Massachusetts Health & Accident Insurance Practice Exam

What is a characteristic of a contributory insurance plan?

1. Employees pay the entire premium

2. Only the employer pays the premium

3. Requires 75% participation from employees

4. Requires no employee participation

The correct answer is: Requires 75% participation from employees

In a contributory insurance plan, both the employer and employees contribute to the premium costs. A key characteristic is the requirement for participation from employees, typically a minimum percentage of employees must enroll in order for the plan to be effective. The 75% participation requirement ensures that there are enough participants to spread the risk and maintain the viability of the insurance plan. This participation requirement helps keep the premium costs manageable and allows for the collective pooling of resources among the insured individuals. Higher enrollment usually results in more stable premium costs and a better risk assessment for the insurer. The other options do not accurately describe contributory plans where employee contributions are fundamental to the structure of the plan. For instance, if employees paid the entire premium, it would not be considered contributory, and if only the employer paid, it would classify as a non-contributory plan. Similarly, a contributory plan cannot operate without some level of employee participation, which is contrary to the notion of no participation at all.