When an insurer prices coverage for a large employer group, how is the premium most likely to be determined?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Large groups are typically experience rated: the premium reflects the group's own past claims history, adjusted for expected trends and expenses. Because a large group has enough covered lives for its claims to be statistically credible, the insurer can predict losses from the group's own experience rather than pooling it with unrelated groups. Large-group underwriting therefore considers the group's size, industry or occupational class, and prior claim patterns. Individual employees are not medically underwritten; the group as a whole is the unit of risk, which is a defining difference between large and small group pricing.
Why the other options are wrong
- B) Individual medical underwriting is not used for employees in a large group; coverage is offered to all eligible employees on a group basis.
- C) A community rate based only on geography and household characteristics is the model used in the small group and individual markets, not for large experience-rated groups.
- D) The oldest employee's age has no bearing on a large group rate; rates are driven by the group's aggregate claim experience.
Memory hook
Big group, own history: the group's past claims write its future premium.