How a Family Deductible Works

Family deductibles were designed so that families wouldn’t go broke paying individual health insurance deductibles for each family member.

This article will help you understand how the family deductible works so you can budget for your family’s healthcare expenses.

How a Family Deductible Works

Most family health insurance policies have both individual deductibles and family deductibles. Each time an individual within the family pays toward his or her individual deductible, that amount is also credited toward the family deductible.

There are two ways a family health insurance policy will begin to pay benefits for a particular individual within the family.

• If an individual meets their individual deductible, after-deductible benefits kick in and begin to pay healthcare expenses for that individual only, but not for the other family members.
• If the family deductible is met, after-deductible benefits kick-in for every member of the family whether or not they’ve met their own individual deductibles.

This type of family deductible system is known as an embedded deductible because individual deductibles are embedded within and count toward the larger family deductible.

The most common plan design is a family deductible that's equal to twice the individual deductible. So while deductibles vary, it's rare for a family to pay more than two individual deductibles in one year. (This obviously doesn't apply if family members have their own separate policies, as the separate policies would not coordinate with each other in terms of out-of-pocket costs).

Example: Family of Five

Let’s say a family of five has an individual deductible of $1,000 and a family deductible of $2,000:

In January:

• Dad pays $1,000 in deductible costs.
• Dad has met his individual deductible.
• Family deductible has $1,000 credited, $1,000 to go before it’s met.
• Health plan now pays post-deductible benefits for dad’s health care (depending on how the plan is designed, this will generally still involve cost-sharing, which is most likely to be coinsurance and copays until the out-of-pocket maximum is reached).
• The health plan doesn’t pay after-deductible benefits for mom and kids yet. (All health plans regulated under the Affordable Care Act fully cover certain preventive care before the deductible. Depending on the plan, it may pay a portion of the cost of various services—such as office visits, prescriptions, and urgent care visits—before the deductible.)

In February:

• Child one pays $700 in deductible costs.
• Family deductible now has $1,700 credited, $300 to go before it’s met.
• Child one still has $300 to go before the deductible is met, so dad is still the only family member whose deductible has been met. This means the health plan continues to pay post-deductible benefits only for the dad.
• The health plan doesn’t pay yet pay after-deductible benefits for mom or any of the kids.

In April:

• Mom pays $300 in deductible costs.
• Family deductible has now been met ($1,000 for dad + $700 for child one + $300 for mom = total of $2,000).
• Dad is the only one who has met his individual deductible, but the health plan now begins to pay post-deductible benefits for all family members.

Since the family deductible was met, the health plan started paying after-deductible benefits for all of the family members, even though four of them hadn’t met their individual deductibles—including two kids who hadn't incurred any expenses toward their individual deductibles.

Cost Considerations

It's possible for a health plan to have a family deductible that's more than double the individual deductible. Check your plan's summary of benefits and coverage to be sure you understand how it works. For example, you might find that the family deductible is three times the individual deductible.

The family deductible helps to keep overall costs more manageable, especially for a larger family. For example, let’s say you have five family members, an individual deductible of $1,500, and a family deductible of $3,000.

If there were no family deductible and each family member had to meet the individual deductible before the health plan began paying post-deductible benefits, your family of five would pay $7,500 before post-deductible health coverage kicked in for the whole family.

However, since after-deductible benefits kick in for the entire family when the family deductible of $3,000 is met, the family saves up to $4,500 in deductible costs if they were to face a year in which each family member needs extensive medical treatment.

What Is Not Included in the Deductible

Things that aren’t covered by your health insurance won’t count toward your deductible even though you pay them out of your own pocket.

For example, medical marijuana isn’t covered by health insurance. If you pay $1,500 for medical marijuana, that $1,500 won’t be credited toward your individual or family deductible since it’s not a covered benefit of your health plan.

If you use an out-of-network medical provider in a non-emergency situation, the costs generally won't count toward your health plan's regular deductible. If the plan doesn't cover any out-of-network care (common with HMOs and EPOs), the out-of-network charges simply won't count toward your plan's cost-sharing at all. If your plan does cover out-of-network care (common with PPOs and POS plans), the plan will likely have a separate deductible for out-of-network services. This out-of-network deductible will generally be quite a bit higher than the plan's regular in-network deductible.

(Note that the No Surprises Act ensures that people don't encounter unexpected out-of-network charges when using an in-network facility or when they receive emergency care.)

Copays for office visits and prescriptions generally don't count towards your deductible, but when you have a copay, it means your insurer is paying part of the bill—and you get that benefit even before you've met your deductible.

As always with health insurance, the details can vary by plan. Call your insurance provider and speak with a customer representative if you are unsure what is or isn't covered.

High-Deductible Health Plans

If you have a high-deductible health plan (HDHP), your family deductible may work differently.

Some HDHPs use an aggregate deductible rather than the embedded deductible system. This is much less common than it used to be, but it's still possible, especially on HDHPs that have deductibles on the lower end of the allowable spectrum.

In other words, your HDHP probably has embedded deductibles just like any other type of health plan, but it might not and you'll want to make sure you understand the specific coverage details that apply to your family's plan.

Be aware that your plan may not be an HDHP just because your deductible seems really big. An HDHP is a special type of health plan, not just a descriptive term.

Because enrollment in an HDHP allows a person to make contributions to a tax-advantaged Health Savings Account, specific IRS rules set these plans apart from non-HDHP health plans.

Since 2016, non-grandfathered health plans must limit individual out-of-pocket maximums for each family member to no more than the maximum out-of-pocket that would apply to a person who has their own health policy. This is true even if it's an HDHP with an aggregate family deductible.

For 2022, the Department of Health and Human Services has capped individual out-of-pocket costs at $8,700. So a family HDHP could have an aggregate family deductible equal to $8,000 but not an aggregate deductible equal to $10,000—because that would potentially require a single family member to pay $10,000 before receiving benefits under the plan, and that's no longer allowed.

Summary

A family deductible is the total deductible amount that a family would need to meet in order to activate post-deductible benefits for all family members who are covered under the plan. The family deductible is typically double the individual deductible amount. The family deductible can be met by a combination of two or more family members' costs.

A Word From Verywell

If you're shopping for your family's health insurance in the marketplace/exchange, it's common to see the family deductible listed on the comparison charts. But that doesn't mean that a single family member would have to pay that much in order to meet the deductible. Most health plans have embedded individual deductible, which tend to be half the amount of the family deductible.