Florida 2-40 Health Insurance License Practice Exam

The medical loss ratio (MLR) is defined as the percentage of premium revenue that health insurers are required to spend on medical care and health services rather than administrative costs and profits. This metric is crucial as it ensures that a significant portion of premium dollars goes towards the actual medical care of policyholders, rather than being spent on overhead or retaining profits.

Federal regulations—specifically under the Affordable Care Act—set minimum MLR requirements for insurers, which are generally 80% for individual and small group policies, and 85% for large group policies. If insurers do not meet these minimum thresholds, they must provide rebates to policyholders, thus promoting greater value for consumers.

Recognizing the importance of MLR is essential for understanding the motivations behind insurance pricing and the necessity for ensuring that consumers receive quality care. It distinguishes the operational focus of a health insurer, emphasizing service delivery as opposed to profit maximization.