Does you emergency fund really cover you?
As I've said in earlier posts, my company is switching health plans. Today we had a meeting with a representative to go over the plan. Generally I wouldn't go because I've read about the plan already, but there was also free pizza. Who says no to free pizza?
While discussing our coverage, the representative mentioned the maximum amount out-of-pocket amount you will pay for the year. I never really thought about what this means. The idea is that if you have a $4000 maximum out-of-pocket expense, you end up paying $4000 in a year for your health expenses, the insurance company will pay for anything above that.
So why is this important?
Depending on your out-of-pocket maximum and your copays, this can be really important. Depending on your limits, you should have a certain amount in emergency money. This of course also depends on the nuances of your particular insurer and plan.
As a hypothetical (and extreme) example, you have a family plan and your out-of-pocket maximum is $5000. You, your wife (or husband) and two children are on a road trip, and you have a car accident. You all are taken to the emergency room, and 3 of you have to stay overnight. For my plan (and most out there), an overnight stay trumps the emergency room copay. So one person pays the emergency room copay (say $100), and three people have to pay the overnight copay (for this example, $1000 each which is what we were quoted). Each individual is covered separately, so the copay exists for all of them. That means you need to come up with $3100 AND the cost of possibly repairing your car or getting a rental. If you had an out-of-pocket maximum of $2000, you would only pay $2000 and the rest of your medical expenses for the year would be paid by insurance.
As I said, this is an extreme example. It is good to think about though, because your emergency fund needs to cover an emergency. Depending on your family, coverage, and other circumstances, you should try your best to be covered as much as possible for the "worst" case scenario.
My suggestion, have your 3 months worth of pay (or whatever is most comfortable for you), as well as some extra to cover the copay of all of your family members if they had to be admitted into a hospital, or to cover the out-of-pocket maximum (which ever is the least).
While discussing our coverage, the representative mentioned the maximum amount out-of-pocket amount you will pay for the year. I never really thought about what this means. The idea is that if you have a $4000 maximum out-of-pocket expense, you end up paying $4000 in a year for your health expenses, the insurance company will pay for anything above that.
So why is this important?
Depending on your out-of-pocket maximum and your copays, this can be really important. Depending on your limits, you should have a certain amount in emergency money. This of course also depends on the nuances of your particular insurer and plan.
As a hypothetical (and extreme) example, you have a family plan and your out-of-pocket maximum is $5000. You, your wife (or husband) and two children are on a road trip, and you have a car accident. You all are taken to the emergency room, and 3 of you have to stay overnight. For my plan (and most out there), an overnight stay trumps the emergency room copay. So one person pays the emergency room copay (say $100), and three people have to pay the overnight copay (for this example, $1000 each which is what we were quoted). Each individual is covered separately, so the copay exists for all of them. That means you need to come up with $3100 AND the cost of possibly repairing your car or getting a rental. If you had an out-of-pocket maximum of $2000, you would only pay $2000 and the rest of your medical expenses for the year would be paid by insurance.
As I said, this is an extreme example. It is good to think about though, because your emergency fund needs to cover an emergency. Depending on your family, coverage, and other circumstances, you should try your best to be covered as much as possible for the "worst" case scenario.
My suggestion, have your 3 months worth of pay (or whatever is most comfortable for you), as well as some extra to cover the copay of all of your family members if they had to be admitted into a hospital, or to cover the out-of-pocket maximum (which ever is the least).
posted by MoneyFwd @ 6:29 PM
1 Comments:
At 12:12 PM,
Maria said…
Good suggestion. Out of pocket maximums arent always something that people think of.
Another piece to consider though is if you have a family, to up your Emergency Fund to 6 months instead of the usual 3.
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