Why catastrophic health event planning matters
Serious medical events—major surgeries, extended hospital stays, cancer treatments, traumatic injuries—can quickly produce bills that outstrip typical savings. A widely cited 2019 analysis in the American Journal of Public Health found that medical problems contributed to roughly two-thirds of U.S. bankruptcies, underscoring that medical risk is a financial risk as well (American Journal of Public Health, 2019). That makes planning for catastrophic events a core part of household risk management.
In my practice helping clients prepare for health-related financial shocks, the households that fare best combine comprehensive insurance choices with intentionally funded liquid reserves. Insurance transfers a portion of cost risk to a carrier; liquid reserves cover the immediate cash flow needs that insurance does not eliminate (deductibles, coinsurance, non-covered services, travel or caregiving costs).
Sources and further reading: see the IRS guidance on Health Savings Accounts (Publication 969) for tax rules on HSAs and HSA eligibility (irs.gov) and the Consumer Financial Protection Bureau’s resources on emergency savings (consumerfinance.gov).
The two core components: Insurance and liquid reserves
Catastrophic health event planning focuses on two complementary tools:
- Health insurance (primary + optional supplements)
- Primary coverage: employer plans, Marketplace (ACA) plans, Medicaid/Medicare where eligible.
- Plan features to evaluate: in-network provider access, out-of-pocket maximums, deductible level, coinsurance rates, and whether a plan is an HDHP (high-deductible health plan) that pairs with an HSA.
- Optional supplements: critical illness or hospital indemnity policies, short-term disability, and supplemental cancer or long-term care policies can fill specific gaps. These are not replacements for comprehensive coverage but can reduce out-of-pocket exposure for defined events.
- Liquid reserves
- Ready cash to pay deductibles, coinsurance, non-covered services, transportation and lodging, caregiver wages, and living expenses while recovering.
- Three to six months of living expenses is a common emergency-savings baseline (Consumer Financial Protection Bureau). For those with high medical risk or limited disability coverage, plan for a larger cushion (6–12 months or more).
See our guides on [Health Insurance Basics: Terms and How to Choose a Plan](
