Difficulty: Hard

Average Score: 26%

Which of the following is a reason why a majority of dental care plans are group plans?

Rationale

Group plans minimize adverse selection.

Group dental care plans are commonly preferred due to their ability to reduce adverse selection risks by pooling a larger number of individuals together. This aggregation helps spread the financial risk across a diverse group, leading to more stable premiums and coverage options.

A (Few individuals would qualify for individual coverage.) YOUR ANSWER

Individual dental coverage may have eligibility criteria that limit the number of people who can qualify for such plans. However, this does not directly explain why a majority of dental care plans are group plans, as the rationale behind group plans lies more in risk-sharing mechanisms rather than individual eligibility constraints.

B (Group plans offer better coverage options.) YOUR ANSWER

While group plans may indeed offer competitive coverage options, the primary reason for the prevalence of group dental care plans is the risk mitigation strategy of pooling individuals together to minimize adverse selection. The quality of coverage is a separate consideration from the risk management aspect.

C (Group plans minimize adverse selection.) CORRECT

This is the correct answer. Group plans are designed to balance risk across a larger pool of individuals, reducing the impact of adverse selection and ensuring more stable coverage and pricing structures for all participants.

D (Few individuals want dental insurance.) YOUR ANSWER

The demand for dental insurance among individuals is not the driving factor behind the prevalence of group plans. The focus here is on the risk management benefits provided by group plans rather than individual preferences for insurance coverage.

Conclusion

In summary, the primary reason why a majority of dental care plans are group plans is the risk mitigation strategy they offer by minimizing adverse selection. By spreading risk across a larger pool of individuals, group plans can provide more stable coverage options and pricing structures compared to individual plans.

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