Medical Loss Ratio Will Apply to Medicare Plans

MLR:  Is a refund due from your Medicare Advantage or Drug plan?

Under Health Reform, Insurance companies must spend a certain percentage of premiums on health care benefits.  Individual and small business plans must spend at least 80% of premiums on benefits and limit administrative expenses to less than 20% of premiums.  This is known as the medical loss ratio (MLR).  Large group plans must spend at least 85% of premiums on benefits.  Under a new rule, Medicare Advantage and Part D Drug plans must also spend 85% of premiums on benefits and limit administrative expenses, including profits, to less than 15%.

If a plan does not meet the MLR, it is required to refund the excess premiums to beneficiaries.  In 2011, the insurance industry refunded $1.1 billion in excess premiums to beneficiaries.  As a result of the MLR requirement, insurance company administrative costs dropped in 39 states, including Texas. 

Although insurance companies must limit their share of profits, they are expected to receive billions of dollars in new business, possibly $230 billion by 2020, which will make the size of the insurance pie substantially larger under Health Reform.