Patent ID: 7426474

Claim:
A method for calculating optimal flexible savings account contributions for a particular user, comprising the steps of: formulating a dynamic programming model based on a consumer's objective function comprising a utility function, said dynamic programming model incorporating health plan parameters; exogenous parameters, preference parameters, and a health transition equation; assigning values to the exogenous parameters by assembling recent health care use and cost data for a reference population, acquiring personal and health information on the user and on his/her household members, estimating the distribution of out-of-pocket costs the user and his/her household is likely to face in the coming year in various health plans, based on the experience of comparable households in the reference population calibrating the health transition equation with historical claims data linked to the user's health information, and estimating a marginal tax rate based on the user's personal information; estimating the user's risk aversion; using numerical calculation methods to estimate other said preference parameter values by: solving the dynamic programming model with assigned values for the exogenous parameters, with the estimated risk aversion for said particular user, and with a plurality of different test values for other preference parameters, and selecting as the estimated preference parameter values those test parameter values which correspond to solutions of the dynamic programming model which are close to observed historical expenditures of like-situated members of a given health plan; solving the dynamic programming model by numerical calculation methods for optimal flexible spending account contributions for a particular user in one or more particular health plans (or no health insurance), with the assigned exogenous parameters, the estimated risk aversion and with the estimated values for the preference parameters; and outputting the optimal contributions, the optimal contributions reducing loss of unspent money at the end of a year.