No one likes coming to terms with their own mortality. It’s an uncomfortable subject — and, honestly, it’s kind of a downer. But while it’s probably not the best topic to bring up at your next office party, preparing for the worst is important. The freedom to live a life you love starts with a financial foundation that releases you from having to worry about how you’d afford, say, a sudden broken leg or a cancer diagnosis.
Having an emergency savings fund, a growing retirement account and a rock-solid budget is the best way to make sure that if you ever need some financial help, you already have the resources to make it work sitting in your own back pocket.
But how much do you really need to save before you can stop stressing about a major unexpected bill — and how do you get there?
Medical Emergencies Can Be Really Expensive
It’s easy to procrastinate when it comes to getting your finances in order, assuming that the worst won’t happen to you — or at least not until after you have enough cash stored away to cover it. That way of thinking can be comforting, but it’s not entirely realistic. Even when you’re young and relatively healthy, accidents happen. And they can cost a lot.
The emergency room is a famously expensive option for care — sometimes even if you don’t end up getting treatment there. A study from Johns Hopkins University found that emergency rooms charge patients receiving out-of-network care an average of 4.4 times above what Medicare allows. For an electrocardiogram that costs Medicare about $16, emergency departments in the study charged patients an average of $95 — and have been found to charge as much as $317. In total, the study found that going to the emergency room can run you a bill as high as $12,600 more than it would be for a Medicare patient.
Staying within your network can help bring your medical costs down, but especially during emergencies, that’s not always an option. A primary health insurance policy alone isn’t a guarantee that these costs will be covered, either. A joint survey from the Kaiser Family Foundation and the New York Times found that 1 in 5 working-age Americans with health insurance struggle to pay their medical bills. Among them, 63 percent report using up most or all of their savings to pay for their medical treatments, and 42 percent say they’ve taken on an extra job or worked more hours to cover their costs. By 2023, each adult American is predicted to spend $14,944 per year on health care costs.
How to Prepare for an Expensive Emergency
If your savings account is looking thin, don’t panic yet. A little preparation can go a long way. Use these strategies to create a strong financial base and protect yourself from unexpected expenses.
Build an emergency savings fund. Open up a dedicated savings account for unexpected emergency costs like medical care. Experts recommend saving about six months’ worth of living expenses in your emergency savings fund. What does that translate to when it comes to medical costs, though? Your deductible is a great place to start. Go back through your plan and check how much your deducible is for the year. Would you be able to cover a bill that size if you had to? Additionally, if you have a family history of chronic illness, you may want to consider building a bigger buffer for added security and peace of mind.
Make sure you have the right insurance. Review your insurance coverage. Does your network give you coverage for any medical services you might need? Are your potential out-of-pocket costs manageable? If you don’t like what you see, then start searching for alternative insurance options that meet your needs. This might come in the form of a new primary insurance plan, or you might want to pad your current plan with extra coverage from a supplemental insurance plan.
Consider supplemental insurance coverage. A supplemental health plan, like critical illness or hospital indemnity insurance, can absorb some of the costs of an accident, illness or injury with a cash payout to help you get back on track as soon as possible.
Part of what makes life interesting is embracing the unexpected, whether it’s a surprise birthday party or realizing there was something off with the chicken you ate last night. You can’t predict exactly when an expensive emergency will fall into your lap, but you can prepare for it ahead of time. You already have the tools to meet your financial health goals. Now you just need to use them.