You can say 'the meatball is rare', rather than 'the inside is rare'. When meat is rare, it means that the inside is not cooked, so 'inside' is redundant. 'Rare' suggests a deliberate choice, so the meatballs must be made of a meat that can be eaten undercooked. 'The meatball is undercooked' is natural, and suggests this is a cooking mistake. It is not deliberate.

The second option is more natural.