Medical Loss Ratio Frequently Asked Questions

General Questions

What does the Medical Loss Ratio (MLR) provision address?

The MLR provision of the Aﬀordable Care Act (the Act)

requires all health insurance companies to spend a certain

portion of fully insured individual and group insurance

premium dollars on health care claims and programs to

improve health care quality. If these thresholds are not met, the

insurer may have the obligation to rebate certain amounts back

to the applicable policyholders. The law provides guidance

regarding the calculation and reporting of the Medical Loss

Ratio as well as, where applicable, the criteria for when rebates

to policyholders must be paid.

What is the required Medical Loss Ratio as outlined under

the regulation?

• Individual and Small Group Market - 80 percent

• Large Group – 85 percent

What deﬁnes the small and large group markets?

The Act deﬁnes “Small Group” as plans having 1-50 total

average employees based on the preceding calendar year.

However, with the passing of the PACE Act in early October

2015, states remain at 1-50 Small Business deﬁnition or

allows a transition for those states that chose an upper limit of

100 prior to January 1, 2016.

Are there special considerations to prevent disruption

to the market?

Yes. Special considerations are in place for the regulations

of small plans, new plans, mini-med, expatriate and student

plans. Each of these types of plan has a separate process

and criteria by which a change to the standard MLR may be

accommodated, if they qualify, for a period of time as outlined

under the regulations.

Does the MLR provision apply to both fully insured and

ERISA self-funded plans?

No, it applies just to fully insured health plans. ERISA self-

funded plans are not a health insurance issuer, as deﬁned by

the regulation.

When did the MLR interim ﬁnal regulation go in eﬀect?

January 1, 2011. Any rebates applicable to 2011 were paid

out by August 1, 2012.

Calculation

How is the MLR calculated?

The calculation is based on the incurred claims and the

expenses for activities that improve health care quality divided

by earned premium minus federal and state taxes, licensing

and regulatory fees, adjusted for risk adjustment, risk corridor,

and reinsurance under the Act. Calculations are conducted on

a calendar year basis.

For purposes of calculating the MLR, policies are grouped

together based on the health plan that issued the coverage,

the state where issued and the market segment (Individual,

Small Group or Large Group). The MLR is then computed for

the entire group of policies in the aggregate.

What is considered an activity that improves health care quality?

Activities that improve health care quality increase the

likelihood of desired health outcomes and are grounded in

evidence-based medicine. Quality improvement programs are

designed to achieve the following goals:

• Improve health outcomes, including an increased likelihood

of desired outcomes compared to a baseline and reduced

health disparities among speciﬁed populations

• Prevent hospital readmissions

• Improve patient safety and reduce medical errors, lower

infection and mortality rates

• Increase wellness and promote health activities

• Enhance the use of health care data to improve quality,

transparency and outcomes

What activities are not considered quality improvement

activities in the MLR calculation?

Activities designed primarily to control or contain costs are not

to be reported as quality improvement. Speciﬁcally identiﬁed

examples of activities that may not be counted as quality

improvement include:

• HIPAA and certain ICD-10 implementation and

administration costs. However, insurers are to report the

costs of implementation to document these costs.

• Retrospective and concurrent utilization review

• Most fraud prevention activities (other than to the extent they

recover incurred claims)

• Provider network contracting costs and fees

• Provider credentialing

• Costs associated with calculating and administering

enrollee/employee incentives

Medical Loss Ratio

Frequently Asked Questions

Reporting

What are insurance company reporting requirements to HHS?

Each health insurer must report to the Department of Health

and Human Services (HHS) for each calendar year. Issuers

will report, among other things, the premium earned, claims,

quality improvement expenses and other non-claims costs

incurred under health insurance that is in force during the

calendar year.

Rebates

What is the general requirement for distribution

of MLR rebates?

In most circumstances, an issuer must provide any owed

premium rebate to each applicable group policyholder if the

issuer’s relevant MLR does not meet or exceed the minimum

MLR percentage required for that calendar year. Some rebates

will be required to be sent to group policy subscribers in very

limited circumstances. For policies in the individual market,

rebates are paid directly to the individual policyholder.

Who is eligible for a rebate?

The MLR is calculated for all policies included in a speciﬁc

block as categorized by the issuing insurer, state where issued

and line of business (Individual, Small Group or Large Group).

All policies in such block will either receive a rebate or not

based on the computed MLR for the entire block. Eligibility for

MLR premium rebates does not depend upon the usage of

health plan services by the group or individual policyholder.

Will customers be notiﬁed if they become eligible

for rebates?

Once the MLR has been calculated and eligible policyholders

are veriﬁed, the policyholder will receive the rebate and the

relevant group plan subscribers will receive written notice of

the rebate.

How are speciﬁc group policy rebates distributed?

For most ERISA plans (i.e., employment-based coverage),

the rebate will be paid to the group policyholder and the

policyholder must use the rebate to beneﬁt the subscribers

of the relevant plan consistent with Department of Labor

requirements (see below).

Federal governmental plan rebates will be paid to the

group policyholder.

Non-federal governmental plan rebates will be paid to the

group policyholder, with the policyholder having an obligation

to use the portion of the rebate attributable to the premium

paid by subscribers in one of the following three ways:

• To reduce the subscribers’ portion of the annual premium

for the following policy year for all subscribers covered under

any group health policy oﬀered by the plan

• To reduce the subscribers’ portion of the annual premium

for the following plan year for only those subscribers covered

by the policy on which the rebate was based

• Provide a cash refund to subscribers covered by the policy

on which the rebate was based

For those plans that are neither governed by ERISA nor

governmental plans (e.g., church plans), the rebate will be

paid to the group policyholder only if the policyholder provides

written assurance that it will use the rebate according to

standards applicable to non-federal governmental plans. If no

such assurance is received, the issuer will divide the entire

rebate equally among all applicable subscribers.

When would the rebates go out?

The insurer must provide all rebates by September 30

following the end of the MLR reporting year.

What guidelines are there for ERISA customers to follow in

terms of the requirement to use the rebate to beneﬁt their

subscribers?

ERISA plans must check their plan documents to determine

how they may use a premium rebate, including whether there

are any timeframes in which a rebate must be used and to which

uses a rebate may be put. Some plan sponsors may also have a

more formalized trust document that should be consulted.

The Department of Labor (DOL) may also be able to assist

ERISA plans on this issue. The Department of Labor’s

Employee Beneﬁts Security Administration may be reached at

1-866-444-EBSA (3272) or on its website at

http://dol.gov/ebsa/newsroom/tr11-04.html.

Unfortunately, there is no one answer to every situation. Each

ERISA group health plan sponsor needs to review the terms

of its plan and its speciﬁc situation to determine how to utilize

rebate proceeds.

Whatever the type of plan, we recommend that customers

consult with their legal counsel if they have questions on how

to handle any premium rebate received.

Insurance coverage provided by or through UnitedHealthcare Insurance Company or its aﬃliates.

Administrative services provided by United HealthCare Services, Inc.,

or their aﬃliates.

The content provided is for informational purposes only. This communication is not intended, nor should it

be construed, as legal or tax advice. Please contact a competent legal or tax professional for legal advice,

tax treatment and restrictions. Federal and state laws and regulations are subject to change.

Medical Loss Ratio Frequently Asked Questions