Final answer:
The insurer will cover valid claims submitted before the grace period of a lapsed group health insurance policy ends, but not afterwards. Insurance companies must calculate premiums that accurately reflect the group's risk to avoid financial instability and adverse selection.
Step-by-step explanation:
When a group health insurance policy owner lets the policy lapse and does not reinstate it after the grace period expires, the insurer will typically cover valid claims made before the end of the grace period. However, any claims made after the grace period will not be covered as the policy is no longer in effect. This is crucial to maintaining the viability of the insurance model, as extending coverage beyond the agreed terms would result in financial losses for the insurance company.
Considering the actuarially fair premium, insurance companies need to calculate premiums that reflect the actual risk of the group as a whole. Charging low premiums to high-risk members and making up the difference from low-risk members or other sources like taxpayers and other insurance buyers is not sustainable in the long run. This balancing act is necessary to prevent discouraging low-risk individuals from purchasing insurance, which would lead to adverse selection and potential financial instability for the insurer.
Therefore, it's essential that policyholders adhere to the payment terms to ensure continuous coverage and to maintain the equilibrium of the insurance system.