Semiconductor device and method of forming interposer frame electrically connected to embedded semiconductor die

A semiconductor device has an interposer frame mounted over a carrier. A semiconductor die has an active surface and bumps formed over the active surface. The semiconductor die can be mounted within a die opening of the interposer frame or over the interposer frame. Stacked semiconductor die can also be mounted within the die opening of the interposer frame or over the interposer frame. Bond wires or bumps are formed between the semiconductor die and interposer frame. An encapsulant is deposited over the interposer frame and semiconductor die. An interconnect structure is formed over the encapsulant and bumps of the first semiconductor die. An electronic component, such as a discrete passive device, semiconductor die, or stacked semiconductor die, is mounted over the semiconductor die and interposer frame. The electronic component has an I/O count less than an I/O count of the semiconductor die.