Embedded Versus Aggregate Insurance Deductibles
The term embedded deductible means separate individual deductible. In most PPO health plans you have, say a $1,000.00 deductible plan and it has a $3000.00 family deductible. If a policy insures, say three people ( a father, mother and daughter) and two of them have medical procedures in the same year, then each must first meet the individual deductible. Then they are in the Co-Insurance part of the policy and have to share the cost in the percentage outlined in the policy up to the “Out of Pocket Maximum if applicable. If you are in a deductible then 100% plan, then you are said to not have any co-insurance and after you meet your deductible, you are fully insured by your plan.
Consumer Driven Health Plans (CDHP) are in most cased also Qualified High Deductible Health Plans (QHDP) that are eligible for Health Savings Accounts (HSA).
These plans do not have the separate (embedded) individual deductible per person like conventional PPO plans. In most cases these high deductible plans have an aggregate deductible. This means that the deductible for all persons covered on the plan must be met before any other benefit is paid by the insurance.
To spell it out, these plans have no co pay amounts for doctor visits or filling prescriptions. The insured pays the full negotiated rate the insurance company has set and this amount is counted towards your deductible for the year.
That is to say a preferred provider organization or PPO plan has co-pays for going to the doctor and using the pharmacy etc. verses high deductible plans that do not have these immediate benefits.
Plans that only cover one person are not affected by “aggregate” family deductibles.
When considering Health Insurance plans that cover more than one person, make sure to take a close look whether their health plan will require their family to meet the full family deductible before benefits are payable.
When given a choice, “embedded” deductibles provide better coverage for those covering dependents assuming all other benefits are the same.
An important distinction needs to be made concerning how deductibles are computed for qualified high-deductible health plans, including Health Savings Account (HSA) type coverage.
The family deductible is an aggregate or combined deductible. Each person’s covered medical expenses go toward meeting the family deductible. Each insured person’s covered medical expenses go toward meeting this amount.
Once the family deductible is met, most plans will cover 100% of all allowable expenses for the entire family. Therefore, any other covered expense you have done that year, will be paid for by the insurance company.
Compare this to a traditional copay plan where three of the insured persons EACH have their own deductible that must be met. It is much more difficult to have each person meet their deductible than it is to meet an aggregate deductible.
When I present Consumer Driven Health Plans, I prefer to first show the so-called deductible and then, 100% plans which offer great coverage and are easier to understand.
Let me say again that most Qualified High Deductible Health Plans (QHDP) eligible for Health Savings Accounts (HSA) do not have the separate (embedded) individual deductible per person like conventional PPO plans. This is an important detail when covering more than one person on these types of plans. High deductible plans are gaining in popularity and will continue to do so if pricing for this coverage makes more economic sense.
The following is a list of other terms that come into play when writing on this subject:
Consumer Driven Health Plan (CDHP)
Qualified High Deductible Health Plan (QHDP)
Health Savings Accounts (HSA)
Flexible Spending Account (FSA)
Health Reimbursement Account (HRA)