Health Savings Account & Embedded Deductibles in Family High Deductible Health Plans

Compliance, Employee Benefits

High deductible health plans (HDHPs) can yield savings for employers who sponsor group health insurance and for their employees. Employees covered by HSA compatible HDHPs are able to contribute towards a health savings account (HSA) and enjoy the tax advantages an HSA provides. For a HDHP to be HSA compatible, employers, as plan sponsors, need to ensure their HDHPs meet specific legal requirements. One important requirement relates to the interaction between embedded deductibles and family HDHP coverage.

What is an Embedded Deductible?

Embedded deductibles allow a plan to pay claims for a specific individual before the family deductible is met, provided the individual satisfies a lower deductible specific to that individual. Other family members have to satisfy the rest of the family deductible, while claims incurred by that specific individual will be covered by the plan.

For example, a family plan could have an overall deductible of $7,000 and embedded deductibles of $3,500. In a plan without embedded deductibles, the family deductible would apply in aggregate meaning one person alone could meet the entire deductible. With embedded deductibles, an individual only needs to satisfy the embedded deductible, after which the plan will begin to pay claims for that individual. In this example, one person could have surgery and satisfy the $3,500 embedded deductible. The plan will cover expenses incurred by that individual after that point but will not cover claims incurred by other family members until the overall deductible of $7,000 is satisfied. Once the overall deductible of $7,000 is reached, the plan will pay claims for all family members, regardless of if they have satisfied the embedded deductible or not.

Preserving HSA Eligibility with Embedded Deductibles in Family High Deductible Health Plan Coverage

For an individual to be eligible to contribute to an HSA they must be covered by an HSA compatible HDHP. For an HDHP to be HSA compatible, it cannot pay claims prior to the minimum annual deductible being satisfied. This requirement is of particular concern for family HDHP coverage that leverages embedded deductibles.

For 2025, the minimum deductible for HSA compatible family HDHP coverage is $3,300. If the embedded deductible is lower than the minimum HSA compatible family HDHP deductible, the plan will be treated as providing benefits prior to the minimum deductible being satisfied. This prevents the plan from being considered an HSA compatible HDHP, making plan participants ineligible to make HSA contributions.

Family HDHPs that utilize embedded deductibles should verify that their embedded deductibles are at least equal to the minimum HDHP for family coverage ($3,300 for 2025). This prevents the plan from providing benefits prior to the satisfaction of the minimum family HDHP deductible thus preserving the plan’s HSA compatible HDHP status and the eligibility of plan participants to contribute to an HSA.

Key Takeaways:

Employers with embedded deductibles for family HDHP coverage would be well served to review their embedded deductibles to ensure they are equal to the minimum required deductible for family HDHP coverage to ensure their family HDHP coverage remains HSA compatible.

The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.

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