What’s the Difference Between Individual and Family Deductibles?

In my experience, a decent number of employer health insurance plans carve out an “individual” deductible separate from the “family” deductible. This is sometimes referred to as an embedded deductible system. Since I prefer simple terms, I normally call it a “per-person” deductible.

I like this model. If you are lucky enough to have it, it can help mitigate the financial risk of individual family members. Unfortunately, the concept often goes misunderstood by patients and their families. As deductibles continue to rise explode, it is more important than ever to understand the difference between the individual and family deductible. We can even leverage this concept into our personal finance strategy.

But where do we start?

As usual, Max is here to sort all of this out.

What is a Deductible?

First things first, what is a deductible?

Generally, the deductible is a fixed amount we must pay before our insurance will start paying for our healthcare expenses. It typically re-sets each year on January 1st.

The deductible is one of the hardest out-of-pocket hurdles to jump. Like most things, I like to consider it a bucket. We fill the bucket up as we consume healthcare services. The bigger the bucket, the harder it is to fill it up.

Is the deductible bucket half-full or half-empty?

One exception is preventative preventive care. Normally, preventive care like screening mammograms and annual exams wouldn’t hit your deductible bucket.

From my summary of coverage and benefits

In some cases, a health insurance plan will have just one giant deductible bucket for the entire family. Other plans carve out an individual “per-person” deductible for each member of the family.

But what’s the difference between an individual deductible and a family deductible?

The Individual Deductible Bucket

The individual deductible is a separate per-person deductible. It is a fixed amount of money each member of a family must pay before insurance will start paying for his or her services. Once this bucket is filled up for that specific family member, insurance will usually start paying for their services, but not other family members’.

You can look to your summary of coverage and benefits to see if your plan has an individual deductible.

Here is mine:

Unfortunately, we still need to pay for other out-of-pocket costs such as coinsurance and co-payments until we meet the max out-of-pocket.

For example, my plan has an individual deductible of $1,650. Both myself and Mrs. Max OOP have separate deductible buckets to fill up before insurance starts paying for our individual services.

If I were to fill up my individual bucket with $1,650, my insurance starts paying 90% of my services. I just pay 10% until I meet my max out-of-pocket. Even if Mrs. Max OOP hasn’t filled up any of her individual deductible bucket, I still only pay 10% for my services.

Fortunately, these individual buckets also funnel into the family deductible bucket.

The Family Deductible Bucket

The family deductible bucket is a fixed amount the entire family must pay before insurance starts paying expenses for everyone in the family. The family deductible is an accumulation of all the individual family member deductibles. In theory, the family deductible could be met without any family members filling up their individual buckets.

My summary of benefit and coverage does a good job explaining why this matters.

For example, our family deductible amount is $3,300. If I had 4 members in my family and we all filled our individual deductible bucket up to $825, we meet the family deductible. The medical insurance then starts paying for medical services for all of us even though none of us met our individual deductible of $1,650.

  • Max gets food poisoning in January: $825
  • Mrs. Max OOP twists her ankle in February: $825
  • Maxine falls ice skating in March: $825
  • Maxwell Jr. hurts himself with a slingshot in April: $825

$825 Individual Deductible X 4 Family Members = $3,300

None of us need to worry about our individual deductible for the rest of the year since the family deductible has been met.

Like my plan, the aggregate family deductible is often equal to the sum of two individual deductibles. This isn’t always the case and worth checking.

$1,625 Individual Deductible X 2 = $3,300 Family Deductible

Risk Mitigation

The individual deductible puts in some protection for us from the aggregate family deductible. For example, if an individual family member has a bad accident or illness, they do not need to fill up the entire family deductible before insurance starts paying.

But on the flip side, we still have the family deductible cap should we ever need it. In my case, the entire family deductible risk is $3,300, regardless of my family size.

IRS Minimum for HDHP

Any employer health plan can have an individual deductible carve-out, but I always like to focus on high deductible health plans (HDHP).

The Internal Revenue Service (IRS) sets the minimum family deductible for a health insurance plan to qualify as a high deductible health plan. This is important because we need a high deductible health plan to qualify for a Health savings account.

In 2020 and 2021, the minimum family deductible for a family plan to qualify as a high deductible plan is $2,800.

My plan’s family deductible is set at $3,300, which is $500 greater than the minimum set by the IRS. Thankfully, my employer puts $600 into my health savings account every single year. This could help me offset some of the cost of my deductible if I ever needed it.

Final Thoughts

I explained all of this in one simple tweet back in August. Sometimes, a tweet is worth a thousand words.

Understanding how this works can help us plan for medical services. The individual deductible is where you want to start. In my case, I am on a high deductible health plan with a $1,650 individual deductible. My initial goal might be to save $1,650 in my health savings account. That would protect my budget from a single member of my family having an expensive medical spell.

Additionally, a secondary goal might be to save up the entire family deductible. For me, that would be $3,300. This would reserve my budget for an expensive healthcare year without impacting our regular standard of living. If my family were to grow, I wouldn’t need to save additional money since my deductible risk is capped at the $3,300 family deductible.

Finally, if you are an overachiever like Max, you could put away over $50,000 in your health savings account. This would cover my family deductible for the next 15 years.

How much is your individual/family deductible?

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3 Responses

  1. Medimentary says:

    Max,

    Thanks for the clear review of deductibles and helping readers understand what they mean for individual and family plans. I also had no idea there was a Canadian-specific Home Depot bucket!

    I often have conversations with patients who choose to avoid care or recommended imaging because their deductibles have not been met and they may incur the charges for medical care. I understand this worry. I also meet folks who have met their deductibles and are asking for testing or services they may not need. In our American version of the “insurance tail” wagging the “healthcare delivery dog”, the idea of the right care at the right time often gets overlooked. Healthcare services can be time-sensitive and having met or not met deductibles, unfortunately, influences appropriate care.

    It’s nice that your blog addresses concepts and issues that I think everyone as healthcare consumers should know. I will continue to do my part and push for saner healthcare financing systems as focusing on the near-term deductible can have a real impact on long-term health outcomes. Keep up the good work!

  2. David says:

    Great post. To further complicate things, insurance plans often have a separate in-network and out-of-network deductibles, and they are totally separate buckets that are filled by themselves. You may have filled up your in-network deductible but still find yourself paying when you see that out-of-network specialist. Can be pretty confusing, which I suspect is a feature of the system.

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