Medical Loss Ratio
Under the Affordable Care Act there is a new regulation related to bringing down the cost of healthcare with a new medical loss ratio standard. Essentially this is a new reporting and rebate requirement for health insurance issuers. It imposes an annual reporting requirement to the Secretary of HHS, which includes information on:
- • premiums earned
- • taxes and regulatory fees
- • expenditures on activities that improve healthcare quality
- • other non-claims costs, and
- • expenditures on clinical services provided
Issuers must submit reports for the large group markets, small group markets, and individual markets in each state the issuer does business. In each market, a medical loss ratio standard is set. For individual and small group markets, issuers will be required to spend 80 percent of premiums on “medical care”. In large group markets, issuers will be required to spend 85 percent on medical care. If the medical loss ratio standards are not met, issuers will be required to rebate premiums to all plan enrollees on a pro rata basis.