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You are here: Home / Anderson On Health Insurance / Deductible types

Deductible types

by David Anderson|  October 29, 20156:46 am| 6 Comments

This post is in: Anderson On Health Insurance

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Commenter Keith asked a good question about understanding health insurance in my last refereeing post:

what is the definition and implication of embedded? (HCA-HDHP).

TLDR: All else being equal, the same dollar level of family deductible as an embedded deductible provides slightly higher actuarial value coverage than the same dollar figure for an aggregate deductible.

Minnesota put out a good explainer on different deductible types.  The key thing to remember is that embedded versus aggregate deductibles only apply to multi-person policies.

If you have family medical insurance with an aggregate deductible, your plan does not have individual deductibles, only a family deductible. Although you may see an individual deductible amount published, it does not apply to households purchasing a family plan, only to individuals buying an individual plan….

If you have family medical insurance with an embedded deductible, your plan has both individual and family deductibles. (In other words, there is an individual deductible embedded within the family deductible.) Benefits kick in for an individual family member when he/she meets his/her individual deductible. Amounts paid toward individual deductibles are also counted toward the family deductible amount, and once the family deductible is met, benefits kick in for everyone in the family, even those who have not met their individual deductible.

So let’s work through an example to see the implications.

Let’s look at a family with two parents and two minor children.  They are all covered under a single policy through Parent # 1’s employer.  The family deductible is $3,000. Let’s give the following expenses for the start of the year.  All expenses are expressed at the contracted rate and all happen sequentially as described:

Parent # 1 has a  minor elective procedure at a contracted rate of $2,200.  Parent # 2 has an urgent care visit and an X-Ray that came back negative for $300

Kid #1 is healthy but gets a couple of day care crud PCP visits for $300 while Kid #2 has a maintenance medication for $200 and a pair of PCP visits for $150.

Total expense for the family so far is $3,150.

Under an aggregate deductible the family is paying for everything until the last two PCP visits for Kid #2.  Parent #1’s procedure eats up most of the deductible but not all of it.

Under an embedded deductible, every individual has a $1,500 individual deductible, so the math works out a littler differently.

Parent one maxes out their deductible at $1,500, so the insurance kicks in on the last $700. Parent #2 is still contributing $300, and the kids combine to kick in $650.  There is still $550 of deductible that needs to be satisfied before insurance kicks in for Parent #2 and the kids, but Parent #1 now has no deductible and the family has spent $2,450 instead of the $3,000 that they would have spent on the aggregate deductible.

 

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Reader Interactions

6Comments

  1. 1.

    Starfish

    October 29, 2015 at 9:34 am

    Why do large insurance companies negotiate exclusive contracts and can those contracts change?

    For example, a large insurance company does all of its labs through LabCorp, but there are some tests that LabCorp can’t do so there are exceptions for those tests to be done through Quest Diagnostics.

    As another example, a large insurance company covers epinephrine injectors. For a long time, the only game in town was Epi-Pen so that is what was covered. Recently, a large insurance company dropped Epi-Pen coverage to exclusively cover Auvi-Q. As of yesterday, Auvi-Q has recalled all of its injectors for, in some cases, administering the wrong dosage. I think Auvi-Q is going to eventually cover the cost of buying an Epi-Pen for all the people who have to go out and buy new injectors, but can the insurance get out of its exclusive contract for this type of thing? New Auvi-Q injectors without the design flaw will not be available until (at least) January.

  2. 2.

    Keith

    October 29, 2015 at 10:09 am

    Richard – you lived up to your promise of a more detailed post. Thanks.

  3. 3.

    benw

    October 29, 2015 at 10:27 am

    This OP is disappointingly lacking in dildos.

  4. 4.

    Richard Mayhew

    October 29, 2015 at 10:29 am

    @Starfish: I can’t speak too much on this as my knowledge is very limited, but usually an exclusive contract is an attempt by an insurer to get a better price when there are very close substitutes available.

    I know on Hep-C, some of the big pharmacy benefit management (PBM) companies have exclusive Harvoni contracts and others have Solvaldi contracts as the drug makers are giving the PBMs big discounts if they are the exclusive drug for Hep-C cures. Both of these drugs are Hep-C cures that take a fairly short amount of time, so unless there are amazingly strong clinical indicators that says Person X should get one over the other,the insurer sees them as near substitutes so they are trying to get the best price for basically the same outcome.

    As for the epinephrine injector problem, I have no knowledge to speak of on this particular example, sorry.

  5. 5.

    japa21

    October 29, 2015 at 10:53 am

    @Starfish: I can expand a little on Richard’s response.

    Most exclusive contracts are for either labwork or very specific types of Durable Medical Equipment. Lab is the most common because there are companies that are everywhere, such as LabCorp and Quest.

    There are two aspects that support doing the exclusive contracts. The first is cost. Because LabQuest knows all the business is coming through them, they can provide a lower cost to the insurance company. The second is that it avoids the cost, both in manpower and IT work, of having to do a lot of separate contracts with local labs.

    It should be noted that this exclusivity applies only to lab work not done by a hospital while treating a patient at the hospital. For example, a person is under treatments an inpatient. The insurance will cover the hospital lab charges. What many hospital contracts will explicitly not cover, however, is what are called non-stat labwork. This is when a doctor orders labwork and the patient goes to the hospital to have it done. It is not involved in the actual treatment or diagnosis of a hospital patient and therefore should have been done through LabCorp, for example.

    Many doctor offices will do lab draws but send them out to the appropriate lab.

    As to the epinephrine issue, most provider contracts have termination for cause provisions, and failing to properly take care of the patients, i.e. giving them faulty pens, would justify that. However, if the provider makes good on the issue, gets all the patients workable pens, etc. and solves the problem of its pens, then they can appeal the termination. Up to the insurance company whether or not they will accept the appeal.

  6. 6.

    Starfish

    October 29, 2015 at 1:15 pm

    @japa21:
    I am sorry for my annoyance as a complicated system that I do not understand.

    Typically, the auto-injectors are good for a year. Usually, when the pharmacies order the injectors from their distributors, they expire a year from the date that you acquire the injectors. (Some pharmacies keep them on the shelf, and I have been handed injectors that are already expired in some pharmacies.)

    The wording coming out of Sanofi right now says that everything that expires up until December of next year (meaning anything that distributors can ship between now and this December) is under the voluntary recall. Sanofi is offering to reimburse people for the cost of a new auto-injector which will likely come from their competitor, Epi-Pen; but it is not clear what the time line is for the reimbursement.

    What we have done to resolve the issue has involved a) getting our allergist to prescribe an Epi-Pen and b) calling the insurance to see if they would allow an exception and c) calling the doctor with the number that the allergist needs to call to receive an exception.

    Allergists are remarkably on top of pushing all the papers that need to be pushed to resolve the hurdles that some insurance companies create.

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