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Medical Loss Ratio (MLR)

A basic financial measurement used in the Affordable Care Act (ACA) to encourage health plans to provide value to enrollees. If an insurer uses 80 cents out of every premium dollar to pay its customers’ medical claims and activities that improve the quality of care, the company has a medical loss ratio of 80%. A medical loss ratio of 80% indicates that the insurer is using the remaining 20 cents of each premium dollar to pay overhead expenses, such as marketing, profits, salaries, administrative costs, agent commissions and state taxes and fees. The Affordable Care Act requires insurance plans to spend at least 80% of consumer premium dollars on medical care. If they fail to meet these standards, the health insurance plans must provide a rebate to their customers.