Final answer:
Benefit payments under a benefit schedule or UCR charge method are based on the stipulated amount or the amount charged, whichever is lower. These methods involve a predetermined list of amounts or a determination of what is usual and reasonable within a geographic area. Charging a group as a whole an actuarially fair premium may lead to imbalances in risk pools and could be problematic for insurance companies. Option B is the correct answer.
Step-by-step explanation:
Under either a benefit schedule or usual, customary, and reasonable (UCR) charge method, benefit payments are based on the stipulated amount or the amount charged, whichever is lower. This means the insurance company will either pay out the amount specified in the benefit schedule or the actual charged amount if it is lower than the scheduled benefit. When talking about a benefit schedule, this refers to a list of predetermined amounts that the insurance will pay for each medical service or procedure. The UCR charge method refers to the insurance company paying an amount based on what it determines to be the usual, customary, and reasonable fee for a service within a particular geographic area.
If an insurance company charges the actuarially fair premium to the group as a whole, it risks undercharging certain high-risk subgroups and overcharging low-risk subgroups, potentially leading to a loss in the high-risk group and a profit in the low-risk group. This could have several effects, like high-risk individuals feeling overcharged and possibly leading to adverse selection issues if they opt out, while low-risk individuals may be more likely to enroll due to the advantageous pricing.