In contributory plans, where employees pay all or part of the premium amount, 75 percent of employees must participate.Identify the rationale for this rule.
A)It helps reduce the premiums for group insurance contracts.
B)It helps in gaining accurate information about insureds participating in the contract.
C)It helps protect the plan from adverse selection.
D)It helps the underwriter to acknowledge attribution error.
E)It helps the employer to take stop loss insurance and reinsurance contracts to limit losses.

Question

Quizplus · Accepted Answer

The rationale for requiring a 75 percent participation rate in contributory plans is to help protect the plan from adverse selection. Adverse selection occurs when only those who expect to use the insurance (those who are likely to have claims) choose to participate, which can drive up costs for the insurer and make the plan unsustainable. By ensuring a high participation rate, the risk is spread over a larger group, including both healthy and less healthy individuals, which helps keep the plan viable and premiums more affordable for everyone.

In Contributory Plans, Where Employees Pay All or Part of the Premium