What is the primary purpose of the Medical Loss Ratio (MLR) requirement for insurance companies?

The primary purpose of the Medical Loss Ratio (MLR) requirement is to limit administrative costs. Under the Affordable Care Act, insurance companies are mandated to spend a certain percentage of premium dollars on medical care and health services for their policyholders. This requirement ensures that a significant portion of premium income is directed towards health care services rather than administrative expenses or profits.

For individual and small group plans, insurers must spend at least 80% of premium dollars on medical care, while for large group plans, the requirement is 85%. By enforcing this ratio, regulators aim to maximize the value that consumers receive from their insurance, ensuring that their premiums contribute to their health care needs rather than excessive overhead or profit-taking.

This focus on limiting administrative costs aligns with the intention to promote efficiency and transparency in the insurance market, ultimately benefiting consumers and enhancing the quality of care they receive.