Value for Your Premium Dollar: 80/20 Rule and MLR

The Affordable Care Act requires insurance companies to spend your premium dollars primarily on health care. It does this by enforcing a policy called the “80/20 rule” to hold insurance companies accountable.

What Medical Loss Ratio Means for You

The percentage of your premium dollars that an insurance company spends on providing you with health care and improving the quality of your care (as opposed to what it spends on administrative, overhead, and marketing costs) is known as “Medical Loss Ratio” or MLR.

The new law limits how much of your premium dollar your insurer can spend on things other than providing health care and improving its quality. If your insurance company exceeds that limit, it must provide a rebate of the portion of premium dollars that exceeded this limit.

Use a new tool to learn more about your insurance company and MLR rebates.

Some Important Details

• The law requires insurers selling policies to individuals or small groups to spend at least 80% of premiums on direct medical care and efforts to improve the quality of care.  Insurers selling to large groups (usually 50 or more employees) must spend 85% of premiums on care and quality improvement.
• This rule does not apply to employers who operate what is called a self-insured plan. If you’re not sure whether your plan matches this description, ask your employer or check your plan materials.
• Your health insurance company must report yearly to the Secretary of Health and Human Services on the share of premium dollars spent on health care services and quality improvement and any rebates required. The first report, covering calendar year 2011, was filed on June 1, 2012.
• Insurers are required to make the first round of rebates to consumers in 2012. If you are owed a rebate you will receive a reduction in your premiums, a rebate check--or, if you paid by credit card or debit card, a lump sum reimbursement to your account. If your employer paid all or part of your premium, the same share of any rebate may go to your employer.

For More Information

• Medical Loss Ratio: Questions and Answers.
• Find detailed technical and regulatory information on medical loss ratio.
• HealthCare Blog: More Value for Your Dollar.
• Fact Sheet: MLR - Getting Your Money's Worth on Health Insurance.
• Patient's Bill of Rights: Learn about other consumer protections in the health care law.

Posted on: November 30, 2010

Last updated: December 3, 2012