Focus on Health System Reform – The Medical Loss Ratio


Many provisions in the Patient Protection and Affordable Care Act (PPACA or Act) focus on changing the way health insurance companies collect and spend premium revenues.  One of these provisions is known as the medical loss ratio (Sec. 1001 of the Act).  This important provision requires insurers that offer group or individual coverage to report annually to the U.S. Department of Health and Human Services (DHHS) the percentage of health care premium dollars spent (1) to reimburse providers for health care services and (2) on quality improvement measures.

Thus, administrative costs and overhead, marketing, profits, and salaries will all push the ratio down.  The idea behind the ratio is to ensure that premium dollars are used as intended: for health care.

The PPACA sets the minimum medical loss ratio at 85% for large group plans (plans with 101 or more employees).  The required ratio is 80% for individual and small group plans.  The PPACA expressly allows states to increase those percentages.

Beginning on January 1, 2011, an insurer that provides coverage in a manner that does not satisfy the medical loss ratio will be required to provide premium rebates to each enrollee subscribing to that coverage.

A major point of contention for insurers involves the types of activities that may be counted as “quality improvement.”  The Act directs the National Association of Insurance Commissioners (NAIC) to answer this question initially, while taking into account “special circumstances of small plans, different types of plans, and newer plans.”  So far, insurer expenses for care coordination, wellness & prevention, and chronic disease management have all been discussed as quality-related expenses that might count toward the required percentages.  Insurers have also argued that costs associated with building provider networks, health information technology, and utilization review should also count as “quality improvement” measures.

At this time, the NAIC has not yet completed this process and has indicated that it will release its recommendations to DHHS for the medical loss ratio later this summer.

As new information becomes available, we will communicate it via our Health System Reform Resource Center at and in the Bulletin.

Editor’s Note: At the direction of the NCMS Board of Directors, your NCMS staff is examining and reporting on specific provisions contained in the new health care reform law. These special reports will be published weekly in our Bulletin series, Focus on Health Care Reform.


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1 Comment

  • Clark Hanmer, MD

    As a family physician, I find the insurer’s use of RNs to call patients to advise about diets OUTRAGIOUS! a) I can not afford to hire an RN for patient education; b) the insurer never informs the PCP of their activity, undermining our doc-pt relationship; c) it seems that these RNs are practicing medicine out-of-state without a license. Shifting those premium dollars from the insurer to the primary care doc may be more cost effective.