Medical Loss Ratios for Health Insurance

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Updated November 2015
Loss ratios for health benefit products have been employed as a measure by a broad range of users for diverse purposes. Insurance companies, managed care companies, legislators, regulators, investors, lenders, consumer advocates and others have used the loss ratio for their particular purposes. These include the evaluation of an organization’s performance by management and investors, providing consumers with information on the relative quality of competing health plans, projecting future earnings growth of HMOs, and testing products against minimum loss ratio standards.

A medical loss ratio (MLR) is the total losses paid out in medical claims plus adjusted expenses divided by the total earned premium. Basically, as a statistic, it measures the fraction of the total insurance premiums that health plans use on clinical services as opposed to administration and profit. The National Association of Insurance Commissioners’ (NAIC) annual statement defines loss ratio as “a measure of the relationship between A & H (accident and health) claims and premiums.” While this definition is simple on the surface, we must carefully examine the factors that influence both the numerator and denominator of this ratio. Furthermore, not all loss ratios are determined in accordance with NAIC definitions. Comparing those that are with those that are not may be misleading, especially in comparing ratios among various carriers. There are a number of different loss ratios that can be produced.

Provisions in the Federal Affordable Care Act (ACA)

Under the Affordable Care Act (in section 1001), there are limits on how much insurers can spend on administrative costs, marketing, and other non-health care-related costs.  The provisions require:
  • For most insurer-based large employer plans, the law requires that at least 85% of all premium dollars collected by insurance companies be spent on health care services and health care quality improvement.  This rule does not apply to large employer plans that are self-insured.
  • Individual and small employer plans must spend at least 80% of the premium dollars on benefits and quality improvement.
  • Health insurance companies must also report yearly to the secretary of Health and Human Services on the share of premium dollars spent on health care services and health care quality improvement in all “plan years” or “policy years.” 
  • If the insurance company exceeds that limit, it must provide reports and rebates to its customers for each plan year that starts after January 1, 2011. These rebates were first paid out to affected insurance policy customers in 2012.
The Patient Protection and Affordable Care Act mandated that the U.S. Health and Human Services Department issue the regulations and implement them by Jan. 1, 2011. In fact HHS issued final regulations on Nov. 22, 2010 on what health insurers must do to meet medical-loss ratio requirements as part of the new health system reform law.  Administrative expenses such as certain fraud and abuse expenses, network and contracting fees, agent and broker commissions and other unrelated activities were excluded from the "quality improvement" calculation of the final rule.

Insurers need to report publicly how they spend premium dollars beginning in 2011, according to the new rules. The regulations also restate and specify that insurance companies in the individual and small-group markets need to spend at least 80% of the premium dollars they collect on medical care and quality improvement activities; those in the large-group market must spend at least 85% - except where state waivers set different percentages for specific years. 

Updated Figures for 2014 Rebates to Consumers

The Department of Health and Human Services (HHS) report covers rebates paid for the 2014 plan year, which represents the first full year of implementation of a number of Affordable Care Act reforms. In 2014, issuers saw a substantial influx of previously uninsured consumers into health insurance markets as insurance reforms; financial assistance, and premium stabilization programs took effect.  Consumers who are owed a rebate for 2014 were to receive a notice from their issuer by October 30, 2015. 

2013: Market for 2013 (as of June 30, 2014) [PDF, 420KB]

2011 Total Rebates by Market and State for Consumers and Families: A 50 state table shows state by state rebate data for the individual market, small group market, and large group market.  A total of $1.1 billion was returned to the purchasers of 12,760,267 insurance policies which fell below the 80/20 or 85/15 thresholds.
Source: CMS/HHS The 80/20 Rule: Providing Value and Rebates to Consumers -Appendix II Release of June 21, 2012

Definitions of the small and large group market.   For the purposes of the MLR  requirement, small group will be defined as 1 to 50 total average employees based on the preceding calendar year, if a state's current definition of small group includes an upper limit of 50, unless the state elects to use 1 to 100, until 2016. After Jan. 1, 2016, small group will be defined as 1 to 100 total average employees. Large group will be determined based on the upper limit established by the small group rules. 
Regulations Updated December 2, 2011:    
The modifications made in the new final rules include:
  • Make the MLR rebate tax free:  Rather than having insurers send checks that could be taxed, workers in group health plans can receive rebates in a way that is not taxable.
  • Increase transparency:  Consistent with comments from consumer groups, the new regulation proposes that all consumers receive a notice, showing not just the amount of any rebate, but what the insurer’s MLR means regardless of whether there is a rebate, and how the insurer’s MLR has improved under the new law.  In addition, data on the special types of plans, mini-meds and ex-patriate plans, will be publicly posted in the Spring.
  • Keep strong policies on how MLR is calculated: The final rule makes only a minor change to a quality improvement definition to promote insurer improvements in defining or coding of medical conditions for a limited window of time.
  • Phase down the special circumstances adjustment for mini-med plans: In 2011, so-called mini-med plans received a special circumstances adjustment to their MLR in the form of a multiplier of 2.0 for 2011.  The final rule phases it down from 1.75 in 2012 to 1.5 in 2013 to 1.25 in 2014.  Mini-med plans will be banned by the prohibition on annual limits in the Affordable Care Act starting in 2014.
  • Recognize circumstances of special types of plans: The final rule, after reviewing data, keeps the ex-patriate plan multiplier adjustment at 2.0 due to their unique structure.  It also levels the playing field between non-profit and for-profit insurers in states with premium taxes.
  • States could apply for waivers to allow a different timetable or percentages on a temporary, annual basis between 2011 and 2014.  See List of 2011 waiver applications and results, below.
CMS Published Proposed Rules Implementing Medical Loss Ratio (MLR) Reporting and Notice Requirements under the PPACA May 11, 2012.   CMS issued final rules implementing MLR standards for health insurance issuers. The final rules amend previously released regulations by establishing the notice requirements for issuers in the group and individual markets that meet or exceed MLR standards in the 2011. Previously issuers were only required to send notice to their beneficiaries if they failed to meet the standard. The ACA required individual and small group plans to meet the MLR standard by spending at least 80 percent of premiums on medical claims or quality improvements, and large plans to spend at least 85 percent. Notices of rebates based on the 2011 MLR reporting year must be provided by August 1, 2012. > The Final Rule,

State Laws for MLR

For state laws passed after the enactment of the ACA, please see Health Insurance Reform Enacted Laws Related to the ACA, 2011-2013.
A number of states have had laws related to medical loss ratios, created before ACA was debated or enacted.  The following are state-initiated examples:

Minnesota - The law states, "(g) Notwithstanding paragraphs (a) and (f), the loss ratio shall be 60 percent for a policy or certificate of accident and sickness insurance as defined in section 62A.01, offered by an insurance company licensed under chapter 60A that is assessed less than ten percent of the total annual amount assessed by the Minnesota Comprehensive Health Association. For purposes of the percentage calculation of the association’s assessments, an insurance company’s assessments include those of its affiliates."
  • The Minnesota Department of Commerce will continue to interpret the loss ratio to be a minimum standard. Rates should be filed to achieve a minimum loss ratio of 60 percent for health insurance policies offered on or after August 1, 2002.   The minimum 60 percent loss ratio applies to all health products, whether individual or group, unless a higher or lower loss ratio is specifically provided in statute. This includes health plan policies issued as stop loss coverage pursuant to Minn. Stat. §60A.235, subd. 3 (1), Individual Health Plan, Large Employer Group Health Plan, Small Employer Group Health Plan. Minnesota has a tiered loss ratio, setting different levels for the large group, small group, and individual markets. 
New Jersey- (C.17B:27A-25) "Each calendar year, a carrier shall return, in the form of aggregate benefits for all of the five standard policy forms offered by the carrier pursuant to subsection a. of section 3 of P.L.1992, c.162 (C.17B:27A-19), at least 75% of the aggregate premiums collected for all of the standard policy forms, 35 contracts, g. (1) Beginning January 1, 1995, a carrier desiring to increase or decrease premiums for any policy form or benefit rider offered pursuant to subsection i. of section 3 of P.L.1992, c.162 (C.17B:27A-19) subject to this act may implement such increase or decrease upon making an informational filing with the commissioner of such increase or decrease, along with the actuarial assumptions and methods used by the carrier in establishing such increase or decrease, provided that the anticipated minimum loss ratio for all policy forms shall not be less than 75% of the premium therefor as provided in paragraph (2) of this subsection."
  • 2001 NJ Regulations: The rules contain a 75 percent minimum loss ratio requirement for group policies, and a 65 percent minimum loss ratio requirement for individual policies. These loss ratio requirements are consistent with those applied to Medicare Supplement policies:
  • New Jersey has a "care share" requirement of 75% for the individual and small group markets.  If less than 75-cents of every premium dollar is spent on direct medical care, an insurer must issue the difference in refunds to their members.  Families USA reports that insurers have refunded policyholders $11.6 million since the early 1990's. 
New York- Accident & Health Insurance, Premium Rates- New York Insurance Law § 3231(a) provides:. No individual health .... seventy-five percent minimum loss ratio requirement for small group and small group ..."

West Virginia- "§33-6C-2. — Insurance commissioner to establish guaranteed loss ratios; minimum rates; participation by insurer; calculation of ratios; minimum rate; application and §33-15-1a "shall have a minimum anticipated loss ratio of sixty-five percent as to such policy form…" 

California- To address the misuse of health insurance premiums, legislators in California passed tougher standards regulating how insurance companies use premiums.  The bill was designed to put teeth into the basic expectation that health insurance premiums paid by families and businesses should be used by insurance companies for actual medical care.  Sponsored by State Senator Sheila Kuehl, legislators passed SB 1440 in August 2008, which creates a "medical loss ratio" of 85% - or "care share" - requiring insurance companies to spend at least 85-cents of every premium-dollar on actual medical care.  Governor Schwarzenegger vetoed the legislation on 9/30/2008.
Priot to the passage of federal health reform,  many insurance companies rarely met medical loss ratio standards without statutory standards.  In a survey of state insurance regulators conducted early in 2008, Families USA found instances where insurance companies spent 60% of premiums in the individual market on medical care, using the rest for profits and administrative expenses - including staff charged with disenrolling insured people from insurance plans.

State Medical Loss Ratio Requirements

State MLR rates that were set prior to the PPACA, effective September 23, 2010, may be preempted if below 80 percent, unles granted waivers.

Individual Market  
Small Group Market
Statutory Reference
Managed care plans: Administrative costs not to be “excessive,” limited to 15% to 25% based on developmental phase of plan. Administrative costs do not include some factors such as salaries, stock options, etc.
California Health And Safety Code
HSC Section 1378, enforced through
Cal. Admin. Code tit. 28, § 1300.78
Title 18 Chapter 25 § 2506
Groups of 2-10: 70%, Groups of 11-50: 75%
KRS 304.17A-095(6)
Insurers that file rates annually: 75%, Insurers that file rates every three years: 78%
Individual: Title 24-A, Chapter 33, §2736-C, Small group: Title 24-A Chapter 35 §2808-B 2-C
Maryland Code § 15-605
Groups of 2-10: 70%, Groups of 11-50: 75%
Large group carriers: 82%
Nonprofit corporations: 75%, Individual dental insurance: 75%
NRS 695B.170, NRS 686B.125
New Jersey
New York
§ 3231(3)(2)(A)
North Dakota
36 O.S. 6515
South Dakota
Individual: 58-17-64, Small group: 58-18-63
Safety net market: 80%
Title 8 Chapter 107 4080b(C)(m)
SB 5261
Individual: Chapter 33 Article 6C §33- 6C-1, Small Group: §33-16D-5
Source: "Medical Loss Ratios: Evidence from the States," Families USA, June 2008. Available at

Federal Health Reform:  Additional Resources

Waivers from Medical Loss Ratio Requirements
Waivers are usually seen as a way to deal with exceptional circumstances in which the enforcement of a law or policy might cause hardship. But with the new health care law, exceptions like these have become increasingly common. They can provide mathematically calculated exceptions to provisions in the law originally thought to be strict and demanding.

Maine, New Hampshire, Nevada, North Carolina, Iowa, Kentucky and Georgia  were granted reprieves from a provision of the law stipulating that insurers selling coverage to individuals and families must spend at least 80 percent of premium revenues on medical care and efforts to improve it. The White House had described this as one of the law’s most beneficial provisions, guaranteeing that consumers would get “more value for your dollars.”

North Dakota, Delaware, Louisiana, Indiana, Florida, Michigan, Kansas, Oklahoma,Texas, and Wisconsin  had their waivers rejected.  A total of seventeen states and Guam (as of 2/16/2012) — have requested similar waivers and a number of other states are considering whether to apply.
  1. Maine - request to adjust the MLR standard to 65 percent excluding Federal adjustments for quality improvement expenses and taxes (Original request 7/1/10; filed with  HHS on 12/16/10; waiver granted 3/8/11).
  2. New Hampshire - request to adjust the MLR standard to 70 percent (filed with HHS on 01/12/11; waiver granted with exceptions on 5/13/11).
    > The N.H. insurance department released its first health insurance premium rate report in April 2012, a study mandated by legislation enacted two years ago. According to the report, premiums grew 14 percent between 2009 and 2010, driven primarily by claims costs, as well as new medical technologies and the growth in outpatient facility costs.
  3. Nevada - request to adjust the MLR standard to 72 percent (filed with HHS on 02/09/11; waiver granted with exceptions on 5/13/11).
  4. Kentucky - request to adjust the MLR standard to 65% in 2011, 70% in 2012 and 75% in 2013  (filed with HHS on 02/16/11; waiver granted with exceptions on 7/22/11).
  5. Florida - request to adjust the MLR standard to 65% for insurers and 70% for HMOs for 2011 through 2013 (filed with HHS by 03/11/11; waiver was rejected on 12/15/2011).
  6. Georgia - request to adjust the MLR standard to 65% in 2011, 70% in 2012 and 75% in 2013 (filed with HHS on 03/17/11; waiver granted with exceptions on 11/8/2011).
  7. North Dakota - request to adjust the MLR standard to 65% in 2011, 70% in 2012 and 75% in 2013. [Example: Premiums, enrollment, MLRs for 2007-2010] (filed with HHS on 03/18/11; waiver was rejected on 7/22/11).
  8. Iowa - request to adjust the MLR standard to 65% in 2011, 70% in 2012 and 75% in 2013  (filed with HHS on 03/21/11; waiver granted with exceptions on 7/22/11).
  9. Louisiana - request to adjust the MLR standard to 70 percent in 2011 and 75 percent in 2012 (filed with HHS on 03/29/11; waiver was rejected on 11/27/2011).
  10. Guam - request to adjust the MLR standard to 65% for individual coverage, 70% for small group coverage, and 80% for large group coverage for 2011, 2012, and 2013 (filed with HHS on 4/15/11).  (HHS determined that all issuers presumed to meet or exceed the 80 percent MLR standard, on 8/5/11) 
  11. Kansas - request to adjust the MLR standard to to 70 percent, 73 percent, and 76 percent in 2011, 2012, and 2013, respectively (received by HHS on 04/29/11; waiver was rejected on 1/4/2012).
  12. Delaware - request to adjust the MLR standard to 65 percent, 70 percent, and 75 percent in 2011, 2012, and 2013, respectively (received by HHS on 05/12/11; waiver was rejected on 9/9/2011).
  13. Indiana - request to adjust the MLR standard to 65 percent, 68.75 percent, 72.5 percent, 76.25 percent, and 80 percent for in 2011, 2012, 2013, 2014, and 2015, respectively (received by HHS on 05/13/11; waiver was rejected on 11/27/2011).
  14. Michigan - request to adjust the MLR standard to 65 percent, 70 percent, and 75 percent in 2011, 2012, and 2013, respectively (received by HHS on 07/28/11; waiver was rejected on 12/19/2011).
  15. Texas - request to adjust the MLR standard to 71 percent, 74 percent, and 77 percent for 2011, 2012, and 2013, respectively (received by HHS on 07/29/11; waiver was rejected on 1/27/2012).
  16. Oklahoma - request to adjust the MLR standard to 65 percent, 70 percent, and 75 percent for 2011, 2012, and 2013, respectively (received by HHS on 09/01/11; waiver was rejected on 1/4/2012).
  17. North Carolina - request to adjust the MLR standard to 72 percent, 74 percent, and 76 percent for 2011, 2012, and 2013, respectively (received by HHS on 09/06/11; waiver was granted with exceptions on 2/16/2012).
  18. Wisconsin - request to adjust the MLR standard to 71 percent, 74 percent, and 77 percent for 2011, 2012, and 2013, respectively (received by HHS on 10/25/11; waiver was rejected on 2/16/2012).
- Source: CCIIO/CMS website, 4/4/2011 and 2/16/2012;  Excerpt from NY Times, 3/20/2011

News and  Opinions on MLR Requirements and Waivers

Authors: Richard Cauchi, Program Director and Steven Landess, Research Analyst - NCSL Health Program, Denver.