Deductibles under family insurance plans are less straightforward than those under individual plans. The slight differences between embedded and non-embedded deductibles can cause some families to rack up thousands of dollars in excess out-of-pocket expenses.
Insurance companies haven't been overly concerned with making the differences between family policies clear to consumers. This lack of clarity is landing some major insurers in hot water. This week, Blue Cross and Blue Shield of Minnesota agreed to pay a $90,000 penalty and offer refunds to about 300 subscribers to settle allegations about non-embedded deductibles in certain family health plans, reports Star Tribune.
To help explain how these policies work, here are six things to know about embedded and non-embedded deductibles.
1. Embedded deductible plans. Under family coverage, an embedded deductible plan means that each family member has an individual deductible in addition to the total family deductible. Each individual's deductible is much lower than the total family deductible. When an individual meets their respective out-of-pocket total, the insurer begins to pay for that person's covered medical services, regardless of whether the family deductible has been fulfilled.
2. Non-embedded deductibles. Under a non-embedded deductible plan, also known as an aggregate deductible plan, the total family deductible must be paid out-of-pocket before the insurer starts paying for healthcare services for any individual member. For plans sold on the government exchanges, shared out-of-pocket deductibles are capped at $13,700.
3. The benefit of embedded deductibles. In some cases this double-layered deductible can actually enhance individuals' coverage, according to the Center for Health Insurance Reform at Georgetown University. If an individual family member incurs a significant amount of medical expenses, the individual will fulfill their deductible sooner because it is lower than the family deductible. This can save families thousands of dollars because the individual's insurance policy will begin to cover benefits even if the family deductible isn't met.
4. Non-embedded deductibles are not economical for some families. For some families, such as married couples without children, non-embedded deductible plans can cause families to spend thousands of dollars in extra out-of-pocket expenses that otherwise would have been covered had they purchased individual plans with lower deductibles or embedded family plans.
5. Federal regulations about non-embedded plans. HHS released a rule that attempted to relieve extreme out-of-pocket spending for families with non-embedded deductible plans purchased on the Affordable Care Act exchanges. The rule extended the ACA's out-of-pocket individual spending limit of $6,850 to those enrolled in shared deductible plans. This means that if a family has a shared deductible of $13,700 and an individual incurs $10,000 in medical expenses, the family only pays $6,850.
6. The BCBS of Minn. settlement. The Minnesota commerce department launched an investigation into BCBS, which revealed the insurer was selling non-embedded family health plans to certain families that should have been offered individual policies. This caused some families to pay much more in out-of-pocket expenses than they would have under individual plans. A married couple in Burnsville, Minn., said they spent more than $3,000 in extra out-of-pocket costs related to their shared deductible family plan last year. Blue Cross did not admit wrongdoing as part of the settlement.