Medical Expense✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A large employer's group health premium is based primarily on the group's own past claims experience rather than the experience of the broader risk pool. This pricing method is called:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Experience rating sets a group's premium according to the claims history of that specific group. It is typically used for large groups, where the group's own past claims are a statistically credible predictor of future claims. Small groups and individuals lack enough exposure of their own to be credibly experience-rated, so they are usually priced through community rating, which spreads risk over all insureds in a defined community.
Why the other options are wrong
- A) Community rating ignores a single group's own claims and uses the experience of the entire community; it is used for small groups and individuals.
- C) A retrospective dividend plan adjusts premiums after the year based on actual claims, but it is a refund mechanism, not the pricing basis described.
- D) Modified community rating blends community factors such as age and geography; it is not based on the group's own claims experience.
Memory hook
Experience rating = your own claims set your price. Community rating = everyone's claims set your price.