Question 25

Employer group dental expense plans limit annual benefits in an attempt to MINIMIZE adverse selection.

Employer group dental expense plans implement annual benefit limits primarily to minimize adverse selection. By capping the benefits, these plans discourage individuals who anticipate high dental expenses from disproportionately enrolling, thus maintaining a balanced risk pool.

A) Adverse selection.

This option is correct as adverse selection refers to the tendency of individuals with higher health risks to seek insurance more than those with lower risks. By limiting annual benefits, employer group dental plans aim to reduce the likelihood of attracting a disproportionate number of high-risk enrollees, thereby stabilizing premiums and ensuring that the cost of the plan is manageable for the insurer.

B) Combination plans.

This option is incorrect because combination plans refer to insurance structures that integrate various types of coverage, such as combining dental and health insurance. Limiting annual benefits does not specifically relate to managing combination plans but rather addresses the risk of adverse selection.

C) The overall deductible.

This option is incorrect as the overall deductible refers to the amount an insured individual must pay out-of-pocket before the insurance coverage begins to pay. While deductibles may influence plan usage, limiting benefits is not directly aimed at managing or minimizing the overall deductible.

D) Coordination of benefits.

This option is incorrect because coordination of benefits pertains to the rules governing how multiple insurance plans work together when an individual is covered by more than one plan. Limiting annual benefits does not directly relate to the coordination of benefits but is focused on the risk assessment of the enrolled population.

Conclusion

In summary, the limitation of annual benefits in employer group dental expense plans serves to minimize adverse selection, ensuring a healthier risk pool and more sustainable premium pricing. Other options do not address the core issue of risk management related to adverse selection, making them less relevant in this context.