CHP/PCOR core faculty member Jay Bhattacharya was awarded a patent on an algorithm he worked on as part of a RAND research team in 2000.

Flexible spending accounts (FSAs) permit consumers to pay for health care using pre-tax dollars. Consumers decide how much money to contribute, generally at the beginning of the year, and lose money not spent by year-end. The U.S. Patent Office recently allowed a patent on a new algorithm to calculate the optimal level of contributions into an FSA, developed by a team of RAND researchers in 2000.

Among the researchers includes Jay Bhattacharya, who is now an assistant professor at the Center for Primary Care and Outcomes Research at Stanford. Previous algorithms emphasized the tradeoff between the risk of losing money if too much is put into the account against losing the tax benefit if too little is put into the account. The RAND algorithm starts with the observation that people have an incentive to spend down their account at the end of the year to avoid losing the left over money, even if the medical care goods purchased are not particularly valuable (extra pairs of prescription sunglasses, for instance). A description of the patented algorithm has been published in 2001 Economics Letters.