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.