Majority of HSAs carry funds over

ALTHOUGH THEY WERE introduced just seven years ago, health savings accounts (HSAs) have become pretty familiar to consumers. So familiar, in fact that the place you're most likely to find an account holder tapping her account is in the drug or grocery store checkout lane, according to J.P. Morgan's second annual HSA Program Snapshot.

"The news is really that HSAs appear to be working just the way they were intended to work," says David Josephs, a managing partner at J.P. Morgan, which manages more than 700,000 HSAs with over $1 billion in assets. "People are using them to build up balances and put away resources for medical expenses that they may be faced with in the future, but they're also using them to cover current healthcare expenses."

Indeed, an analysis of HSA accounts administered by J.P. Morgan found 73% of account holders contributed more than they spent during each month of 2010; that's up from 68% in 2009. The average contribution per account in 2010 was $1,884-up 4% from the previous year. Distributions likewise increased: on average, account holders withdrew $1,377 for healthcare purchases in 2010 compared to $1,305 in 2009.

By contrast, purchases at drug, grocery and discount stores accounted for a total of $288 in average annual spending last year. Purchases at drug stores were the most frequent last year with 3.7 transactions per account, followed by grocery stores, with 2.2 transactions per account. The data doesn't show what account holders were purchasing, Josephs says, nor does it indicate any demographic patterns.

"You can't look at a person's income level, location or age and say, 'that makes somebody a spender or a saver'," he says. "You'll find spenders and savers in every category."

The accounts tend to build up early in the year, and average spend per account was highest in the month of April at $136. The average distribution per account in 2010 was $1,377, or $115 per month.

HSA balances on the whole are growing. The average account had a balance of $1,494 last year, up 7% from 2009.

Accounts that have been in existence the longest typically have the highest balances. The average account opened in 2010 had a balance of just $919, compared to an average of $4,445 for accounts opened in 2004

What's more, as people build their healthcare nest eggs, they're increasingly moving into investment accounts. Last year the number of investment accounts grew by 30%.

Josephs expects these trends to continue-and perhaps accelerate-this year. "I think 2011 will be more of the same and probably more of more of the same," he says. "I think an unintended result of the healthcare reform debate is people are more aware that healthcare costs money and they are more knowledgeable and conscious of having funds available to pay for healthcare costs."

-Shelly Reese