Texas General Lines — Life, Accident, Health and HMOHealth InsuranceHard
A group health insurance plan requires a minimum percentage of eligible employees to enroll in the plan for it to be implemented. This provision helps the insurer prevent adverse selection. What is this percentage requirement called?
- AParticipation requirement
- BProbationary period
- CEnrollment cap
- DEligibility period
Show answer & explanationAnswer & explanation
Correct answer: A. Participation requirement
A participation requirement mandates a minimum percentage of eligible employees (e.g., 75%) to enroll in a group plan. This helps ensure a broad risk pool and prevents adverse selection, where only high-risk individuals might enroll.
Why the other options are wrong
- B. A probationary period is a waiting period after an employee is hired before coverage begins.
- C. An enrollment cap would limit the maximum number of enrollees, which is not designed to prevent adverse selection in the same way.
- D. An eligibility period is the time an employee must work before becoming eligible for group coverage.
Group Health Participation Requirement
A provision in group health insurance that specifies a minimum percentage of eligible employees who must enroll in the plan for it to be offered or maintained, designed to prevent adverse selection.
- Typically ranges from 50% to 75% for non-contributory plans (employer pays 100%).
- Higher for contributory plans (employees contribute to premiums).
- Ensures a sufficiently large and diverse risk pool.
- Protects the insurer from having disproportionately high-risk members.
Memory trick: Group underwriting balances the risk of many individuals.