Question

As the CFO, how do you work to ensure your Medical Loss Ratios are where they should be? What needs to happen? And what do you need to do?

Answer 1

The chief financial officer (CFO) is the officer of a company that has primary responsibility for managing the company's finances, including financial planning, management of financial risks, record- keeping, and financial reporting.

Medical loss ratio (MLR) is a measure of the percentage of premium dollars that a health plan spends on medical claims and quality improvements, versus administrative costs.

Generally, the MLR is expressed as a percentage and is calculated by dividing an insurer's claims paid plus expenses related to quality improvement by the premium collected less any taxes or fees associated with that premium.

Example: If an insurer paid out $850 in allowable expenses ($800 in claims and $50 in quality expense) related to $1,000 in adjusted premium ($1,050 premium less $50 in taxes and fees) the calculated MLR would be 85.0% (850/1000=85.0%). In general, the minimum MLR is 80% for the Individual and Small Businesses and 85% for Large Businesses.

In cases where the minimum MLR percentage is not met, insurers will issue rebates to the policyholders. Rebates will be issued based on the difference between the calculated MLR percentage and the target MLR.

As we see MLR is good up to 80% for small businesses and 85% for large business. It depends upon the business.