I frequently get asked by insureds how their medical deductible works. One would think that this should be a fairly straight forward answer; however, it can be confusing. The reason: the embedded vs. the non-embedded deductible. The embedded is a traditional deductible, the aggregate deductible is non-embedded. You may have some benefits (i.e. preventative care) which do not require the deductible to be satisfied initially, before your insurance will pay the costs of your visit.
If you are on a family medical plan with an embedded deductible, your plan contains two components; an individual deductible and a family deductible. Having two components to the deductible allows each member of your family the opportunity to have your insurance policy cover their medical bills prior to the entire dollar amount of the family deductible being met. The individual deductible is embedded in the family deductible. For example, if you, your wife and daughter are on a family plan with a $3,000 family embedded deductible, and the individual deductible is $1,000, if your daughter incurs $1,000 in medical bills, her deductible is met. Any subsequent medical bills for your daughter that year, [your insurance will help pay], even though the family deductible of $3000 has not yet been met.
On the other hand, if your insurance policy contains a non-embedded family deductible, there is not an individual deductible embedded in the family deductible. In this situation, before your insurance helps you pay for any of your medical bills, the entire amount of the deductible must be met. It can be met by one family member or a combination of family members; however, there are no benefits paid until expenses equaling the deductible amount have been incurred.
There are numerous insurance plan types and each type can have either an embedded or non-embedded deductible. There is one plan type called the High Deductible Health Plan (HDHP), where a minimum annual deductible amount is required by the Internal Revenue Service (IRS). Members on a HDHP are allowed to open a tax free health savings account (HSA), hence the IRS involvement in the plan design. If your family HDHP has an embedded deductible and one person in your family meets their individual deductible amount, but it is lower than the minimum annual family deductible required, then the plan does not qualify as an HDHP and you are not eligible for the tax savings. For example, if the family annual deductible required by the IRS is $3,500, and the plan has an embedded deductible allowing an individual deductible of $1,500, the plan does not qualify as a HDHP because the deductible cannot be less than the deductible required ($3,500) for a family plan. Having a non-embedded deductible, or no individual deductible within the family deductible would ensure the correct minimum annual deductible amount is met for income tax purposes.
How Do I Know?
To find out what type of deductible your insurance plan has, obtain a copy of your insurance benefit book and look at the definition section. The deductible definition may detail embedded vs. non-embedded. Or you may call us, and we can help you find the answer.