How To Build a Healthcare Emergency Fund

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You’ve likely heard the age-old advice that you should build an emergency fund covering at least three to six months of expenses. But you may not have been pushed to build a separate healthcare emergency fund. While you can dip into your traditional emergency fund to cover some healthcare expenses, it’s better to build a dedicated emergency fund, separate from your general one, that will be devoted to your relatively foreseeable out-of-pocket healthcare expenses. Rather than true, unexpected emergencies, like unscheduled home or car repairs, many of your healthcare expenses that aren’t covered by insurance are foreseeable. 

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For example, if you don’t have vision insurance, you can likely anticipate paying for glasses and/or contacts. If you have a high deductible on your health insurance, you know that in many years you’ll need to pay some or all of that deductible amount. You’ll likely also have differing healthcare expenses as you progress through life, from being single to getting married to having kids. This is why it’s best to build a healthcare emergency fund separate from your general one. Here are steps you can take to get started. 

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Healthcare Emergency Fund for Singles

If you’re a single person just starting out in life, you likely are in good health. At this age, you don’t have to worry about building a significant healthcare emergency fund, particularly if you are funding both your retirement plan and your general emergency fund. But this doesn’t mean you should overlook a healthcare emergency fund completely.

For starters, you’ll want to get in the habit of setting aside money every month for your healthcare emergency fund. Even a little at a time will pay off.

Second, you should anticipate that you’ll have some uncovered medical expenses, even at your age. Perhaps you need glasses or contacts, or perhaps you tend to injure yourself from sports and leisure activities. Perhaps you have a high deductible insurance plan, or a low-coverage plan that requires you to pony up more money out-of-pocket in the event of an injury or illness. Whatever the case may be, you’ll likely want to devote at least a few thousand dollars to a healthcare emergency fund. 

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And if you’re older and single and you don’t have a significant healthcare fund, you’ll want to take steps to build it. Maybe that means cutting some expenses and moving that money into your healthcare fund. Or you could take on a side gig that is used strictly to build up your savings for healthcare.

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Healthcare Emergency Fund for Couples

Once you get married, your financial life takes on added importance. While you could, to some degree, be carefree with your finances as a single, once you are married, you have new financial responsibilities. Not only do you and your spouse now need to cover each others’ medical expenses, but if one of you were to become permanently incapacitated it could bring financial devastation to your family. This is why it’s important at this age to get coverage such as life and disability insurance, in addition to a solid health plan.

On top of this, you should be working on buffering your healthcare emergency fund as well. For a double-income family, a medical emergency can be a double whammy, as your medical costs skyrocket while your income falls dramatically at the same time. While good insurance is the first step, a healthy emergency fund just for healthcare — think something in the five digits — can also give you peace of mind.

Healthcare Emergency Fund for Families

If you have kids, it’s time to boost your healthcare emergency fund even further. Not only do you have more people to cover in case of any emergencies, but these medical costs are likely to grow as your family ages. Although kids are generally healthy, there are plenty of childhood illnesses and accidents you may have to deal with, and that’s in addition to the more usual medical expenses you’ll face, such as braces or crutches. Meanwhile, you’ll also need to be prepared for uncovered medical expenses for both you and your spouse, from benign procedures like facial treatments or uncovered prescriptions to more serious issues like long-term care. Since these types of medical costs can quickly add up, meaning you should shoot for a healthcare emergency fund of at least $25,000 to $50,000. 

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That can be a high number to get to, but start small. Cut some costs, change your grocery shopping habits to save more, find ways to make extra money like having a garage sale, and just focus on building that fund little by little.

Health Savings Account

The best place to keep your healthcare emergency fund is in a health savings account. For 2022, you can contribute up to $3,650 for singles and $7,300 for joint filers to an HSA. Contributions earn a tax deduction, earnings grow tax-free and qualifying withdrawals are also tax-free. The only catch to the HSA is that you must have a high-deductible health insurance plan to qualify.

The Bottom Line

You can certainly keep just a single emergency fund and use it to cover everything from household and roadside emergencies to uncovered healthcare costs. However, if you can manage it, you’ll be ahead of the game by creating a dedicated healthcare emergency fund. Even with good insurance plans, at least some medical expenses are likely to slip through the cracks, and having a ready source of cash can give you great peace of mind. Storing your healthcare emergency fund in a health savings account is the optimal choice, if you’re eligible, as you’ll get a tax deduction on your contributions, you may be able to invest your balance, and you can withdraw your funds tax-free for qualifying distributions.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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