Medical Loss Ratios

A medical loss ratio refers to the policy whereby a state sets limitations on the amount insurance carriers may spend on costs other than medical expenses (such as profit, marketing, and administration).  Medical loss ratios can be set either for all insurance carriers in the market, or for a specific set of policies, such as standardized benefit plans.  In many states, if insurers fail to meet the required medical loss ratios (often averaged over a three-year period), they must issue premium refunds to policyholders.   

Based on Families USA’s survey of state Departments of Insurance between October 2006 and March 2007, at least nine states impose medical loss ratios in the small group market.  New York and New Jersey enforce a 75 percent loss ratio.  Minnesota has a tiered loss ratio structure, requiring large groups to meet an 82 percent loss ratio, carriers in groups of 10-15 employees to meet a 75 percent loss ratio, and carriers in groups of 2-9 employees to meet a 71 percent loss ratio.  California Governor Arnold Schwarzenegger is calling for an 85 % medical loss ratio as part of his comprehensive health reform plan.

For further information on medical loss ratios, see Families USA’s Understanding How Health Insurance Premiums Are Regulated: Establishing a Medical Loss Ratio, http://www.familiesusa.org/issues/private-insurance/rate-regulation-51.html