This blog post was authored by: Susan J. Penner, RN, MN, MPA, DrPH, CNL

What is a medical loss ratio (MLR), and why should you care?  The MLR represents the portion of a health insurance plan’s expenses that contribute to direct services for enrollees.  These direct services include medical care and quality improvement efforts.

Another term for the MLR is the 80/20 rule.  If 80 cents out of every premium dollar are spent on medical claims and quality improvement, the health plan spends the remaining 20 cents on non-medical costs such as administration, salaries and profits.  The MLR is 80% in this example, but MLRs can vary among health plans.

Why should you care about your health plan’s MLR?  When people purchase health insurance, they want to know their premiums are used to cover their health care needs, rather than excessive executive salaries or company profits.  Health plans with lower MLRs provide less customer service for the dollar than plans with higher MLRs.

The Affordable Care Act (ACA) uses the MLR as a measure of value provided to health plan enrollees.  The ACA and some states set requirements for MLRs in health plan markets.  Individual and small group plans are required to have a minimum 80% MLR.  Large group plans must have a minimum 85% MLR.  Health plans are required to submit annual MLR data to the Centers for Medicare & Medicaid Services (CMS).

Health plans that fail to meet the minimum MLR standards must pay rebates back to enrollees who paid premiums over that year.  Exceptions to this rule are made for health plans covering an unusually small number of enrollees.  The US Government Accountability Office (GAO) reports that insurers not meeting the MLR standards paid $1.1 billion in rebates in 2011, and $520 million in 2012.  Eligible health plan enrollees received an average rebate amount of $83.60 in 2011 and $58.50 in 2012 from health plans that did not meet the MLR standards.

In 2015, Americans can expect cutbacks to the ACA.  Americans covered by private insurance should be aware of MLRs and find out if MLR standards are repealed or upheld for their health plan choices over the years to come.  Nurses have an opportunity to advocate on behalf of enrollees to make sure health plans are held accountable to put patient care before profits.