medical loss ratio

What is the medical loss ratio?

Medical loss ratio (MLR) is a measure of the percentage of premium dollars that a health plan spends on medical claims and quality improvements, versus administrative costs. The Affordable Care Act (ACA) set minimum MLR standards for health insurance in the US.

How do medical loss ratio rules work?

Obamacare (the ACA) requires health insurance carriers to spend the bulk of the premiums they collect on medical expenses for their insureds. Individual and small-group carriers must spend at least 80% of premiums on medical expenses, and for large-group plans, the requirement is 85%.

Profits and other administrative expenses can make up no more than 20% (15% for large groups) of premiums collected. If administrative expenses exceed those amounts, the insurer must remit rebates to their insureds.

(States can set higher MLR requirements: Massachusetts sets the requirement at 88% for individual and small group plans; New York’s is 82%.)

When did MLR rules take effect?

The MLR rules for individual and group health insurance took effect in 2011. The first rebate checks were issued in the fall of 2012.

How much are the MLR rebates?

The rebate amount is calculated on a three-year rolling average. From 2012 through 2023, insurers had returned nearly $11.8 billion to insureds — mostly employers, but some individuals — in the form of rebates for premiums that ultimately ended up being too high (in other words, the insurers didn’t spend at least 80% or 85% of the collected premiums on medical costs and quality improvements).

The rebates that were issued in 2023 (based on a rolling average across plan years 2020 – 2022) totaled more than $947 million. For people who received a rebate in 2023, the average rebate was $164 per person.¹

Does everyone get an MLR rebate?

No. Most people do not get MLR rebates, because most health plans meet the MLR targets. The rebates that were sent out in the fall of 2023 went to about 5.8 million people: 1.7 million in the individual market, and 4.1 million in the employer-sponsored market¹ (in the employer-sponsored market, the rebates are sent to the employer, who can use them to benefit enrollees in various ways).

That’s a very small fraction of the roughly 190 million Americans — almost 55% of the population² — who are covered under employer-sponsored and individual health coverage. (The majority of people with employer-sponsored coverage have self-insured health plans,³ which are not subject to MLR rules.)

But if we only consider the individual market, MLR rebates have been sent to a fairly significant number of enrollees in recent years. There are more than 20 million people with individual market coverage in the U.S. In 2022, 2.3 million of them received rebates, and in 2023, 1.7 million of them received rebates.¹ In 2021, rebates were sent to 4.8 million individual market enrollees. and nearly 5.2 billion of them received rebates in 2020. Even in that market, however, the majority of enrollees do not receive an MLR rebate, even in years when the MLR rebates are particularly large (as was the case in 2020 and 2021).

Do MLR rules apply to Medicare and Medicaid?

The ACA imposes a medical loss ratio requirement of 85% on Medicare Advantage plans, but rebates are sent to the Centers for Medicare and Medicaid Services instead of to consumers. States can also set MLR requirements of at least 85% for Medicaid/CHIP managed care contracts, and most of them do (37 of the 41 states that use Medicaid managed care).⁴