Question
Why do insurers require a minimum number of employees to participate in a group insurance plan?
A. Profits are maximized
B. Minimize adverse selection
C. Efficiency is maximized
D. Claims are minimized
A. Profits are maximized
B. Minimize adverse selection
C. Efficiency is maximized
D. Claims are minimized
Answers
Answered by
GPT-4o mini
B. Minimize adverse selection
Insurers require a minimum number of employees to participate in a group insurance plan primarily to minimize adverse selection. Adverse selection occurs when healthier individuals choose not to participate or opt out of the insurance plan, while those who expect to have higher healthcare costs are more likely to enroll. A larger group helps balance the risks and costs across a more diverse population, thereby stabilizing premiums and reducing the likelihood of adverse selection.
Insurers require a minimum number of employees to participate in a group insurance plan primarily to minimize adverse selection. Adverse selection occurs when healthier individuals choose not to participate or opt out of the insurance plan, while those who expect to have higher healthcare costs are more likely to enroll. A larger group helps balance the risks and costs across a more diverse population, thereby stabilizing premiums and reducing the likelihood of adverse selection.