California Life and Health Insurance Practice Exam

How would an insurer handle a group health policy if 15 out of 50 members have major health issues?

1. Insure only healthy members

2. Accept or reject the whole group

3. Charge a higher premium

4. Offer individual policies

The correct answer is: Accept or reject the whole group

The correct approach in this scenario is to accept or reject the whole group. Group health insurance operates on the principle of pooling risks among all members of the group. Insurers generally evaluate the overall health of the group rather than individual members when determining whether to accept the group as a whole. If the majority of the members are healthy, despite a minority having major health issues, the insurer is likely to consider the overall risk manageable, given the collective premiums that will be paid. Conversely, if the collective risk is too high to insure, the insurer may decide not to accept the group at all. This reflects the nature of group insurance, which is designed to prevent discrimination against individuals based on their individual health status. In contrast, the other options, such as insuring only healthy members, charging a higher premium based solely on the health status of some members, or offering individual policies, do not align with the principles of group underwriting. Insurers typically do not have the flexibility to cherry-pick members in a group plan or to single out individuals for different treatment; instead, the focus remains on the group as a single unit.