Embedded Deductibles & Minimum Statutory Deductibles
In order for an individual to open and contribute to an HSA, they must be enrolled in a qualified high deductible health plan (HDHP) and have no other disqualifying coverage.
For individuals with family HDHP coverage, no amounts can be paid from the HDHP (other than for preventive care) until the required minimum statutory deductible for family HDHP coverage has been met. Therefore, an HDHP is not qualified if the embedded individual deductible (i.e., an individual deductible that goes toward meeting the family deductible) is lower than the minimum required deductible for HDHP family coverage. For 2020 and 2021, the amount set by the IRS is $2,800.
For example, a health plan could have a $5,000 family deductible but may also have an individual deductible for any single family member who has incurred $2,800 in expenses (the embedded individual deductible), even before the family as a whole has incurred $5,000 in expenses. The $2,800 individual deductible within the family coverage is an embedded individual deductible. The health plan, therefore, is a qualified HDHP for 2020 and 2021 because the $2,800 embedded individual deductible under the plan satisfies the $2,800 minimum annual deductible for family HDHP coverage. If the health plan instead had a $3,000 family umbrella deductible and an embedded individual deductible of $1,000, the plan would not be a qualified HDHP for 2021 because it would be possible for the plan to cover expenses before the minimum annual deductible for family HDHP coverage had been met.
It is important to review the HDHP to ensure that an individual embedded deductible is not less than $2,800 for 2020 and 2021, and is still a qualified HDHP which allows employees to open and contribute to their HSAs on a tax-free basis.