Medical Loss Ratio: Getting Your Money's Worth on Health Insurance

Thanks to the Affordable Care Act, consumers will receive more value for their premium dollars because insurance companies are required to spend 80-to-85% of premium dollars on medical care and health care quality improvement, rather than on overhead costs. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012. This policy is known as the “medical loss ratio” (MLR) provision of the Affordable Care Act.

Medical loss ratio applies to all health insurance plans, including job-based coverage and coverage sold in the individual market. However, insurance plans in the individual market often spend a larger percent of premiums on administrative expensive and non-health related costs, than job-based health plans.

Recognizing the variation in local insurance markets, the Affordable Care Act allows States to request a temporary adjustment in the MLR ratio for up to three years, to avoid disruptions to coverage in the individual market. This flexibility allows consumers to maintain the choices currently available to them in their State while transitioning to a new marketplace where they will have more options for coverage and more affordable health insurance through State-based Health Insurance Exchanges. This is one of many ways the Affordable Care Act is building a bridge from today’s often disjointed and dysfunctional markets to a better health care system.

HHS has set up a transparent process for how States can apply for an MLR adjustment and what criteria will be used to determine whether to grant those requests. States must provide information to the Department of Health and Human Services (HHS) showing that requiring insurers in their individual market to spend at least 80 percent of their premiums on medical care and quality improvement may cause one or more insurers to leave the market, reducing access to coverage for consumers. States must also show the number of consumers likely to be affected and the potential impact on premiums charged, benefits provided, and cost-sharing. All application materials are posted on the HHS website.

The New Hampshire MLR Adjustment

The New Hampshire Insurance Department requested an adjustment of the 80 percent MLR to a 70 percent MLR standard for 2011, 2012, and 2013. 

Based on the information provided, including the 2010 MLR data, we believe it reasonable to establish an MLR standard at 72 percent for the year 2011, an MLR standard of 75 percent for 2012, with the 80 percent standard to apply in 2013. An adjustment to the MLR standard in 2011 and 2012 helps to ensure a stable marketplace, while preserving the intended benefits of the MLR provision for consumers. This approach, which creates a glide path for compliance with the 80 percent standard, balances the interests of consumers, the State and the issuers in accordance with the principles underlying the MLR provision.