How Your Embedded Deductible Can Ruin Your HSA Eligibility
High deductible health plan (HDHP) coverage for families can have either aggregate or embedded deductibles (see below). If your plan has an embedded deductible and you’d like to open an HSA (or if you have an existing HSA you’d like to keep contributing to), you need to know how high your embedded deductible is. If it’s too low, it can disqualify you from opening or contributing to an HSA.
What Is An Aggregate Deductible?
An aggregate deductible is when each family member in your plan is covered under the same deductible. For instance, if your aggregate deductible is $5,000, your insurance company will not pay anything until the deductible is reached, no matter which family member incurs the cost.
So if you incurred a $3,000 medical expense and your spouse incurred a $1,500 medical expenses, you would have to pay all $4,500. You would only have $500 more to pay until your insurance kicked in, though.
What Is An Embedded Deductible?
An embedded deductible is when your deductible has a lower limit embedded for each individual. For instance, if your total annual deductible is $5,000 and your embedded deductible is $2,500, an individual only has to pay $2,500 of medical expenses before your plan’s after-deductible benefits begin.
Using the example above, having an embedded deductible would mean that after you paid $2,500 of medical expenses, your insurance would help with the other $500. However, another individual covered by your family plan would have to incur $2,500 of medical costs before your plan’s after-deductible benefits would kick in.
To be HSA-qualified, the embedded deductible for family HDHP coverage must be higher than the current minimum annual deductible set by the IRS.
For 2019, the minimum annual deductible for family HDHP coverage is $2,700. The embedded deductible coverage shown in the example above does not meet the IRS’ minimum annual deductible, so it does not qualify as HSA-eligible coverage.
Takeaway: If you’re considering family HDHP coverage that has an embedded deductible, make sure to check whether the embedded deductible is higher than the IRS’ current minimum annual deductible. If it’s not, you won’t be able to open or contribute to an HSA under that coverage.