7. When managing a health insurance plan for a group, the insurer's administrative cost for each insured person
Answer: A
The insurer's administrative cost for each insured person is less than the cost if each member was individually insured.
When managing a health insurance plan for a group, the administrative cost for each individual is typically lower than it would be if each member were insured separately due to economies of scale in administrative processes.
A) is less than the cost if each member was individually insured
This option is correct because group insurance allows insurers to spread administrative costs over a larger number of insured individuals, thereby reducing the per capita cost. This efficiency in processing claims and managing policies results in lower overall expenses compared to individual insurance.
B) equals the cost of insuring each member individually
This option is incorrect as it suggests that the administrative costs are the same for group and individual insurance. In practice, group insurance typically reduces administrative costs per individual due to the efficiencies gained from managing a larger collective.
C) is more than the cost if each member was individually insured
This option is incorrect because it contradicts the principle of economies of scale. Group insurance generally results in lower administrative costs per person than individual insurance, not higher.
D) varies among all group members
This option is incorrect as it implies that administrative costs differ significantly between group members. While there may be some variance in individual cases, the general trend is that the collective administrative cost is lower across the board in group insurance than in individual policies.
Conclusion
In summary, the correct answer is that the insurer's administrative cost for each insured person is less than the cost if each member was individually insured due to the efficiencies afforded by group policies. The other options fail to recognize the cost-saving benefits associated with group insurance, which provides a more economical solution for both insurers and insured individuals.