Health Insurance and Managed Care (B) Committee
Wednesday, August 13, 2025
10:45 AM CDT
Minneapolis Convention Center—101—Level 1
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Medical Loss Ratio
Background
Last Updated: 10/24/2025
Issue. The Affordable Care Act of 2010 (ACA) established the first minimum medical loss ratio (MLR) standard for many private market health plans and insurers (there were MLR requirements for Medicare Supplement policies before the ACA). The goal of the MLR standard under the ACA is to restrain premium growth by limiting the profits and administrative costs of health insurers. The ACA requires health insurers in the individual and small group markets to spend at least 80% of their premium revenues on clinical care and quality improvements. For the large group market, the MLR requirement is 85%. The ACA requires these plans to provide annual rebates to policyholders if they do not meet MLR requirements.
Overview. The medical loss ratio (MLR) is the share of total health care premiums spent on medical claims and efforts to improve the quality of care.[i] The remainder is the share spent on administration costs and fees, as well as profits earned. Section 2718 of the Public Health Service Act (PHS Act), as amended by the ACA, requires health insurance issuers to annually submit an MLR report to the Secretary of Health and Human Services. If the issuer’s MLR is less than the applicable percentage established in the PHS Act (three-year rolling average), it is required to issue a rebate to enrollees. The MLR rules became effective on January 1, 2011.
The MLR is based on an insurer’s annual aggregate financial allocations within each market (individual, small group, or large group) and state. The MLR does not extend to self-funded health insurance plans, which are plans for which the employer is responsible for the payment of covered claims; “mini-med†plans, which have total annual benefits of $250,000 or less; or expatriate plans ().
The ACA permits adjustments to the MLR requirements in a state if it is determined that the 80% MLR requirement could destabilize the state’s individual insurance market. Specifically, the Secretary of Health and Human Services may adjust the MLR standard for a given MLR reporting year if there is a “reasonable likelihood†that an adjustment to the 80% MLR standard would help “stabilize the individual market†in that state (). Adjustments were made for several states in 2017 and prior years, but no state requests for MLR adjustment have been received from CMS since (see CMS, “â€).
Average MLRs rose significantly from 2011 through 2015, then plummeted by 2018 (Figure 1). For example, in the individual market, the average MLR climbed from 80% in 2011 to 103% in 2015 (Figure 1). By 2018, the average MLR had fallen to 72%. Although the average MLR returned to 79 percent by 2019, it retreated in 2020 back to 72%, likely due to deferred care during the early months of the COVID-19 pandemic and associated reduced medical spending by health insurers. A significant increase in the MLR in 2021 was likely also due in large part to COVID-19, reflecting a recoupment of care deferred during the COVID-19 pandemic, as well as a return to normalcy in the demand for medical care. The MLR was comparatively stable from 2021 to 2022, dipping by 2 percentage points to 86%.
For the health insurance industry, average net premium per member per month increased 6.7% from 2021 to 2022 (ÐÓ°ÉÊÓƵ, U.S. Health Insurance Industry Analysis Report, 2022 Annual Results). Net income increased appreciably in 2022 (by 29.3%) following a dive in 2021, but profitability remained well below COVID-19-era levels (down 31% from 2020). Mid-year reports suggest the gain in net income will be more subdued in 2023, as net income increased by 6% from Q2 2022 to Q2 2023 (ÐÓ°ÉÊÓƵ, Health 2023 Mid-Year Industry Analysis Report). Underwriting gain surged by 68% in 2022 after dropping in half between 2020 and 2021, but underwriting gain declined modestly from mid-year 2022 to mid-year 2023.
Figure 1
If the MLR of an insurer falls below thresholds, the insurer must pay rebates to its consumers proportional to the divergence of the MLR from the threshold. A policyholder is not entitled to a rebate if their specific insurer met the MLR requirement. The MLRs charted in Figure 1 are averages across states for each market. Data for separate individual, small group, and large group markets are available only through 2023. The gray line represents the MLR for the entire health insurance industry.
In 2012 (2011 plan year), issuers were required to pay 8.5 million consumers a total of $504 million for an average rebate of $98/family [] (Figure 2). These totals were significantly lower in 2015, when rebates were about $397 million for about 4.9 million families (average of $138/family).[ii] MLR rebates are based on a 3-year rolling average. Thus, 2024 plan year rebates (paid in 2025) were calculated using insurers’ financial data for 2022, 2023, and 2014. Total rebates for 2018 (paid in 2019) reached a record $2.5 billion to 11.2 million families (average $219/family). In 2023 (paid in 2024), which is the latest date for which data are available from the CMS, $947 billion in rebates were paid to about 6.1 million families (average $156/family).
Figure 2
Importantly, within any given state, there is significant variance across insurers in rebates required, and the average rebate paid can be misleading on its own. For example, in Hawaii, which had the highest average rebate at $1,732 per consumer-family for plan year 2023 (paid in 2024), only one insurer was required to pay rebates.
[i]For calculation of the MLR, applicable premiums, medical claims, and quality improvements are defined at , , and , respectively.
[ii]By 2015, rebates were issued based on a three-year rolling average of the MLR, which explains the apparent discrepancy in totals and per family amounts compared with 2012.
Actions
Status. The ACA requires the ÐÓ°ÉÊÓƵ to establish uniform definitions and standardize methodologies for calculating the MLR and rebate amounts. A Medical Loss Ratio Blanks Proposal was approved by the ÐÓ°ÉÊÓƵ full membership in 2010 in order to capture detailed information that can be used by regulators to gain a directional sense of a company’s MLR prior to the actual MLR calculation that is submitted by insurance companies through the Health Insurance Oversight System (HIOS) later in the applicable year. Annual Statement Blanks are the actual forms submitted by insurance companies to report financial information to state regulators.
Under the ACA, health insurers are subject to an audit of their MLR reporting and related rebate obligations.[i] The U.S. Department of Health and Human Services (HHS) can accept the finding of a state’s audit provided certain criteria are met (). States’ completion of audit procedures of insurers’ MLR reporting and rebate obligations and subsequent reporting to HHS is optional and is determined by the individual states.
[i] ÐÓ°ÉÊÓƵ, MLR Examination Reporting Instructions. Updated March 2016.
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