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The percentage of health insurance premiums that are spent by the insurance company on health care services. The ACA requires that large group plans spend 85 percent of premiums on clinical services and other activities for the quality of care for enrollees. Small group and individual market plans must devote 80 percent of premiums to these purposes. Minnesota passed regulations in 1993 that initially required insurers in the small group market to meet a 75 percent medical loss ratio and individual market insurers to meet a 65 percent loss ratio. Both medical loss ratios increased by 1 percentage point each year until 2000, when the loss ratios were 82 percent in the small group market and 72 percent in the individual market. The loss ratios have remained at these levels since 2000. (See Minn. Stat. 62A.021)
A basic financial measurement used in the Affordable Care Act to encourage health plans to provide value to enrollees. If an insurer uses 80 cents out of every premium dollar to pay its customers' medical claims and activities that improve the quality of care, the company has a medical loss ratio of 80%. A medical loss ratio of 80% indicates that the insurer is using the remaining 20 cents of each premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, and agent commissions. The Affordable Care Act sets minimum medical loss ratios for different markets, as do some state laws.
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