Friday, April 16, 2010

Embedded vs. Non-Embedded Deductible


Health insurance policies typically contain a deductible. A deductible is the amount of money you must pay for your medical expenses before your insurance will cover the costs of your medical care: hospital stays, emergency room visits, doctors visits etc.  Your deductible is met on an annual basis and the annual time frame is either based on the plan year or a calendar year.  There are two different types of deductibles: traditional also called embedded or an aggregate deductible also known as non-embedded. You may have some benefits (ie. preventative care) which the deductible does not have to be satisfied first before your insurance will pay the costs of your visit.

Embedded Deductible

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 for 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 $3000 family embedded deductible, and the individual deductible is $1000, if your daughter incurs $1000 in medical bills, her deductible is met and any subsequent medical bills for your daughter that year, your insurance will help pay even though the family deductible of $3000 has not been met yet.


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 first.It can be met by one family member or a combination of family members however there are no benefits until expenses equaling the deductible amount have been incurred.

Embedded warning

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 HDHP family plan 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 $3500, and the plan has an embedded deductible allowing an individual deductible of $1500, the plan does not qualify as a HDHP because the deductible can not be less than the deductible required ($3500) 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?
There are 3 ways you may be able to find out what type of deductible your insurance plan has.The first is to obtain a copy of your insurance benefit book and look at the definition section. The deductible definition may detail embedded vs. non-embedded.>If the booklet is not available, and you are on an insurance plan through your employer, you could ask your human resource representative which type of deductible your plan has. Or, if they do not know, or you are not on a group plan, call the member services phone number located on your id card and ask a representative at your insurance company for the details.

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