Frequently asked questions
Medical saving account
How should the administrative cost of a medical saving account (MSA) be captured for NHA purposes?Should one include the total administrative cost of managing a savings account, which includes the substantial cost of collection and investments etc? Or should one try to estimate the administrative cost related to actually paying out for medical benefits?
Medical savings accounts (MSAs) are arrangements in which individuals pay into a personal fund, typically using pre-tax income. The only withdrawals from the fund that are permitted are for medical expenses; the fund balance typically accrues interest or dividends from year to year. The amount included in the health accounts in a given year equals the disbursements from the MSA plus the administrative cost.
In theory, only part of the administrative cost of the MSA should be included in the health accounts. MSAs are part savings accounts and part mechanisms for paying for medical care. Administrative expenses attributable to managing the savings account aspect of the MSA should be excluded.
Suppose, for example, that one division of the insurance company handles collection and disbursement, and that another division of the company handles investment and financial management. In that case, a plausible argument could be made that the first division's costs would be included in the NHA figures (including some portion of the insurer’s general administration costs) and that the second division's would be excluded because the division was uninvolved in the health insurance aspects of the MSA.
In this respect the treatment may appear to depart from the treatment of regular health insurance. There, the value of the insurance in total health expenditure is premiums earned (plus subsidies, if any); the value in personal health care expenditure is total benefits incurred. Because there is a real transaction involved in the purchase of insurance, it is not necessary to look at the components of administrative expenses to place a value on the insurance. However, the two approaches really are compatible; the MSA approach simply partitions "lines of business" for the MSA steward and omits the non-health line.
In practice, it may be impossible to separate the two different parts of the administrative cost of the MSA. In that case, the NHA team must decide to include the entire administrative cost in the health accounts or to use some type of professional judgment to estimate the two pieces. In either case, the decision and steps should be documented.
However one handles MSA administrative costs, the MSA administration-to-benefit ratio will likely be very large compared to “conventional" insurance -- but that is the nature of MSAs.