In underwriting a large group health plan, the insurer is MOST likely to set premiums based on:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Large groups are generally experience-rated: because the group is large enough to produce credible loss data, the insurer sets premiums largely on the group's actual claims history and demographic characteristics such as age and gender mix. This contrasts with small groups and individuals, where community rating (a common rate across a pool) applies because no single group is large enough for credible experience. The ability to use experience rating is a key underwriting consideration that favors large groups. The credibility of the group's own data grows with its size.
Why the other options are wrong
- B) Group underwriting evaluates the aggregate risk and claims experience of the group; it does not medically underwrite each individual employee. Aggregate underwriting is the norm for employer groups, not individuals.
- C) Community rating is the small-group and individual market approach; large groups are experience-rated on their own claims history. Large groups escape the pooled-rate approach because their own data is credible.
- D) State Marketplace rates apply to marketplace plans; large employer contracts are negotiated directly between the employer and the carrier. Marketplace premium rates do not govern large group contracts at all.
Memory hook
Large group = big enough to trust its own track record. Small group = too small, so everyone rides the community rate.