The Definitions of an Embedded Deductible in Health Insurance

Health insurance policies typically include deductible amounts. A deductible is a sum the policyholder must pay before the insurance company starts picking up the tab. In effect, a deductible puts the policyholder first in line to pay medical bills, up to a certain amount, over the course of a year. This simple concept grows a bit more complex with embedded deductibles.

A health plan with an embedded deductible actually has two deductible amounts. In a family plan, for example, the embedded deductibles may start meeting expenses for an individual after he's incurred $1,000 in bills, and for the entire family after $5,000. The individual does not have to wait for the entire family to reach the $5,000 threshold before he sees the insurance company paying for part or all of his claims.

If the plan has a non-embedded, "aggregate" or "contract" deductible, then the family deductible applies to everyone's medical bills. A $5,000 non-embedded deductible means that medical bills for each and all family members much reach $5,000 for the deductible amount to be met. This puts the family's finances at greater risk for payment of medical bills than an embedded deductible policy.

In general, insurance companies will charge higher premiums for embedded deductibles, since they are at greater risks of claims if two or more individuals in the family start incurring medical bills. Whether or not a plan contains embedded deductibles is not always spelled out clearly in insurance paperwork. Before signing for a family health plan, inquire on whether the deductibles are embedded or non-embedded.

Embedded and non-embedded deductibles are entirely separate from co-pay or co-insurance amounts. A co-pay means you pay a portion of the medical expenses even after the deductible amount is met. A single policy may have different co-pays on different services: hospital stays, prescriptions, physical therapy and so on. In addition, it may offer to pay for 100 percent of specified services, such as preventive medicine, annual check-ups, and cancer screenings. Higher co-pays generally mean lower premiums but greater risk of financial damage if you have major medical bills.