A deductible is the amount that you pay for covered medical expenses before your insurer will begin to pay.
Once you meet your deductible, your insurance company will start covering your healthcare expenses. However, you may be responsible for a portion of the cost in the form of a copay or coinsurance.
For example, if your plan’s deductible is $2,000, you’ll pay 100% of health care expenses until the total amount you’ve paid is $2,000. After $2,000, the insurer will start sharing the cost.
Individual and family deductibles
Most healthcare plans have two types of deductible - an individual deductible and a family deductible. If you are the only person covered under your health insurance, the individual deductible will apply. If your spouse and/or children are covered under your health insurance, the family deductible will apply.
Embedded deductibles
An embedded deductible is a lower individual deductible inside a family deductible. Once a covered individual has paid the lower individual deductible, the plan begins to pay that person's covered expenses, even if the total expenses paid by all covered family members do not exceed the family deductible.
The following is an example of how an embedded deductible works in a typical health plan.
- Stacy elects coverage for her entire family under her health insurance plan. Her plan has a family deducible of $5,000, an embedded individual deducible of $2,500, and 50% coinsurance.
- In the first month of the plan, Stacy breaks her leg and has $3,000 in medical expenses.
- Stacy pays $2,500, which meets her embedded individual deductible. As a result, the remaining $500 is split 50/50, via coinsurance, with the insurance carrier.
- The next month, Stacy's son fractures his arm and has $2,000 of medical expenses. Since her son has not met his embedded individual deductible and the family has not met its family deductible, Stacy will pay the entire $2,000. However, once Stacy pays the $2,000, her family will have met the plan's family deductible, and any additional medical expenses for her family will be split 50/50 with the insurance company.
If Stacy had elected a plan without an embedded deductible, she would have been responsible for 100% of her $3,000 claim and 100% of her son's claim.
Embedded deductibles can ease the burden of high family deductibles, but they can also increase costs depending on claims.
Prescription deductibles
Some health plans have a separate deductible for prescription drugs. This deductible is in addition to your medical deductible. In a plan with a prescription deductible, you will pay the cost of prescriptions until you've spent enough to meet the prescription deductible. The amounts you spend on covered healthcare, other than prescriptions, only applies to the medical deductible. The amount you spend on covered prescriptions only applies to the prescription deductible.