Final answer:
Mandatory participation rates in noncontributory group plans aim to reduce adverse selection by ensuring both high and low risk individuals are part of the insurance pool, thus leading to more balanced risk distribution and stable premiums.
Step-by-step explanation:
A mandatory participation rate for noncontributory group plans is designed to reduce adverse selection. Adverse selection occurs when individuals with a high risk of requiring insurance coverage are more likely to purchase insurance, leading to disproportionately high costs for insurers and potentially higher premiums for everyone. By implementing a mandatory participation rate, a wider range of individuals, including those with lower risks, are brought into the insurance pool, thus helping to distribute risks more evenly and limit the impact of adverse selection. This strategy also aligns with the objectives of the individual mandate, which under the Patient Protection and Affordable Care Act (ACA), targeted adverse selection by requiring all eligible individuals to have health insurance or face a penalty.