Medical Loss Ratio at a Glance  source: companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs, starting in 2011. If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.

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, and agent commissions.

In an article, Insurance commissioners back changes to healthcare law’s MLR standard, by Sam Baker - 11/22/11,  posted by Health Watch:

“After more than a year of debate, state regulators Wednesday approved a resolution calling for changes to the healthcare reform law’s medical loss ratio provision.

The National Association of Insurance Commissioners (NAIC) passed the measure 26-20...”

A response, quoted by Lee Cohen states:

“Insurance agent commissions are neither an administrative expense of the insurance company or a frivolous charge added in to the consumers cost of buying insurance. No item in our society can be purchased without a cost being added to it for the acquisition. It takes time, effort, research and work to obtain a health insurance policy for someone. I see agent commissions as a shared cost between consumer ( for the guidance and hand holding ) and the insurance company for the business being placed with them as opposed to another carrier. MLR should have always been about rewarding insurance companies for operating efficiently and not about penalizing the person in the field writing business and helping people.”

By William F. Schaake, CIC, CRM  © 2012