Qualified HDHPs, Deductibles, and HSAs
Most health insurance policies require a deductible, but did you know there are different types of deductibles? Learn more about the deductible types, Health Savings Accounts (HSAs), HSA-qualified high-deductible health plans with embedded deductibles, and how they work together.
What is a deductible?
Deductibles require consumers to pay a share of their healthcare costs and encourage them to become informed consumers of healthcare services. However, there are several types of deductibles.
In addition to standard deductibles, there are two other kinds of healthcare deductibles. Plans can be subject to “embedded” or “aggregate” deductibles. It is essential to understand the type of deductibles a plan requires, as HDHP with an embedded deductible may cancel HSA contribution eligibility. See below for an explanation of embedded versus aggregate deductible.
What is an embedded deductible?
Health plans may have a total deductible for the family and individual deductibles for each covered member. Individual or embedded deductibles are usually half the total family deductible. This provision means family members don’t have to meet the entire family deductible to receive benefits. Instead, their benefits kick in when they meet their individual deductibles.
For example, family plans with an annual deductible of $2,000 have an embedded deductible of $1,000 per family member. This provision means the family member pays $1,000 out of pocket before embedded deductible benefits apply. The money credited to the embedded deductible also counts towards the family deductible, which helps the family reach the total annual deductible faster. However, the embedded deductible limits no longer apply once the family reaches the total deductible limit. Embedded deductibles usually apply to health plans with low deductibles.
What is an aggregate deductible?
In plans with aggregate deductibles, the total family deductible must be met before any individuals can begin receiving post-deductible benefits. The aggregate deductible can be met when the combined out-of-pocket healthcare expenses from everyone in the family reach the annual limit. It can also be met when one individual’s expenses reach or exceed the family limit. Aggregate deductibles are used in high-deductible health plans (HDHP). The plan must cover a healthcare expense to be credited toward the deductible.
Choosing the right deductible during the annual enrollment period is essential. Families with low healthcare expenses may prefer family coverage with an aggregate deductible for a lower monthly premium. Families with high expenses for one or more members may benefit from an embedded deductible. Consider all options carefully before deciding.
Impact of HDHP with an Embedded Deductible on HSAs
Another aspect of embedded deductibles to consider is their impact on Health Savings Accounts. To qualify for an HSA, you must enroll in an HSA-qualified HDHP. Since embedded deductibles typically lower out-of-pocket costs for healthcare consumers, most HDHP plans that contain them do not qualify as HSA-eligible. To qualify, the embedded deductible for individuals must be equal to or more than the IRS minimum family deductible.
IRS Minimum HDHP Deductible Limits
Embedded deductibles can save thousands of dollars by fulfilling individual deductibles before reaching the family deductible. However, depending on the plan, they can prevent you from participating in an HSA. If you are unsure which option is best for your needs, contact your company’s benefits administrator or the health plan provider for assistance.
