Final answer:
Health insurance premiums are indeed generally less expensive if there is a large group of insured participants. This is because the risk is spread among more individuals, leading to lower individual costs. However, setting premiums based solely on aggregated group risk without considering individual risks can lead to imbalances that affect both clients and the stability of the insurance company.
Step-by-step explanation:
Health insurance premiums are generally less expensive if there is a large group of insured participants. This is because the risk is spread out over more people, which can lead to lower costs for each individual within the group. Hence, the answer to the question is True.
When premiums are set at actuarially fair levels, they reflect the expected health care costs for that risk group. High-risk individuals, such as those with chronic diseases or the elderly, would pay higher premiums. However, if the insurance company charges the actuarially fair premium to the group as a whole without differentiating risk, individuals with lower risk may end up paying more than their fair share.
Conversely, high-risk members might pay less, which could lead to adverse selection – where people who perceive themselves at higher risk are more likely to purchase insurance – and potentially financial instability for the insurance company. Therefore, the actuarially fair premium must carefully balance the range of risks within a group to maintain affordability and encourage wide participation.