How Do Embedded Deductibles Impact Your Health Insurance?


WRITTEN BY: Craig Sturgill

UPDATED: NOVEMBER 02, 2022 | 1 MIN READ

If you have family health insurance coverage, you may have heard the term ‘embedded deductible.’ You must understand the type of deductible your health plan uses. Embedded deductibles have an individual deductible and a family deductible for the policy.

So, how does an embedded deductible work? Here is an explanation of how they pertain to your health insurance.

What Are Embedded Deductibles?

Embedded deductibles mean no family member on a health plan pays a higher deductible than the individual deductible amount. Your family plan may have an $8,000 deductible. But, the individual deductible may only be $4,000.

How does an embedded deductible work?

The health insurance policy for a family plan has two deductibles:

  • The individual deductible for each family member, and
  • The family deductible.

When a family member accrues enough medical expenses to meet the individual deductible, coverage is provided by the insurance.

It includes covering copays, coinsurance, and after-deductible benefits. But the coverage is for the individual family member only. Other family members wouldn’t be eligible for the same benefits.

Example of an embedded deductible

Suppose your deductible amount is $3,500 with a family deductible of $7,000. If your spouse becomes injured and expenses exceed $3,500, your spouse meets the individual deductible. The rest of the medical costs for the year are covered.

But you and your child need to pay the out-of-pocket maximum until the family deductible is met. Or until the next individual deductible is met. If you collect up to $3,500 of health care costs, you meet the family limit of $7,000. No more deductibles need to be paid.

Out-of-pocket maximum (OOPM)

These deductibles aren’t the same as out-of-pocket expenses. An embedded OOPM is similar but includes the entirety of the OOPM (coinsurance, copays, and deductible) rather than a deductible only. Once you meet the out-of-pocket costs, insurance benefits kick in for the rest of your healthcare expenses.

Embedded vs. Non-Embedded Deductibles

Family health insurance plans have two types of deductibles:

  • Embedded deductible (with individual and family deductibles)
  • Non-embedded deductibles (a family deductible only)

Each deductible differs in how the level is reached. Non-embedded plans are also known as aggregate deductibles. They don’t pay for medical expenses until the family’s deductible is met. There are no individual amounts for each family member, either.

This year, the total out-of-pocket costs for any individual can be more than $8,700 for in-network care.

Non-embedded deductible example

For example, your aggregate health plan’s family deductible is $14,000. Throughout the year, your family spends $9,000 on medical expenses. $8,000 of it was from an injury you incurred. At this point, you wouldn’t receive after-deductible benefits because the deductible of $14,000 still isn’t met.

High-deductible health plans with Health Savings Accounts (HSAs)

A high deductible health plan (HDHP) with an embedded deductible must have a minimum individual amount of $2,700. For HDHP to remain a qualified HSA plan, it can’t give benefits until the IRS minimum deductible is met.

In some cases, high-deductible health plans use aggregate deductibles. Ensure you know your out-of-pocket limits due to individual or family deductibles based on your family coverage.

Example of HDHP plan

For example, your HDHP family plan is $3,000 for individual family members and $6,000 for the family deductible. You meet the insurance deductible amount if you incur $3,500 in medical expenses. $500 of the costs is eligible for coinsurance from the insurance provider. The IRS minimum of $2,700 is completed, allowing the plan to be HSA-qualified.

Pros and Cons of Deductibles

These deductibles make it challenging to get coverage for the entire family. You need to combine individual deductibles for at least two family members.

Even if just one family member has high expenses, the expenses may not meet the deductible. This happens because the benefits kick in to pay as soon as they meet their deductible.

They also may be required to contribute to other cost-sharing expenses like copays or coinsurance. These don’t get credited toward the family deductible. They do count towards the family out-of-pocket maximum, though.

Aggregate deductibles pay everyone, even if only one member meets the deductible amount. The amount should be low enough, so the person doesn’t exceed the maximum out-of-pocket costs allowed under the Affordable Care Act (ACA).

FAQs

Is an embedded deductible good?

Embedded deductibles offer individual and family amounts. The individual is a lower deductible, which allows an individual family member to access benefits sooner. It can save families money if one member incurs a large sum of medical expenses.

What does embedded deductible mean in health insurance?

Embedded deductible indicates two deductible amounts within one family health plan. There is a single individual deductible and then a family deductible.

What does Embedded mean for healthcare?

Each person has their deductible, but the family also has a maximum deductible. It’s helpful if multiple family members need medical care during the year.

What does an embedded maximum out-of-pocket mean?

An embedded maximum out-of-pocket plan (OOPM) is the most you have to pay for covered services in a plan year. It includes more than a deductible, such as copays, coinsurance, and in-network care. Once the maximum limit is reached, your health provider pays 100% of the benefits.

Do you have to buy a high-deductible plan to have an embedded deductible?

You don’t have to buy a high-deductible plan to have an embedded deductible. High deductible health plans (HDHP) with an embedded deductible usually qualify to contribute to Health Savings Accounts (HSAs).

What is the benefit of an embedded deductible?

These deductibles benefit individual family members who have high medical expenses. The individual amount is lower, so insurance pays sooner before reaching the family deductible amount.

What is the difference between an embedded deductible and a regular deductible?

Regular annual deductibles are the amount you pay as a member out of pocket each year. It covers medical care before healthcare begins to pay. They are typically less expensive than these deductibles, primarily in family health plans.

What is the difference between an embedded and a zero deductible in health insurance?

A plan without a deductible provides good coverage and is an intelligent choice for those who expect to need expensive medical care or ongoing medical treatment. But health insurance with no deductible usually means paying higher monthly costs.

Which Type Of Embedded Deductible Is Best?

Most healthcare services with family plans contain embedded deductibles. It doesn’t mean an aggregate deductible plan should be disregarded. Embedded deductible plans are most helpful if you have a family member with high medical costs during the year.

Most family health plans have these deductibles but don’t apply to all services. Preventative care is usually covered exclusively by your insurance. Check with your health insurance company to know what’s covered and when an embedded deductible is necessary. Use our rate comparison tool to compare different insurance options in your area.