New report focuses on savings and usage patterns of HSA Account holders

J.P. Morgan Treasury Services, administrator of the J.P. Morgan Health Savings Account (HSA) program, recently released insights into the saving, spending, and investing habits of its more than 500,000 HSA accountholders. Data in J.P. Morgan’s Program Snapshot provide not only a better understanding of how HSAs are being used but also how they have become an integral part of saving and paying for medical expenses throughout the country.

"The growing number of HSA accounts highlighted in the report points to an increasing level of comfort with HSAs and HSA-compatible health insurance options," notes David Josephs, Managing Director, J.P. Morgan. "The significant double digit growth year after year, both in the accounts we are bringing on board and the balances within existing accounts, is evidence of greater acceptance of these accounts."

There are a couple of reasons for this, says Josephs. First, people are getting more familiar with HSAs in general. Second, as employers and individuals continue to look for ways to structure a health benefit that is both affordable and meets the long-term needs of employees, the fact that HSAs have the ability to accumulate over the years and allow individuals to save money for future health expenses is an attractive alternative. Finally, there are more success stories now than in the past. It is much more powerful to have someone say, "We've been doing this for three or four years and have had great success," than to say, "We've been doing this for three or four weeks," which was the case a few years ago.

When HSAs were first introduced, there was a lot of interest in how they would "behave." Are people going to spend? Are people going to save? Are they going to break into different camps? Data from the Snapshot indicate that people do, in fact, use HSAs as they were intended - to pay for medical expenses as they occur but also to save for unforeseen medical expenses in the future. People are putting in more than they are taking out, so their current year needs are being met while at the same time they are able to set aside a little for a rainy day.

The insights offered in the report should be welcome news to employers, says Josephs. The data show that the overwhelming majority of people are spending their HSA dollars at the doctor's office, dentist, drug store, optometrist, chiropractor, and so on. In other words, they are spending it as originally designed - to supplement their insurance to pay for medical care that insurance does not cover. Employers can take comfort in knowing that if they want to contribute to an employee's account, it will be used appropriately.

J.P. Morgan also expects employers who are offering HSAs for the first time, or those who already have programs in place, to use the Snapshot as they review health plan options for the upcoming enrollment season or as a benchmark for comparison.

According to the report 45% of accounts have balances over $1,000 as of December 31, 2009 compared to 35% at the end of 2008.

The percentage of accounts with balances over $2,000 increased from 20% at the end of 2008 to 31% in 2009. The average spend or distribution per HSA in 2009 was $1,305, or $109 per month, while purchases at drugstores resulted in the highest volume of transactions per account, hospitals and dental expenses had the highest average dollar amount per transaction ($212 and $194 respectively) and most investment dollars were held in equity mutual funds (52%). The average account contribution in 2009 was $1,816.

The fact that an increasing number of accounts have higher cash balances is simply a function of time, explains Josephs. People build up balances over time. The first year they may put in a set amount of money and only use a portion of it. That carries over to the next year. The second year, they do the same thing. Gradually, the account balance begins to build, and after a few years, they have a fairly hefty balance in their account.

Another factor that may have contributed to the increasing number of accounts with higher cash balances is a legislative change that "decoupled" the contribution from the deductible. Initially, when HSAs were created, individuals could not contribute more to their HSA than the deductible for their health plan.

A few years in, Congress changed the law, which allowed an individual to contribute more than the deductible, up to allowable maximums.

Time is also a factor when it comes to the number of accounts with balances containing less than $500, explains Josephs. As more and more people sign up for HSA accounts, the number of "beginner" accounts grows. When HSAs were first introduced, the number of people signing up was significantly lower - perhaps only a few 100,000 in the first year.

Over time, those individuals have had a chance to "beef up" their accounts, but the majority of HSA accountholders have come on board much more recently, and that directly impacts the ratio of account balances.

Many of the estimated 12 million HSA accountholders today are relatively new and have much lower account balances because they have not had a chance to accumulate funds yet. The fact that the number continues to grow indicates that consumers are becoming increasingly familiar with HSAs and understand them significantly better than they did just a few years ago, says Josephs, but it also means that they have not had a chance to accumulate funds, which pulls down the overall average of account balances.

J.P. Morgan currently manages HSA programs in conjunction with many of the largest health insurance companies in the United States as well as Fortune 500 companies and small businesses across the nation. As of April 2010, J.P. Morgan is managing more than 530,000 HSAs with over $800 million in assets.  A full copy of J.P. Morgan's HSA Program Snapshot is available at www.jpmorgan.com/hsa