Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Health InsuranceMedium
A small business owner is establishing a group health plan for her 15 employees. She is informed that the plan requires 100% participation from eligible employees. Which type of group health plan typically mandates such a high participation rate, especially for non-contributory plans?
- AHealth Maintenance Organization (HMO)
- BExclusive Provider Organization (EPO)
- CContributory Plan
- DPreferred Provider Organization (PPO)
Show answer & explanationAnswer & explanation
Correct answer: A. Health Maintenance Organization (HMO)
HMOs often require high participation rates, sometimes 100% for non-contributory plans, to minimize adverse selection and maintain a broad risk pool. This helps control costs and ensures the plan's financial viability.
Why the other options are wrong
- B. EPOs are similar to HMOs in network restrictions but may not always demand 100% participation.
- C. A contributory plan is where employees pay a portion of the premium, and these plans usually have lower participation requirements (e.g., 75%). The question implies a high participation rate, aligning with non-contributory HMOs.
- D. PPOs generally have more flexible participation requirements than HMOs.
Group Health Participation Rate
The percentage of eligible employees who must enroll in a group health insurance plan for the plan to be offered by the insurer. This rate helps prevent adverse selection.
- Mandated by insurers.
- Higher for non-contributory plans (employer pays 100%).
- Lower for contributory plans (employees pay part).
- HMOs often have higher requirements.
Memory trick: Participation Protects Plans from Picking the Sick.