There are different types of deductibles when discussing insurance. To make things even more confusing, deductibles may have different rules or meanings depending on the type of insurance you are reviewing. This article specifically talks about the differences between an embedded deductible vs umbrella deductible in health insurance. We recommend reviewing the summary of benefits on your health plan to verify these rules. Each policy has different rules and it is important to understand these differences.
The only time you need to worry about the differences between an embedded deductible vs umbrella deductible is when you are enrolled with at least one dependent on the plan. When enrolled on a health insurance plan with a dependent, you will have a family deductible. The family deductible is usually twice the amount of the individual deductible. Some policies will impose a family deductible that is three times the individual deductible.
Most plans have an embedded deductible. An embedded deductible means that an individual will accumulate towards the individual deductible only, not towards the family deductible. For example: John Doe has a health insurance plan with his wife, Jane Doe. The health insurance plan also has an embedded deductible. John has an individual deductible of $2,000 on his plan. The family deductible is $4,000. If John incurs a claim of $3,000, he will spend $2,000 towards his individual deductible. The remaining $1,000 of the claim will not apply towards the family deductible. To satisfy the remaining $2,000 of the family deductible, Jane will need to incur $2,000 in claims. With an embedded deductible, John can only satisfy his individual deductible and cannot satisfy the other half of the family deductible. It will be Jane’s responsibility to satisfy her own individual embedded deductible.
Also on all ACA health insurance plans, the maximum out of pocket is always embedded and follows these same embedded deductible rules.
An umbrella deductible is the opposite of an embedded deductible. This means that an individual can accumulate out of pocket costs towards the family deductible. In the example listed above, John’s $3,000 claim would have applied to the total family deductible of $4,000.
Plans with umbrella deductibles are usually HSA-Compatible. These plans should itemize their deductibles as embedded or umbrella in the summary of benefits.