Medical loss ratio, or MLR, shows how much of a health insurer’s premium revenue goes toward medical care and activities that improve healthcare quality. For fully insured small-group health coverage, insurers generally must meet an 80% MLR standard under the Affordable Care Act. If an insurer falls below the applicable standard, it may owe rebates. For small businesses, an MLR rebate can provide useful information, but it should not be treated as a score showing whether a specific health plan is good or bad.
The MLR rebate rules discussed here apply to fully insured health coverage. Self-funded health plans operate differently and are not part of the same insurer MLR rebate process.
What Does Medical Loss Ratio Mean?
Under the Affordable Care Act, health insurers must meet minimum MLR standards based on the insurance market they serve.
Insurance Market | General MLR Standard |
Individual market | 80% |
Small-group market | 80% |
Large-group market | 85% |
If an insurer falls below the standard that applies to its market, it may be required to issue rebates.
MLR is not calculated separately for each employer. An insurer’s MLR information is reported separately by state and market, such as individual, small group, or large group, rather than by a particular employer, policy, or plan.
What Does an MLR Rebate Actually Mean?
An MLR rebate means the insurer did not meet the required spending standard for the applicable market. It does not automatically mean your employees had low claims, your company paid too much for its specific plan, or you selected the wrong coverage.
A business could receive a rebate even after employees used a significant amount of healthcare during the year. The rebate reflects the insurer’s broader results in the applicable state and market, not the experience of one employer’s health plan.
That distinction matters. An MLR rebate tells you something about an insurer’s spending across a broader market, not whether your specific plan is working well for your employees.
Does a Higher MLR Mean a Better Health Plan?
Not necessarily. MLR tells you how an insurer uses applicable premium revenue, but it does not tell you whether a particular plan has the right provider network, deductibles, prescription coverage, dependent coverage, or employee costs for your workforce.
Two plans can meet the same MLR standard while giving employees very different experiences. One may offer better access to the doctors employees use, while another may have different deductibles, prescription benefits, or family coverage.
MLR should be one part of a health plan review, not the only measure used to judge the plan.
What Should Small Businesses Review After an MLR Notice?
An MLR notice can be a useful reason to review how the health plan is working overall. Employers can look at employee costs, employer contributions, deductibles, dependent coverage, provider access, prescription benefits, and whether the plan continues to fit the workforce.
Employee questions and enrollment patterns can also provide useful context. If the same concerns keep coming up around family coverage, provider access, prescriptions, or out-of-pocket costs, those issues may deserve attention regardless of the insurer’s MLR result.
Renewal history, workforce changes, contribution strategy, and current business goals can provide additional context when deciding whether the existing health plan continues to make sense.
What Should Employers Do With an MLR Rebate?
Employers should not assume that the entire rebate automatically belongs to the business.
For an ERISA-covered group health plan, some or all of an MLR rebate may be considered a plan asset. The determination can depend on factors such as who holds the insurance policy, what the plan or policy documents say, and how the employer and plan participants shared the cost of premiums.
Any portion of the rebate that is considered a plan asset must be handled in accordance with applicable ERISA fiduciary responsibilities. Employers should review their plan documents and current guidance before deciding how rebate funds should be used or distributed.
If the correct treatment is unclear, consult a qualified benefits or legal professional before taking action.
Did the 2018 MLR Bill Become Law?
No. Older information about MLR may mention the Access to Independent Health Insurance Advisors Act of 2018.
The proposal would have changed how certain compensation paid to licensed independent insurance producers was treated when calculating medical loss ratio. The bill was introduced in the U.S. Senate in January 2018 and referred to committee, but it did not advance beyond the introduced stage.
Employers should follow the MLR requirements currently in effect rather than treating that proposal as a change to today’s rules.
Frequently Asked Questions About Medical Loss Ratio
Medical loss ratio measures the share of applicable premium revenue that a health insurer spends on medical care and activities that improve healthcare quality. Under the Affordable Care Act, insurers must meet the MLR standard that applies to their insurance market.
An insurer calculates its MLR across the applicable state and insurance market. If the result falls below the required standard, the insurer may owe rebates to eligible policyholders or enrollees in that market.
A rebate for a group health plan may be paid to the policyholder, but that does not necessarily mean the entire amount belongs to the employer. For ERISA-covered plans, the treatment can depend on the plan documents, policyholder, and how the employer and participants shared premium costs.
The insurer MLR rebate rules discussed in this article apply to health insurance issuers providing fully insured coverage. Self-funded plans operate differently because the employer generally assumes responsibility for paying covered claims rather than purchasing a fully insured health policy.
Not necessarily. MLR measures how an insurer uses premium revenue, but it does not show whether the provider network, deductibles, prescription coverage, employee costs, or overall plan design are a good fit for a particular workforce.
How Should Employers Use MLR When Reviewing a Health Plan?
MLR can provide useful information, but employers should not use it alone to judge a health plan. Coverage, employee costs, employer contributions, provider access, prescription benefits, plan design, and workforce needs can provide a more complete picture.
JS Benefits Group helps employers review health plans based on workforce needs, current plan structure, costs, renewal history, and business goals. Employers who want a broader review of their current coverage can learn more about JS Benefits Group’s employee benefits plan design approach and identify areas that may need closer attention.
