General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
A group health plan covering all employees of a large employer distributes risk by:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Group insurance spreads risk across a large number of employees, so the cost of a few members' claims is shared by the entire pool. This distribution is exactly what the law of large numbers makes possible: individual outcomes are uncertain, but the group's total claims are predictable. Group plans therefore price a blended rate rather than each member's individual risk.
Why the other options are wrong
- B) Group plans generally do not rate individual sick employees separately; risk is spread, not singled out.
- C) Excluding all chronic conditions would gut coverage and is not how group risk distribution works.
- D) Group plans cover all eligible employees; selection against the pool is not the purpose.
Memory hook
Many members, one pool: everyone's small share pays someone's big claim.