The medical loss ratio (MLR) is the percentage of premium that health insurers spend on medical care and quality improvement activities. Prior to the Affordable Care Act (ACA), many insurance companies were spending a substantial portion of premium dollars on administrative costs and profits. Since 2011, the federal Department of Health and Human Services has enforced minimum MLR standards. The standards are intended to help consumers by:

  • Providing transparency. Insurance companies must publicly report how premium dollars are spent.
  • Ensuring value for the premium dollar. For insurers in the individual and small group markets, no more than 20% of premium dollars may be spent on overhead; in the large group market, no more than 15% may be spent on administrative costs and profits.
  • Providing rebates. Insurance companies not meeting the MLR standard must provide rebates to their enrollees. The rebate may be provided directly to the enrollee or indirectly through their employer.

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