Difficulty: Medium

Average Score: 50%

When managing a health insurance plan for a group, the insurer's administrative cost for each insured person

Rationale

When managing a health insurance plan for a group, the insurer's administrative cost for each insured person is less than the cost if each member was individually insured.

Group health insurance typically allows insurers to spread administrative expenses across many members, resulting in lower costs per person compared to individual policies, which incur higher administrative overhead for each insured individual.

A (is less than the cost if each member was individually insured) CORRECT

This statement accurately reflects the economies of scale achieved in group insurance plans. By pooling members, insurers can reduce overall administrative costs, leading to lower expenses per individual compared to managing multiple individual policies.

B (equals the cost of insuring each member individually) YOUR ANSWER

This option is incorrect because group insurance inherently benefits from lower administrative costs due to the shared expenses among all insured members. Individual policies do not enjoy this cost-sharing, resulting in higher per-person costs.

C (is more than the cost if each member was individually insured) YOUR ANSWER

This statement is false, as group insurance is designed to reduce administrative costs. The structure of group plans allows for a more efficient allocation of resources, ultimately lowering costs rather than increasing them compared to individual plans.

D (varies among all group members) YOUR ANSWER

While it is true that individual healthcare needs may lead to varying costs in claims, the administrative costs per person in group plans are generally uniform and lower than in individual plans. Thus, this choice does not correctly reflect the nature of administrative costs in group insurance.

Conclusion

In summary, group health insurance plans effectively lower the administrative costs per insured person by distributing these costs across a larger member base. This results in significant savings compared to individual insurance policies, which must absorb all administrative costs independently. As a result, group insurance remains a more economical option for managing health coverage for groups.

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