Some proposals for replacing the affordable care act

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Some proposals for replacing the Affordable Care Act rely on an existing mechanism called health flexible spending accounts (FSA'S). At the beginning of the year, you decide how much money to put in an FSA. This money is deducted from your wages before taxes, thus reducing your tax paymens. However, if you do not use all the money in the FSA by the end of the year, it reverts to your employer. A person who earns between $38,700 and $77,399 per year after deductions is in the 37.5% federal tax bracket (15.5% for Social Security and Medicare, plus 22% for income taxes). Suppose such a person believes that their health care expenses are equally likely to be $1000, $1500, $2000, $2500, $3000, $3500, $4000, or $4500 in the coming year. To maxmize the expected benefit from their FSA, how much should they contribute to it?

 

Reference no: EM132221198

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