The Medical Loss Ratio basically states that a certain percentage of premiums must be spent on claims and programs to improve healthcare quality. This percentage is defined as 85% for large group/companies, and 80% for small group/companies and individuals. Large groups are defined in the ACA as being companies of 100 or more, although states can choose to keep their definition of 50 until 2016 if they choose. Many large companies are self insured and are not subject to the MLR.
So, to put another way, if the insurance company takes in $100,000 in premiums for a small group or a group of individual policies, the insurance company must pay out $80,000 in claims and programs to improve healthcare quality. Obviously, this is not calculate per individual policy. The intention of the law is to limit the average amount of the insurance company can use for profit and administration of the plans. There are plenty of adjustments and complications that help keep small insurance companies competitive.
If the insurance company falls below the MRL, they must send refund checks to the policy holders. I received a check in 2012 from this. It was small, but I am not complaining.
More to come…