Memorandum on Medical Loss Ratio Adjustments

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Stacey Pogue /(512) 320-0222 x 117

June 24, 2011

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Under the Patient Protection and Affordable Care Act (ACA), health insurers must spend a reasonable share of premium dollars on medical care and quality improvement efforts, as opposed to administration, marketing, and profits. These standards, known as medical loss ratio (MLR) requirements, hold insurers accountable for how they use consumers’ premium dollars.

The standards help consumers realize greater value from their health insurance by putting reasonable limits on administrative costs, encouraging insurer efficiency, and providing an incentive for plans with low MLRs to either lower premiums up front or pay rebates to consumers.

The ACA allows the U.S. Secretary of Health and Human Services (HHS) to adjust a state’s MLR standard for the individual market on a case-by-case basis, if a state’s individual market would be destabilized by an 80 percent standard.

Any action by the state to pursue an MLR adjustment should ensure that the outcome is in the best interest of Texas consumers not just insurers’ bottom lines.