What is the medical loss ratio (MLR) in the context of health insurance?

The medical loss ratio (MLR) is a key metric used in health insurance that reflects the percentage of premium revenues a health insurance company spends on medical claims and health care services for its policyholders. This ratio is important because it ensures that a significant portion of premium dollars is directed towards providing medical care rather than administrative costs or profit margins.

When insurers are required to maintain a specific MLR, it promotes accountability and helps safeguard consumers by ensuring that they receive a fair value for their premiums. For example, under the Affordable Care Act, insurers must spend at least 80% of premium income on medical care and health services for individual and small group plans, and at least 85% for large group plans. This regulation is intended to limit excessive administrative costs and profit-taking by health insurance companies.

In this context, the correct understanding of the MLR focuses specifically on how premium revenues are allocated toward medical claims, making this choice the most accurate representation of what MLR entails.