Maryland Life and Health Insurance License Practice Exam

Why do group dental plans usually limit annual benefits?

1. To enhance customer satisfaction

2. To minimize adverse selection

3. To promote preventive care

4. To comply with federal regulations

The correct answer is: To minimize adverse selection

Group dental plans typically limit annual benefits primarily to minimize adverse selection. Adverse selection occurs when individuals who are more likely to require dental care, often those with existing dental conditions or higher likelihood of needing treatment, choose to enroll in the plan. By setting a limit on the benefits, insurers can manage the financial risk associated with providing coverage to a group that may be more inclined to utilize expensive dental services. A limit on annual benefits helps ensure that the costs are more predictable and manageable for the insurer. This way, the cost of the plan reflects a balance between the risk posed by enrollees and the premiums collected, thereby maintaining the sustainability of the insurance pool. While promoting preventive care can also be a factor in the design of dental plans, the primary focus of benefit limits is to safeguard against the risk that comes from a disproportionate number of high-cost claimants. Therefore, this aspect of risk management is essential for ensuring that group plans remain viable and affordable for all members.