What does the medical loss ratio (MLR) indicate?

The medical loss ratio (MLR) is an important metric in the health insurance industry that specifically measures the proportion of premium revenues a health plan spends on medical claims and healthcare services as opposed to administrative expenses and profits. A higher MLR indicates that a larger share of premium dollars is being allocated to actual medical care for enrollees, which is a focus of various healthcare regulations intended to ensure that consumers receive value for their premium payments.

MLR is particularly significant in the context of the Affordable Care Act, which establishes minimum MLR requirements for insurance issuers in the individual and small group markets. This regulation ensures that a certain percentage of premiums (generally 80% for individual and small group plans and 85% for large group plans) must be used for medical care rather than for administrative costs or profits. Thus, understanding MLR helps regulators, consumers, and healthcare advocates assess the adequacy and efficiency of health plans in delivering care.