America's Health Insurance Plans' Center for Policy and Research has released a brief examining the national health care reform law's medical loss ratio (MLR) requirements and insurers' initial cost of compliance.  The brief outlines how plans must calculate MLRs and the system of rebates they must provide to consumers if they do not meet those thresholds.  The authors also highlight potential drawbacks to the measure, including a disincentive to conduct certain types of quality research that will be counted as administrative expenses.

From the report:

The MLR concept is simple in theory. In general, a loss ratio is a health plan’s benefit payments (the numerator) divided by its premiums (the de-nominator). Thus, a health plan with non-benefit expenses (including the costs of adjudicating claims and administering networks of health care providers, sales and marketing expenses, and profits or additions to reserves) that comprised 12 percent of premiums would have a loss ratio of 88 percent.  America’s Health Insurance Plans, Center for Policy and Research.  Loss ratio calculations have been used by states for decades, usually as part of regulations designed to assure plan solvency, but also to help monitor pricing of regulated insurance products. The ACA requires that health plans provide rebates to consumers if their loss ratios are lower than 80 percent for individual and small-group coverage, or 85 percent for large-group coverage.  These minimums are required in each state in which the health plan offers coverage.

Full report: The Federal Medical Loss Ratio (MLR) Calculations – Background and Initial Costs of Compliance (PDF | 381.74 kb)

America's Health Insurance Plans' Center for Policy and Research.  (2011).  The federal medical loss ratio (MLR) calculations- background and initial costs of compliance.