Florida 2-15 Life, Health and Variable Annuity AgentGeneral Knowledge of Health InsuranceHard
A client is a small business owner considering group health insurance for their 12 employees. To ensure eligibility and avoid adverse selection, the insurer will likely require a minimum percentage of eligible employees to participate in the plan. This is known as a:
- AParticipation rate requirement
- BAdverse selection threshold
- CNon-contributory plan requirement
- DContributory plan requirement
Show answer & explanationAnswer & explanation
Correct answer: A. Participation rate requirement
In group health insurance, insurers often require a minimum percentage of eligible employees (typically 75% for contributory plans) to enroll to minimize adverse selection. This is known as a participation rate requirement.
Why the other options are wrong
- B. While related to adverse selection, this is not the specific term for the enrollment percentage requirement.
- C. A non-contributory plan is fully employer-paid and typically requires 100% participation.
- D. A contributory plan is one where employees pay a portion of the premium, and it usually has a participation requirement.
Group Health Participation Rate
The minimum percentage of eligible employees that must enroll in a group health insurance plan for the plan to be issued, designed to prevent adverse selection.
- Typically 75% for contributory plans (employees pay part of premium).
- Often 100% for non-contributory plans (employer pays 100% of premium).
- Ensures a broad risk pool and prevents only sick individuals from enrolling.
- Helps maintain lower premium costs for the group.
Memory trick: Group health: Many must join to make it work!