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Health Insurance Issuers Implementing Medical Loss Ratio (MLR) Requirements Under The Patient Protection and Affordable Care Act


Office of Consumer Information and Insurance Oversight, HHS (Nov. 22, 2010): The Department of Health and Human Services ("HHS") has released an interim final rule on health insurer medical loss ratios under PPACA.  The interim regulation certifies the draft rule proposed by the National Association of Insurance Commissioners this past October. 

Substantively, the interim regulation requires health insurers in the individual and small group market to spend 80 percent of consumers' premiums on direct care for patients and efforts to improve health care quality.  Insurers in the large group market are required to spend 85 percent of consumers' premiums.  Beginning in 2012, if insurers fail to meet the ratio requirements, they will be required to provide a rebate to their customers by August 1 each year.  The rule also expressly allows for a State to require a higher medical loss ratio than that required under the interim regulation. 

Insurers must also submit an annual report to HHS, which will be made available to consumers, explaining the company's ratio of incurred loss to earned premium and the nature of the incurred loss.  Specifically, insurers are required to report "all of the elements of revenue and expenditures that will be needed to calculate the amount of rebates."  To that end, the report must include the amount of premium revenue received, the reimbursement amount for clinical services provided to enrollees under the health insurance plan, the amount spent on activities that improve health care quality for enrollees, the amount spent on all other "non-claims" costs, and the amount spent on Federal and State taxes and licensing or regulatory fees.

A fact sheet entitled "Medical Loss Ratio: Getting Your Money's Worth on Health Insurance" has been posted on and can be accessed here.  This interim final regulation is effective January 1, 2011; comments are due no later than 60 days after the regulation's publication in the Federal register, which is currently set for December 1, 2010.

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Arthur N. Lerner
Partner – Washington, D.C.
Phone: +1 202.624.2820