Question 64

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 per insured person is typically lower than the cost incurred if each member were to be insured individually.

A) varies among all group members.

This option is incorrect because, in a group insurance plan, the administrative costs are generally standardized and do not vary significantly among group members. Instead, they are averaged out across the entire group, making them more predictable and manageable.

B) equals the cost of insuring each member individually.

This statement is also incorrect. The administrative cost in a group plan does not equal the cost of insuring each member individually; instead, it is designed to be lower due to economies of scale achieved by insuring a larger group.

C) is less than the cost if each member was individually insured.

This option is correct. Group health insurance often allows for reduced administrative costs due to the efficiencies gained from managing a single policy for many members, rather than multiple individual policies, thus lowering the overall cost per person.

D) is more than the cost if each member was individually insured.

This choice is incorrect. In fact, the opposite is true; the administrative cost per person in a group plan is lower than it would be for individual insurance because the collective nature of the group allows for shared administrative expenses.

Conclusion

The correct answer is option C because it accurately reflects the nature of group health insurance, where administrative costs benefit from economies of scale. All other options fail to recognize that group plans are designed to reduce individual costs, making them more efficient than individual plans.