Which of the following is true of experience rating?

Question

Options

• AHigh risk patients pay relatively low premiums.
• BIt provides affordable coverage to the chronically ill.
• CYoung, healthier groups have cheaper premiums.
• DThe elderly have among the lowest premiums.

• A
  10% (2)
• B
  5% (1)
• C
  86% (18)

Explanation

Experience rating sets insurance premiums based on the actual claims history and risk profile of a group, meaning lower-risk groups pay lower premiums. Young, healthy groups historically file fewer claims, so under experience rating they receive cheaper premiums - making C correct.

• A is wrong because experience rating does the opposite: high-risk individuals or groups pay higher premiums to reflect their greater expected costs.
• B is wrong because the chronically ill are precisely the population harmed by experience rating - their frequent claims make coverage expensive or unaffordable for them.
• D is wrong because the elderly tend to have the highest premiums under experience rating due to greater healthcare utilization.

Memory tip: Think of experience rating as "you pay for what you use (or are likely to use)." Healthy = low use = low premium; sick/old = high use = high premium. If a choice suggests the opposite, it's wrong.

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