Medical Loss Ratio: State Waivers /
Track developments in flexibility granted to states on MLR requirements

The Affordable Care Act (ACA) imposed an 80 percent minimum medical loss ratio (MLR) on individual and small group insurance plans and an 85 percent minimum MLR on large group plans, effective January 1, 2011. MLR, as defined in the ACA, is the share of adjusted premium dollars spent on medical claims and quality improvement activities. Insurers are allowed to deduct from their revenues certain tax payments and fees. Plans that report an MLR below these minimum levels will be required to rebate the difference back to members. The Department of Health and Human Services (HHS) released the final rule implementing MLR on December 2, 2011.

States may apply to HHS for a waiver of the MLR requirements for individual insurance plans if there is risk of destabilization of the market. Georgia, Iowa, Kentucky, Maine, New Hampshire, and Nevada have all been granted a waiver from the MLR requirements. Maine, the first state to apply, received its requested waiver that requires insurers in the individual market to maintain an MLR of 65 percent for 2011-2013. Unlike many other states with more robust individual insurance markets, Maine has just two carriers operating in the market. HHS did not grant any other state the waiver it requested, but rather modified the waiver to increase requirements on plans. HHS has rejected waivers in six states, Delaware, Florida, Indiana, Louisiana, Michigan and North Dakota, where it has determined there is not sufficient evidence that the MLR requirement will destabilize the individual market.

As plans begin to submit their data to regulators, we will gain additional clarity about the magnitude of rebates and plans' strategies to ensure they are meeting MLR targets, such as implementing additional quality improvement activities or co-pay holidays.