The percentage of premiums that must be spent on medical care under the Affordable Care Act is called the medical loss ratio.
The medical loss ratio, or MLR, measures how much of an insurer’s premium revenue goes toward clinical services and activities that improve health-care quality, rather than administration, marketing, or profit. The Affordable Care Act created the familiar “80/20 rule” for individual and small-group markets and an 85% standard for large-group plans.
The rule generally applies by market and state, not as one identical percentage for every policy. If an insurer falls below the applicable standard, it may have to issue rebates to enrollees. The reporting and rebate system began with the 2011 reporting year, with rebates starting in 2012.
A common mix-up is confusing medical loss ratio with an ordinary loss ratio. A standard loss ratio can measure claims against premiums in many kinds of insurance; the medical loss ratio is specifically designed for health coverage and also recognizes qualifying quality-improvement spending.