Final answer:
Group insurance is less costly because insurers can secure lower rates due to their large client base and the risks are spread out across a diverse group, including both high-risk and low-risk individuals. This risk diversity and government influences like The Affordable Care Act contribute to the affordability of group insurance plans compared to individual policies.
Step-by-step explanation:
Group insurance is typically less expensive than individually sold policies. This is primarily because insurance companies have a large number of clients in group plans, which gives them leverage to negotiate for lower rates with health care and other service providers. Consequently, the cost savings from these negotiations benefit the insured individuals and also makes it more economical for the insurance company when it needs to pay out claims.
Furthermore, group insurance helps mitigate the problem of adverse selection by creating a diverse pool of insured individuals, mixing both high-risk and low-risk members. This diversity reduces the insurance company's risk of only attracting high-risk clients who are more likely to require payouts. Additionally, government regulations like The Affordable Care Act encourage coverage through group plans, which in turn can further stabilize the insurance market by requiring broader participation.