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2018 HDHP Minimum Deductible Limits Require Plan Changes for Some Employers

 September 27 2017     Shelly Hodges-Konys and Diane Cross

As employers contemplate and finalize benefit changes for 2018, those with High Deductible Health Plans (HDHPs) with embedded deductibles that are paired with Health Savings Accounts (HSAs) should pay special attention to the 2018 limits announced in our previous blog post on the subject. As a reminder, earlier this year the IRS announced an increase in the minimum family deductible amount for 2018 from $2,600 to $2,700 and an increase in the minimum deductible for self-only coverage from $1,300 to $1,350. Easy enough, right? But, what about the mention of embedded deductibles? We’ll explain further.

What is an embedded deductible?
With family coverage, an embedded deductible allows for coinsurance to apply for a specific individual if he/she meets the individual deductible, even if the family has not yet met the family deductible.

In a non-embedded plan, the entire family deductible must be met by one individual or a combination of individuals before the plan begins to pay. In order for the HDHP to remain an HSA-qualified plan, it cannot provide benefits until the required IRS minimum deductible is met (other than preventative care). When an HDHP has an embedded deductible, that minimum deductible must be at least $2,700 (the statutory minimum deductible for family coverage) because for those enrolled in family coverage, the plan begins to reimburse services when any one individual meets the deductible. An HDHP family plan with an individual deductible below $2,700 that is embedded violates the regulations by paying for claims before the IRS minimum deductible amount is met for individuals with family coverage. Examples below help to explain.

Example 1: Darcy elects HDHP family coverage with an embedded deductible for 2018. Plan year begins January 1 and has $2,500 individual/$5,000 family deductibles. Darcy incurs $3,000 of medical expenses on January 15. With the embedded deductible, co-insurance will apply after Darcy pays $2,500. Per IRS, this plan is NOT an HSA-qualified HDHP, because claims were paid before the statutory minimum $2,700 family deductible was met.

Example 2: Darcy elects HDHP family coverage with an embedded deductible for 2018. Plan year begins January 1 and has $3,000 individual/$6,000 family deductibles Darcy incurs $3,500 of medical expenses on January 15. With an embedded deductible, co-insurance will apply after Darcy pays $3,000. Per IRS, this plan IS a HSA-qualified HDHP, as NO claims were paid before the $2,700 deductible was met.

Not only should employers review their HDHP deductible limits to ensure their plan designs are in compliance, but also must make sure the minimum deductible for HDHP self-only plans is at least $2,700 if offering an embedded deductible. For more questions about minimum deductibles and the impact on plan design, contact your HORAN representative.