Arizona Life and Health Practice Exam

In group health insurance, how do premium costs generally compare with individual health insurance?

1. They are usually higher

2. They are usually the same

3. They are usually lower

4. They vary based on age

The correct answer is: They are usually lower

In group health insurance, premium costs are generally lower compared to individual health insurance due to several factors. One major reason is that group policies pool the risk among a larger number of insured individuals. This diversification reduces the overall risk to the insurer, allowing them to offer lower premiums. Additionally, employers often contribute to the premium costs for their employees, further decreasing the financial burden on individual participants. Furthermore, group plans can leverage economies of scale, meaning that they can negotiate better terms with providers and have lower administrative costs per member. Individual health insurance, on the other hand, tends to have higher premiums because the risk is concentrated on the individual, and insurers have less leverage in cost negotiations as they are dealing with a single policyholder. Thus, the dynamic of risk-sharing and employer contributions plays a significant role in leading to lower costs in group health insurance policies.