How Does an Embedded Deductible Affect Health Insurance?
An embedded deductible means medical payments towards each family member's individual deductible count toward the policy's overall family deductible.
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A health insurance deductible is the amount of money you must pay before your plan will start covering most of your medical expenses. Family policies under the Affordable Care Act (ACA) have either embedded deductibles for each person or an aggregate deductible for the whole family.
Embedded deductible plans are usually a good way to save money because anyone in your family can start getting the plan's full benefits, even if the shared family deductible hasn't been met yet.
How does an embedded deductible work?
In an embedded deductible health plan, the policy will have two deductibles: the individual deductible for each family member and a family deductible.
The individual deductible will also go toward the family deductible so your insurance will start paying for medical care earlier.
- Meeting the individual deductible: When one family member has enough medical expenses that they meet their own deductible, the insurance company would start paying for most of the bill, and you'll pay a smaller portion of the medical costs called copays and coinsurance. However, other members of the family would still be paying high rates for medical care.
- Meeting the family deductible: When the total value of everyone's spending towards their deductible reaches the family deductible, the plan's full benefits will begin for all members of the family. This applies even if a member did not meet their individual deductible.
Only the amount paid towards each person's individual deductible will count towards the family deductible. So if one person has extra medical expenses after meeting their individual deductible, those copays and coinsurance will not count towards the family deductible. However, they will count towards the out-of-pocket max which is the cap on your family's total medical expenses for the year.
Embedded deductibles are only for family health insurance plans. If you have your own insurance, you'll only have a deductible for yourself.
Typically, embedded deductibles are exactly half of the entire family deductible. For example, a marketplace family health insurance plan with embedded deductibles could have a family deductible of $10,000 and individual deductibles of $5,000 for every covered member of the family.
Embedded deductible example
Say your three-person family has a health plan with an individual deductible of $3,500 and a family deductible of $7,000.
If your spouse has an injury with medical expenses of $3,500, your spouse would have met their individual deductible, and their medical expenses would be lower for the rest of the year. But you would still pay the full cost of most medical care for you and your child until the total family deductible is met.
Suppose that, later on in the year, you and your child have collected $3,500 of medical expenses together. This means you would have met the $7,000 family deductible because of your household's total medical costs. After this, the entire family will pay lower rates for medical care.
Embedded vs. non-embedded deductibles
Family health insurance plans can have one of two types of deductibles:
- Embedded deductible (includes an individual and family deductible)
- Non-embedded deductible (includes only a family deductible)
Embedded and non-embedded deductibles differ in how the deductible level is reached.
Non-embedded deductible plans, also known as aggregate deductibles, do not begin to pay for medical expenses until the entire family deductible has been met. Plus, there are no individual deductible amounts for each family member.
The two types of deductibles are similar in that once the family deductible has been met, the insurer covers medical expenses for all members of the family.
For example, an aggregate health plan could have a family deductible of $14,000. During the course of the plan year, say your family has spent $9,000 on medical expenses in total, with $8,000 of that amount from an injury you had. At this point, you would not receive after-deductible benefits from the plan because the family deductible of $14,000 has not been met.
Which deductible is best: embedded or aggregate?
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Typically, health insurance family plans have embedded deductibles, but this does not mean that you should quickly write off a plan with an aggregate deductible.
Embedded deductible plans are best for most families
Embedded deductible plans are best when you think one family member will have high medical costs during the year.
Say you know that your spouse could need knee surgery. This operation could cost tens of thousands of dollars. The surgery will cost much less if you have an individual deductible that's embedded in a family plan, rather than needing to meet the total family deductible of an aggregate plan.
Example: surgery costs with an embedded vs. aggregate deductible plan
Medical costs | Embedded deductible plan | Aggregate deductible plan |
|---|---|---|
| Costs before meeting the deductible | $3,000 | $7,000 |
| Costs after meeting the deductible | $2,700 | $2,300 |
| Total medical costs | $5,700 | $9,300 |
For an estimated $30,000 surgery bill comparing an embedded deductible plan ($3,000 individual deductible and $7,000 family deductible) vs. an aggregate deductible plan ($7,000 family deductible)
In this case, buying a plan with an embedded deductible would lower the cost of surgery by $3,600. That's because the lower individual deductible would allow medical benefits to be paid sooner for your spouse. And, if you have relatively few medical expenses, your family's total deductible payments for the year may be less than the family deductible.
Aggregate deductible health insurance is best for cheap coverage
Aggregate deductible family plans are best if you want a cheaper plan and have the savings to pay for expensive medical care if someone needs it.
Choosing a cheaper aggregate deductible plan can be risky because if someone in your family gets very sick or injured, you'll have to meet the family deductible before the plan starts helping to cover your costs. Plus, it's hard to predict your anticipated medical expenses.
Embedded deductibles for high-deductible health plans with HSAs
If you want an health savings account (HSA), you'll need a high deductible health plan (HDHP). This means an embedded deductible plan must have an individual deductible of at least $3,200 and a family deductible of at least $6,400, based on the rules of the Affordable Care Act (ACA).
It's easier to get a HSA with an aggregate deductible insurance plan. To qualify, the family deductible needs to be $3,200 or higher.
Minimum deductible to qualify for a HSA in 2024
Plan type | Min. individual deductible | Min. family deductible |
|---|---|---|
| Embedded deductible family plan | $3,200 | $6,400 |
| Aggregate deductible family plan | N/A | $3,200 |
| Individual plan | $1,600 | N/A |
The funds you or your employer put into an HSA account give you a tax-free way to pay for medical expenses. You won't pay any income tax on that money as long as you use it to pay for qualified medical expenses .
The limits for what qualifies as a HSA eligible high-deductible health plan (HDHP) will change each year. So be sure to check the new requirements when you're choosing your health insurance plan.
Sources
Data is from HealthCare.gov, the Internal Revenue Service (IRS), and sample family health insurance plans from private insurance companies.
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