Difficulty: Medium

Average Score: 54%

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

Rationale

The insurer's administrative cost for each insured person is less than the cost if each member was individually insured.

In group health insurance plans, insurers can reduce administrative costs due to economies of scale, allowing them to manage coverage for multiple individuals more efficiently than handling each member separately. This cost-effectiveness typically results in lower per-person administrative expenses compared to individual insurance policies.

A (varies among all group members.) YOUR ANSWER

While there may be slight variations in administrative costs due to factors like age or health status, the overall administrative cost structure in a group plan is designed to be uniform and efficient. The concept of varied costs contradicts the principle of collective management that underpins group insurance.

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

Group insurance is fundamentally more cost-effective than individual insurance because it spreads administrative costs over a larger pool of members. This means that the total administrative cost per member in a group plan is generally lower than what it would be if each member were insured individually.

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

Insurers benefit from economies of scale when managing group insurance plans, leading to lower administrative costs per person. This efficiency in processing claims, managing policies, and handling communications reduces the overall expense associated with insuring a group compared to insuring individuals separately.

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

This statement is incorrect, as it misrepresents the efficiency of group insurance management. Individual insurance policies incur higher administrative costs due to the need for separate underwriting, claims processing, and customer service for each member, which is not the case in a group plan.

Conclusion

In group health insurance plans, the administrative cost per insured person is generally lower than the cost incurred when insuring individuals separately. This cost efficiency arises from the ability to spread administrative expenses across a larger group, benefiting both the insurer and the insured with reduced per-person costs. Understanding this principle is crucial for organizations seeking to provide affordable health coverage to their employees.

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