Health care comes at a cost. Insurance can help cover some or most of the cost of medical treatment, but many plans have a deductible that you need to pay before coverage begins. Having a dedicated health care emergency savings fund can help you afford the cost of unexpected treatments or medications without having to take out a loan or use your credit card.
Learn more about the value of an emergency fund and how to set one up for health care costs.
What Is an Emergency Fund?
An emergency fund is a liquid account that can help you cover the costs of unexpected expenses. In the U.S., 61% of people say they could cover the cost of a surprise $400 expense, such as a car repair or doctor’s bill, using cash or the equivalent. Often, the cash comes from their emergency savings accounts.
Emergency funds are necessary. Having some money in savings “just in case” means you can avoid taking on debt and can keep current on your bills and other financial obligations when the unexpected comes your way.
An emergency fund can be used for health care, job loss, major repair or a surprise bill. Once you’ve established your emergency fund, decide when you can access the money in the account and define what “emergency” means for you.
How Emergency Funds Can be Used for Health Emergencies
A health emergency isn’t the same as routine medical care. Ideally, you’ll only withdraw money from your savings fund in an urgent medical situation. A few examples include:
- A broken bone: Most broken bones are unexpected and require immediate medical treatment. Fixing a broken bone, such as a leg, can cost up to $7,500 without insurance.
A wound or injury: Some wounds and injuries are more severe than others an
dneed medical care right away. Your emergency fund can help you afford the visit to an emergency department and any treatment or care you receive.
- Pregnancy complications: Complications during pregnancy can put the fetus and mother at risk. Treating them can add to the cost of maternal care.
- Extreme allergic reaction: Some people have unexpected allergic reactions that require emergency treatment. The money in an emergency fund can help cover the cost of treating an allergic reaction in an emergency setting.
- Heart attack or stroke: Heart attacks and strokes are two examples of unexpected conditions that usually require immediate medical care and treatment.
Why You Should Prioritize Your Emergency Fund
When you have money set aside to cover unplanned medical costs, you won’t have to hunt for ways to pay. You can also avoid taking on more debt than you can afford to repay. These types of funds are designed to protect your financial health.
When you focus on saving money for emergencies, life’s surprises become less disruptive. You don’t have to worry as much about how you’ll pay for a hospital or how you’ll afford medications to treat an acute illness. The money will be there for you to use as needed.
If you have a health insurance plan with a high deductible, prioritizing saving in an emergency fund can be an excellent idea. High-deductible plans typically have lower monthly payments. They can make financial sense for people who don’t have ongoing medical expenses and primarily see their physician for preventive care. But if you do need to go to the hospital or require medical treatment for a new condition or injury, your insurance plan usually won’t provide coverage until you’ve paid the full deductible and any co-insurance amounts.
How Much Money Should You Put in Your Emergency Fund?
Your current financial situation plays a significant role in determining how much you need to save for an emergency fund. If you live in a dual-income household and have a fair amount of disposable income, you might be fine with a smaller emergency fund than someone in a single-income household or a household that doesn’t have much income to spare.
Having three to nine months’ worth of expenses saved in your emergency fund is a standard recommendation. If you’re establishing a fund exclusively for health care costs, consider making your deductible your target savings amount.
Start small and work your way up. If you don’t have any money savings, set a goal to save $1,000 for emergencies. Once you have $1,000, work on saving one or two months’ worth of expenses or half of your deductible. You can build from there, saving up nine months’ worth of expenses or the full amount of your deductible. Breaking your target down into smaller goals can make saving for an emergency easier.
Where to Keep Your Emergency Fund
An emergency fund must be accessible. A savings account can be a good option since the balance will earn interest. The Federal Deposit Insurance Corporation (FDIC) also insures the amount in the account.
You can also invest some or all of your emergency fund. Investments don’t have FDIC protection but may have a higher return rate than a savings account. It’s critical to weigh the risk against the potential for return when you’re choosing where to save your money. It could be that you prefer to put part of your emergency savings in an FDIC-insured account and invest another part of it.
Mid Penn Bank Can Help You Set up an Emergency Fund
Don’t let a surprise medical bill or a health emergency derail your financial well-being. Mid Penn Bank offers savings accounts to help you reach your goals and set aside money for any emergency. Contact us today with any questions you have and to learn more.
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