Yahoo Autos You should have 3-6 months of savings for emergency medical situations - here's how to get started
It's important to set aside money for emergency medical situations, besides just investing in health insurance.
In general, you should have three to six months' worth of living costs saved.
If you have insurance, you should have your out-of-pocket maximum saved.
According to the Federal Reserve Board, 22% of adults incurred a major unexpected medical emergency in 2019, with the expense ranging from $1,000 to $1,999.
A CDC study also shows that the average medical cost of all fatal injuries is about $6,880 per emergency department patient and $41,570 per hospitalized patient.
"You can never predict when emergency medical situations are going to happen, and it's important to have money set aside to cover those costs," says Carolyn McClanahan, MD, certified financial planner and founder of Life Planning Partners, Inc.
Here are some tips to save for medical emergencies, where you should keep your savings, and what to do if you haven't saved up for an emergency fund.
How much should you save for surprise medical costs?
Your emergency fund should be enough to cover all your living expenses for three to six months, but if that's too overwhelming, $1000 is a good starting point and you can gradually increase it over time.
Experts recommend that your target savings amount for emergency medical expenses should be equal to your health insurance's out-of-pocket maximum, no matter if you have individual or family coverage. If your health plan is compliant with the Affordable Care Act (ACA), your out-of-pocket maximum won't exceed $8,550 for individuals and $17,100 for families in 2021.
Your "out-of-pocket maximum" is the amount you pay before your plan pays 100% of your covered medical costs for the rest of the medical year, which is indicated in your health insurance. Copayments, deductibles, and coinsurance typically count toward this amount, but it varies per plan. Prescription drug costs that you have to pay may be included, but again it varies. Keep in mind that your out-of-pocket maximum doesn't include your monthly installment payment for insurance or "premiums."
"For example, if your maximum out-of-pocket is $4000, you should have $4000 in a savings account just in case you have a serious medical issue and need to use that money," says McClanahan.
According to Ken Waltzer, MD, MPH, certified financial planner, and co-founder and managing partner of KCS Wealth Advisory, "each person should look at their health plan and consider their own health status and healthcare preferences to get an idea of what kind of expenses they might incur."
If you receive care from physicians, hospitals, or facilities that aren't part of your health insurance company's network (aka "out-of-network providers") or use services that aren't covered by your plan, medical insurance might not be enough to cover your expenses and you should set a higher emergency fund. Sometimes there can be surprise bills from subcontracted providers or for emergency care, even when you try to stay in-network.
If the healthcare provider has a contract with your insurance company that they'll accept reimbursement without additional billing to members, regardless of their charges, they are considered an "in-network provider." However, if they have no such agreement, they are an "out-of-network provider" and their charges are not controlled; they may balance bill members to pursue more payment.
According to McClanahan, you should also increase your target amount if you have a chronic disease because you're more likely to hit your maximum out-of-pocket expenses due to ongoing care.
