This is general information, not insurance or financial advice. All dollar figures below are hypothetical and chosen only to make the arithmetic clear. Plan designs vary by insurer, employer and place, so read your own plan documents.
Two kinds of limits, two kinds of family
Most family health plans have a deductible, which is the amount you pay for covered care before the plan starts paying its share, and an out-of-pocket maximum, which is the most you pay in a year for covered, in-network care. For a single person the idea is simple. For a family plan, both numbers usually come in two versions: one for each individual and one for the family as a whole. How those two numbers interact depends on whether the plan is built on an embedded or an aggregate design.
Embedded deductible
With an embedded design, there is an individual deductible inside the family deductible. Each person can stop paying the deductible once they individually reach their own limit, even if the family total has not been reached. The family can also meet the family deductible through the combined spending of several members.
Hypothetical example. Suppose the individual deductible is $1,500 and the family deductible is $3,000.
- One child has surgery and the family pays $1,500 toward the deductible for that child. The plan begins paying its share for that child’s later covered care, even though the family has only paid $1,500 of the $3,000.
- The other family members still have their own deductibles. If the other three each pay $500 over the year, the family total is $1,500 + $1,500 = $3,000, and the family deductible is met, so the plan starts paying for everyone.
The takeaway is that embedded designs can protect families when one person has high costs.
Aggregate deductible
With an aggregate design, there is generally one big family deductible, and no one gets plan payment at the usual rate until the combined family spending reaches the full amount. In some cases the plan pays only once the whole family deductible is satisfied, no matter who incurred the costs.
Same hypothetical numbers. Assume a family deductible of $3,000 with no separate individual amount.
- The child with surgery pays $1,500. The plan has not started paying its share for that child, because the family total is still below $3,000.
- The child’s further costs, or other family members’ costs, continue to count until the family reaches $3,000 together.
Comparing the two on the same medical event: with embedded, the plan starts paying for that child after $1,500; with aggregate, after $3,000 of combined spending. This is why a plan with a higher family number is not automatically worse or better, and why you need to know the design.
A note for single-person households: if a plan is labeled as a family plan but covers just one person, the individual amount may apply. High-deductible designs sometimes use aggregate rules, and a number of high-deductible plans work this way, so it is worth checking if a health savings account is involved.
Out-of-pocket limits work similarly
The out-of-pocket maximum can also be embedded or aggregate. In many places, rules require that no single person in a family plan pay more than a set individual limit for covered essential services in a year, even if the family limit is higher. Whether that applies depends on where you live and the plan type, so confirm it.
Hypothetical example. Suppose the family out-of-pocket maximum is $9,000 and the individual out-of-pocket maximum is $5,000. If one family member has a long hospital stay, their share stops at $5,000 for the year, and the plan covers the covered in-network costs beyond that. If several members have costs, the family total stops at $9,000.
Note what out-of-pocket maximums typically do not include: premiums, care the plan does not cover, and often charges from out-of-network providers or amounts above the allowed amount. Those pieces may keep costing you after the limit is reached.
What is counted and what is not
Look for these details:
- Which costs count. Deductibles, copays and coinsurance for covered, in-network services usually count toward the out-of-pocket limit. Some copays may not count toward the deductible.
- Services before the deductible. Many plans pay for certain preventive visits, and sometimes some other services, before you meet the deductible. Check how your plan handles routine check-ups and what counts as preventive care.
- Separate limits. Prescription drugs sometimes have a separate deductible or limit.
- Network. Out-of-network spending often has a separate, higher deductible and may not count toward the in-network limits.
Starting a new year, or changing plans mid-year
Deductibles and limits typically reset at the start of the plan year, which may or may not be January. If you switch plans mid-year, the spending you counted on the old plan generally does not follow you, so you may start from zero. That is why mid-year switching can affect your deductible.
Questions to ask when comparing plans
- Is the family deductible embedded or aggregate?
- What are the individual and family numbers for both the deductible and the out-of-pocket maximum?
- Which costs count toward each?
- Does anything, such as prescriptions, have a separate limit?
- Do the limits for in-network and out-of-network care differ?
When a plan has a low premium and an aggregate design, a healthy family may do fine, but one expensive event could mean larger bills before the plan helps. A plan with a higher premium and an embedded design may feel more predictable. No answer is right for everyone, because your health needs in the coming year are uncertain. Think about the range of possible costs, not only the most likely outcome, and use the plan’s summary documents to check the numbers.