In pricing group medical expense coverage, a large group's premium is most likely to be based on:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Large group medical expense coverage is usually experience-rated, meaning the premium reflects the group's own claims history, demographics, and industry, rather than a community-wide rate. Because the group is large enough to be credible, the insurer can predict its losses with reasonable accuracy and reward good experience with lower rates. Small groups, by contrast, are typically community-rated or rate-banded because their own claims experience is too small to be statistically credible, and the ACA requires adjusted community rating in the small group market.
Why the other options are wrong
- B) A single community rate is the pricing method for small groups, not large groups, whose size makes their own experience credible.
- C) Statewide average claims for individuals would ignore the specific large group's own loss history, which is the foundation of experience rating.
- D) Pricing is never based on only the oldest member's age; large group rates reflect the demographics and claims of the entire group.
Memory hook
Big groups earn their own rates. Small groups get the community price because their numbers are too small.