Consumers who enroll in health insurance plans pay premiums for a specified set of benefits. In broad terms, a medical loss ratio (MLR) measures the share of enrollee premiums that health insurance companies spend on medical claims, as opposed to other non-claims expenses such as administration or profits. In general, the higher the MLR, the more value a consumer receives for each dollar of paid premium. The MLR is an aggregate measure. Section 1001 of the Patient Protection and Affordable Care Act (ACA, P.L. 111-148 , as amended) imposes a federal, minimum MLR requirement on fully funded health plans, which are plans where insurance companies assume the full risk for medical expenses incurred. Beginning with calendar year 2011, covered insurers have been required to submit reports to the Department of Health and Human Services (HHS) detailing the share of premium dollars spent for medical benefits (which may include certain quality improvements), and the share allocated to administrative expenses and profits (minus certain taxes, fees, and other expenses). The MLR requirement is intended to provide "greater transparency and accountability around the expenditures made by health insurers and to help bring down the cost of health care." MLR Reporting Requirements Under the ACA

		Minimum Standards Required

The ACA MLR standards require that covered insurers in the individual and small group markets meet a minimum MLR of 80%. Effective in 2014, the ACA requires coverage sold through these programs, with some exceptions, to achieve a minimum 85% MLR. 83 , P.L. 113-235 ) exempting expatriate insurance plans from MLR reporting requirements, beginning with plans issued or renewed after July 2015. The MLR requirement does not apply to self-funded plans, which are health care plans offered by businesses in which the employer assumes the financial risk for medical care. In addition, MLR rebates to policyholders are excluded from the medical claims measure. Congress included language in the Consolidated and Further Continuing Appropriations Act of 2015 allowing the non-profit plans to count spending for "activities that improve health care quality," retroactive to 2010. ACA regulations allowed the HHS to consider a set of factors regarding such waivers, including (1) the number of insurers likely to exit a state or to cease offering coverage absent an adjustment to the MLR; (2) the number of individual market enrollees covered by insurers reasonably likely to exit the state; (3) the impact of the MLR standard on consumer access to insurance agents and brokers; (4) alternate coverage options in a state; (5) the impact on premiums and benefits to remaining consumers if insurers withdrew from the market; and (6) any other relevant information submitted by a state's insurance commissioner. For example, if the aggregate data from the large group plans offered by an insurer in a state indicate that the insurer has reached an 82% MLR, rather than the required 85% MLR, all enrollees in the large group plans are eligible for a 3% of premium rebate—even if they are in a plan that is less, or more, efficient than the average. De Minimis Rebates

There are special rules for de minimis, or minor, rebates defined as
group policies where the insurer distributes the rebate to the policyholder (generally an employer), and the total rebate owed to the policyholder and the enrollees combined is less than $20 for a given year; or group policies where the insurer issues the rebate directly to the enrollee and the enrollee rebate is less than $5 for a given year; or individual policies, where total rebate owed by the insurer to each subscriber is less than $5 for a given MLR reporting year. Insurers that do not meet annual MLR requirements must notify enrollees about the federal MLR, its purpose, and the amount of the rebate being provided. That compares to $504 million in rebates to 8.5 million individuals for the 2012 plan year, and $1.1 billion in rebates to 12.8 million individuals for 2011 plan performance. In general, health insurers subject to the ACA MLR provisions have reduced the share of premium dollars spent on overhead since the ACA provisions took effect. Insurance companies are not allowed to deduct broker fees and commissions from their administrative expenses when calculating the ACA MLR. State MLRs
State governments are the primary regulators of health insurance.
The 2010 Patient Protection and Affordable Care Act (ACA, P.L. 111-148) requires certain health insurers to provide consumer rebates if they do not meet a set financial target known as a medical loss ratio (MLR). At its most basic, a MLR measures the share of health care premium dollars spent on medical benefits, as opposed to company expenses such as overhead or profits. For example, if an insurer collects $100,000 in premiums and spends $85,000 on medical care, the MLR is 85%. In general, the higher the MLR, the more value a policyholder receives for his or her premium dollar. The ACA requires an annual, minimum 80% MLR for individual and small group insurance plans, and an annual, minimum 85% MLR for large group plans. Congress imposed the MLR to provide "greater transparency and accountability around the expenditures made by health insurers and to help bring down the cost of health care."
The Department of Health and Human Services (HHS) issued rules to implement the MLR with input from state insurance commissioners, who are the main regulators of health insurance. The ACA statute and regulations allow companies to include both quality improvements and medical services when calculating total MLR medical spending. Insurers may subtract (i.e., disregard) state and local taxes and some licensing fees from total MLR expenses. The federal ACA requirements differ from many state MLR laws, which generally compare medical claims to premiums. The ACA MLR is now the national minimum standard that must be met by covered health insurers.
The ACA MLR is based on an insurer's annual aggregate performance, not on each individual's policy history. A consumer who paid health insurance premiums but did not file any medical claims during a plan year would not qualify for a rebate if his or her insurer met minimum MLR requirements. In addition, many Americans are enrolled in health plans that are not covered by the ACA MLR. The MLR provisions apply to fully funded health plans, which are plans where insurance companies assume full risk for incurred medical expenses. The MLR does not extend to self-funded plans, which are health care plans offered by businesses where the employer assumes the risk for, and pays for, medical care. Medicare plans were not subject to the MLR during the first two years the ACA was in effect. These insurers began complying with MLR provisions beginning in calendar 2014. The HHS granted three-year MLR waivers to select states where it determined that MLR implementation could harm the individual insurance market. Congress included language in the Consolidated and Further Continuing Appropriations Act of 2015 (H.R. 83, P.L. 113-235) exempting expatriate insurance plans from MLR reporting requirements.
For the 2013 plan year, insurers owed $332 million in MLR rebate payments to 6.8 million consumers. That is significantly less than the $1.1 billion in rebates to 12.8 million individuals in 2011, the first year the MLR was in effect. Insurers and employers may provide the rebates via a check, an electronic deposit in a bank account, a reduction in insurance premiums, or by spending the funds for the benefit of employees. Lawmakers have raised some concerns about the MLR provisions, including the fact that insurers are not allowed to deduct insurance agent and broker bonuses and commissions from their MLR expenses.