Reform Alert - News from the Blues' Office of National Health Reform

HHS Issues Final Medical Loss Ratio Rule

Dec. 22, 2011

Medical loss ratio is a financial measurement used in the Affordable Care Act to encourage health plans to provide value to enrollees.

On Dec. 2, 2011 the Department of Health and Human Services issued a final rule on medical loss ratio determination and rebate payments for 2011-2013. The MLR reporting and rebate process will increase insurance companies' transparency and assist consumers with purchasing plans that provide better value for their money by requiring insurance companies to publicly report how they spend premium dollars. Insurance companies have to spend at least 80 percent of the premium dollars they collect on medical care and quality improvement activities in the individual and small group markets; and at least 85 percent in the large group market. MLR reports for 2011 calendar year experience must be submitted to HHS by June 1, 2012. Insurance companies must report the following in each state it does business: 

  • Total earned premiums 
  • Total reimbursement for clinical services 
  • Total spending on activities to improve quality 
  • Total spending on all other non-claims costs excluding federal and state taxes and fees 

These reports will be posted publicly by HHS so residents of every state will have information on the value of health plans offered by different insurance companies in their state.

Insurance companies not meeting a medical loss ratio standard will be required to provide rebates to their consumers beginning in 2012 (if a rebate amount is owed for 2011 experience, it must be paid by Aug. 1, 2012). The final rule addresses technical issues in the way health insurance issuers calculate and report their MLR, as well as how rebates are distributed:

  • For rebates owed in the group markets, health plans generally pay rebates to the employer, not to the employees. Employers must follow Department of Labor and HHS rules regarding use of rebates. 
  • ICD-10 conversion costs of up to 0.3 percent of an issuer's earned premium may be considered quality improvement activities for the 2012 and 2013 MLR reporting years, if the expense otherwise meets the criteria for QI activities. 
  • Community benefit: For issuers with community benefit expenditures, the issuer may deduct from earned premiums the higher of 1) the amount paid in state premium tax or 2) actual community benefit expenditures, up to the highest premium tax rate that applies to any issuer in the state. 

HHS also requested comment on a proposal for a new notice requirement to ensure all consumers receive information on either the amount of their rebate or their insurer's MLR. 

Finally, HHS announced Dec. 19, 2011 that it has rejected Michigan's individual market MLR waiver request. The Office of Financial and Insurance Regulation had asked for the 80 percent requirement to be phased in from 2011-2014, but HHS issued a full denial stating: 

"Michigan's application makes it clear that:

  1. Most issuers are either profitable or adjusting business models to reach the 80 percent standard, suggesting no intent to exit. 
  2. All issuers with 2010 medical loss ratios below 80 percent indicated that they are taking steps to meet the standard. 
  3. Michigan is a large, relatively competitive market, with guaranteed issue by Blue Cross Blue Shield and HMOs. 

"For these reasons, HHS has determined that no adjustment to the medical loss ratio standard in Michigan is necessary. This determination will ensure consumers receive a better value for their premium dollar." To read more please see the HHS fact sheet.

Blue Cross Blue Shield of Michigan will continue to monitor the regulation to determine what changes are needed to current processes.

More information on MLR can be found at

The information on this website is based on BCBSM's review of the national health care reform legislation and is not intended to impart legal advice. Interpretations of the reform legislation vary, and efforts will be made to present and update accurate information. This overview is intended as an educational tool only and does not replace a more rigorous review of the law's applicability to individual circumstances and attendant legal counsel and should not be relied upon as legal or compliance advice. Analysis is ongoing and additional guidance is also anticipated from the Department of Health and Human Services. Additionally, some reform regulations may differ for particular members enrolled in certain programs such as the Federal Employee Program, and those members are encouraged to consult with their benefit administrators for specific details.