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

Insurers must meet Medical Loss Ratio requirements or provide rebates to members

Nov. 03, 2010

The percentage of premiums used to cover medical costs is referred to as the medical loss ratio (MLR). Beginning in April 2011, health insurance companies must submit annual reports of the percentage of earned premium dollars that are spent on clinical services and quality improvement, and dollars spent on administrative expenses.

A health insurer’s overall MLR must be greater than 85 percent for health plans in the large group market, which means that 85 cents of every premium dollar collected must be spent on costs directly related to members’ health. The MLR must be greater than 80 percent for health plans in the individual and small group markets. If a health insurance issuer does not meet these ratios for each market, it must provide rebates to its members equal to the dollar amount needed to meet the required threshold. Any required rebates will first be paid in 2012, based on 2011 experience. Rebates may be in the form of cash or future rate reductions.

The MLR ratio will be calculated across all groups or individuals within the relevant market segment. For example, all of the carrier’s insured large group business is pooled to calculate the large group MLR for the carrier. 

  • The small group definition for MLR purposes is not clearly defined in federal law. In Michigan, small groups are currently groups with 50 or fewer eligible beneficiaries or 50 or fewer beneficiaries enrolled with a carrier. 
  • The individual market is characterized as the market for health insurance that is offered to individuals, not in connection with a group health plan. 

Certain types of coverage, such as self-insured arrangements, Medigap, stand-alone dental or vision, and Medicare Advantage are exempt from MLR reporting and rebate requirements as described above.

As a part of our ongoing commitment to serving our members, BCBSM and BCN have traditionally met and exceeded the required MLR minimums.

The National Association of Insurance Commissioners (NAIC) and the Department of Health and Human Services (HHS) are in the process of establishing the standards for MLR reporting and will release regulations in the upcoming months.

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.