfeiting unspent funds. To address the challenge of maximizing tax savings while minimizing the risk of forfeiture, this study applies inventory management and economic theories to develop a heuristic for optimizing FSA contributions. Both basic and extended versions of FSAs are examined, alongside the impact of marginal tax rates on decision-making. A simulation model demonstrates the effectiveness of the proposed heuristic, with results showing minimal deviations from the optimal solutions—less than 0.42% for the basic version and 3.11% for the extended version, and performance differences of less than 0.005% and 0.08%, respectively. By integrating operations management, economic theories, and personal finance research, this study introduces a novel decision-support tool for optimizing FSA contributions, while also laying the groundwork for future research in this interdisciplinary field.