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Health Reform and Medical Loss Ratio (MLR)

The PPACA includes many provisions to help bring down costs in our healthcare system. One of the most important is Medical Loss Ratio (MLR).

MLR is the restriction on the proportion of premium dollars that insurance companies can spend on profits and administrative expenses. Put the other way, MLR is the requirement that insurance companies spend a certain percent of every premium dollar on patient care.

Under health reform, for individual and small group plans, the MLR is 80%. That is, insurers must spend at least 80% of premium dollars on medical care and quality improvement. For large group plans, the MLR is 85%. If a health plan doesn’t meet that standard, it will owe rebates to consumers.

What’s Happening Right Now

The National Association of Insurance Commissioners (NAIC) has been delegated the responsibility to draft a plan for HHS Secretary Sebelius to implement MLR, including defining key terms and exceptions to the law.

During October, insurance commissioners will finalize key decisions on how insurance companies spend the premiums. This summer they unanimously adopted definitions to be used in the MLR regulations. Now they are finalizing those regulations. HHS must approve the NAIC definitions and methodologies for calculating MLRs before they become official but HHS is likely to give a great deal of weight to the NAIC’s determinations. Insurance companies have been pressuring commissioners to change the definitions adopted this summer.

The committee vote likely will be held this week with a final vote later this month at the NAIC meeting. Commissioner’s offices can be found here. .

More Background Available

Our friends at the National Health Law Project, along with Timothy Jost, Robert Willett Family Professor at Washington and Lee University School of Law, put together information in helpful document.

You can access it here.