Group dental plans typically limit annual benefits to minimize which insurer concern?

• A. Premium leakage
• B. Underinsurance
• C. Adverse selection
• D. Moral hazard

Answer: (C)

Limiting annual benefits in group dental plans is a tactic to minimize adverse selection. When a cap is in place, the plan becomes less valuable to individuals who expect high dental costs, so they’re less likely to enroll or stay enrolled. This helps the insurer maintain a healthier risk pool and more predictable costs for the group.

Premium leakage isn’t directly addressed by benefit caps, which are about risk selection. Underinsurance is the opposite of what the caps aim to achieve, as caps can create gaps in coverage rather than prevent them. Moral hazard relates to increased use because of insurance coverage, which caps can influence, but the primary goal of annual limits in this context is to deter high-cost individuals from joining, i.e., to reduce adverse selection.