Question

Which statements best describes the effect the Accelerated Benefit provision would have on the benefits paid to the beneficiary?

Answer 1

Charging the actuarially fair premium to the group as a whole may lead to adverse selection, higher healthcare costs, and increased premiums.

Step-by-step explanation:

If an insurance company tries to charge the actuarially fair premium to the group as a whole rather than to each group separately, it may result in adverse selection. Adverse selection occurs when healthier individuals opt out of the insurance, leaving behind a sicker group with higher healthcare costs. This can lead to a higher risk pool and increased premiums for the insurance company's beneficiaries.

For example, if a group consists of both young, healthy individuals and older, sicker individuals, charging the actuarially fair premium to the whole group may cause the healthier individuals to choose not to enroll.

As a result, the insurance company will be left with a higher-cost group and may need to increase premiums to cover the higher healthcare expenses of the remaining beneficiaries.

In summary, charging the actuarially fair premium to the group as a whole instead of separately to each group may lead to adverse selection, higher healthcare costs, and increased premiums for the beneficiaries.