What to Know About Medical Loss Ratios

It’s no secret that healthcare coverage is costly, but there are regulations in place to help protect premium holders like you. In accordance with the Affordable Care Act (ACA), insurers must maintain an 80/20 Medical Loss Ratio (MLR) for individuals and small group plans. A Medical Loss Ratio refers to the percentage of an insurer’s net premiums spent on medical claims and quality improvements versus administrative costs and profits.

How Does My Insurer’s MLR Affect Me?

Essentially, the 80/20 MLR standard helps keep healthcare costs down and holds health insurance companies accountable for how they spend premium revenues (what you pay them for your healthcare coverage). Through the MLR requirement, insurance companies have to offer a minimum value for your premium, preventing them from spending too much on administrative costs or gaining too much in profits. If your insurance company maintains the required MLR or higher, this is a good indicator that you’re getting reasonable value for the money you pay on your healthcare premium.

Why Do I Need to Know About MLRs?

Your insurer’s MLR matters because if their average payouts don’t meet the minimum standards established by the ACA, they are required to issue a rebate. However, your insurer’s MLR is not based only on your policy claims and payouts but rather on claims for all similar policies in your state. If you are an individual policyholder and your insurer’s MLR falls short of the minimum, they should notify you by August 1st each year and should issue a rebate directly to you in one of the following ways:

• A direct deposit to the account from which the premium is paid

• A credit toward future premium payments

• A check in the mail

For group policies, such as employee sponsored plans, the insurer will likely issue the rebate to your employer to be distributed among employees, or the employer may choose to reinvest the rebate into making plan improvements for the benefit of all participating employees.

Your healthcare coverage is important. It helps protect you and your loved ones from the potentially devastating financial impact of the cost of healthcare. But, it’s equally important that you are getting the right value for what you pay for healthcare coverage. If you want to know more about your options, coverage and choice of insurance provider, contact the office.

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