Arizona Health Insurance Practice Exam

What strategy can a group dental insurer use to discourage adverse selection?

1. Increase premiums for all participants

2. Limit the duration of coverage

3. Expand coverage options

4. Offer no waiting periods

The correct answer is: Limit the duration of coverage

Limiting the duration of coverage is a strategy that can effectively discourage adverse selection in a group dental insurance context. Adverse selection occurs when individuals with a higher likelihood of needing medical service are more inclined to purchase insurance than those who are healthier and less likely to need it. By capping the duration of coverage, insurers can create a less appealing situation for those who may anticipate needing extensive dental care soon after enrolling. If individuals know that their coverage will not be long-lasting, they may be less motivated to sign up for a plan if they believe they will only benefit from it for a short period. This approach can also prompt healthier individuals to participate in the plan because they may find the limited duration less concerning or more manageable compared to a long-term commitment where they might face higher costs due to an influx of high-risk enrollees. In this way, generating a more balanced risk pool becomes feasible for the insurer. In contrast, increasing premiums for all participants could lead to disenfranchisement of healthy individuals, further skewing the risk pool towards higher-risk members. Expanding coverage options might attract more individuals but could also inadvertently invite those seeking it for potential pre-existing conditions. Offering no waiting periods could encourage individuals aware of upcoming dental needs to enroll, thus