Updated August 16, 2015.

Family deductibles were designed so that large families wouldn’t go broke paying individual health insurance deductibles for each family member. You need to understand how the family deductible works so you can budget for your family’s health care expenses.

First, if you’re unfamiliar with the basics of what a deductible is, read “Health Insurance Deductible—What It Is and How It Works” before you go any further.

You’ll need this basic understanding of deductibles before you’ll be able to understand how a family deductible works.

How the Family Deductible Works for Most Health Insurance

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. Coverage begins for any particular individual as soon as he or she has met his or her individual deductible. Coverage begins for the entire family, even those family members who haven’t met their individual deductibles yet, as soon as the family deductible is met.

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

1. If an individual meets his or her individual deductible, health plan benefits kick-in and begin to pay health care expenses for that individual only, but not for the other family members.
2. If the family deductible is met, health plan 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.

An Example of How the Family Deductible Works

Let’s say a family of five has an individual deductible of $500 and a family deductible of $1,500:

• January:
  Dad pays $500 in deductible costs.
  Dad has met his individual deductible.
  Family deductible has $500 credited, $1,000 to go before it’s met.
  Health plan now pays for dad’s health care.
  Health plan doesn’t pay benefits for mom and kids yet.
   
• February:
  Child one pays $500 in deductible costs.
  Child one has met her individual deductible.
  Family deductible now has $1,000 credited, $500 to go before it’s met.
  Health plan now pays for dad and child one’s health care.
  Health plan doesn’t pay benefits for mom, child two, or child three yet.
   
• March:
  Mom pays $200 in deductible costs.
  Mom hasn’t met her individual deductible yet, $300 to go.
  Family deductible now has $1,200 credited, $300 to go before it’s met.
  Health plan only pays for dad and child one’s health care.
  Health plan still doesn’t pay benefits for mom, child two, or child three.
   
• April:
  Child two pays $300 in deductible costs.
  Child two hasn’t met his individual deductible yet, $200 to go.
  Family deductible of $1,500 has now been met.
  Health plan begins to pay benefits for all family members.

Since the family met its family deductible, the health plan started paying benefits for all of the family members, even though three of them hadn’t yet met their individual deductibles.

How Does the Family Deductible Save Money Over Individual Deductibles?

Most health insurance policies have a family deductible that’s between two and four times the individual deductible. Unless the family is very small, the family deductible is usually lower than the sum of all of the individual deductibles.

For example, let’s say you have five family members, an individual deductible of $500 and a family deductible of $1,500, three times the individual deductible amount. If there was no family deductible and each family member had to meet the individual deductible before the health plan began paying benefits for him or her, your family of five would pay $2,500 before health coverage kicked in for every member of the family. However, since coverage benefits kick in for the entire family when the family deductible of $1,500 is met, the family saves $1,000 in deductible costs.

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

Preventive care services don’t require a deductible, copayment, or coinsurance in the United States thanks to the Affordable Care Act. This means that your health insurance will pay for things like your yearly physical, flu shot, and mammogram even if you haven’t met your deductible yet.

Do Copays Count Toward Your Health Insurance Deductible?

High Deductible Health Plans Are the Exception

If you have a high deductible health plan, your family deductible may work differently. Most HDHPs use an aggregate deductible rather the embedded deductible system described above. You can learn more about this in “How the Family Deductible Works in an HDHP.”

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 HDHPs are usually associated with tax-advantaged Health Savings Accounts or Health Reimbursement Arrangements, they have special rules that set them apart from non-HDHP health plans.