PRIVATE HEALTH 

INSURANCE

Early Effects of 

Medical Loss Ratio 

Requirements and 

Rebates on Insurers 

and Enrollees

Report to the Chairman, Committee on 

Commerce, Science, and 

Transportation, U.S. Senate

July 2014

GAO-14-580

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-580, a report to the 

Chairman, Committee on Commerce, Science, 

and Transportation, U.S. Senate

July 2014

PRIVATE HEALTH INSURANCE

Early Effects of Medical Loss Ratio Requirements and 

Rebates on Insurers and Enrollees

Why GAO Did This Study

Private insurers are required to meet 

minimum PPACA MLR standards— 

expressed as the percent of premium 

dollars spent on patient care and 

related activities—and beginning in 

2011 they must pay rebates back to 

enrollees and policyholders who paid 

premiums if they do not meet these 

standards. GAO was asked to review 

the effects of the PPACA MLR 

requirements on insurers and enrollees 

and how rebates would change if agent 

and broker payments were excluded 

from the MLR formula. This report 

examines (1) the extent to which 

insurers met the PPACA MLR 

standards, and how much they spent 

on the MLR components of claims, 

quality improvement activities, and 

non-claims costs; (2) the amount of 

rebates insurers paid and how this 

amount would have changed with 

agents’ and brokers’ commissions and 

fees excluded from the MLR; and 

(3) the perspectives of insurers on the 

effects of the MLR requirements on 

their business practices.

To do this work, GAO analyzed the 

MLR data that insurers reported to 

CMS for 2011 and 2012 (the most 

recent data available) at the national 

level for each insurance market—large 

group, small group, and individual. 

GAO also interviewed eight insurers, 

selected based on variation in their 

size, concentration of business in the 

individual market, geography, whether 

they paid rebates, and profit status. In 

2012 the number of enrollees covered 

by these insurers ranged from about 

70,000 to 7 million. GAO’s finding on 

insurers’ perspectives is limited to 

those insurers interviewed and is not 

representative of the perspectives 

across all insurers reporting MLR data.

What GAO Found

The Patient Protection and Affordable Care Act (PPACA) established federal 

minimum medical loss ratio (MLR) standards for the percentage of premiums 

private insurers must spend on their enrollees’ medical care claims and activities 

to improve health care quality, as opposed to what they spend on administrative 

(“non-claims”) costs. Insurers report to the Centers for Medicare & Medicaid 

Services (CMS) annually on their PPACA MLRs. More than three quarters of 

insurers met or exceeded the standards in 2011 and in 2012, and the median 

MLRs among all insurers were 88 percent. Insurers’ MLRs and their spending on 

claims and non-claims costs varied across different insurance markets. 

Specifically, insurers in the large group market had higher median MLRs and 

spent a higher share of their premiums on enrollees’ claims and less on nonclaims costs, compared to insurers in the individual and small group markets.

Insurers that did not meet or exceed the PPACA MLR standards in 2011 and 

2012 paid rebates in the amounts of $1.1 billion and $520 million (respectively) 

back to enrollees and policyholders who paid premiums in those years. These 

amounts would have decreased by about 75 percent had the commissions and 

fees insurers paid to agents and brokers been excluded from the MLRs. Agents 

and brokers sell insurance products and provide various services to consumers 

and groups related to their insurance needs and the commissions and fees 

charged for these services are included in the MLRs. Insurers in the large group 

market paid the highest rebate amount ($405 million) across insurance markets 

in 2011 and insurers in the small group market paid the highest amount 

($207 million) in 2012. Insurers in the individual market were more likely to pay 

rebates than insurers in the small and large group markets. GAO found that 

rebates would have fallen from $1.1 billion to $272 million in 2011 if the 

commissions and fees insurers paid to agents and brokers had been excluded 

from the MLRs, and rebates would have similarly fallen from $520 million to 

$135 million in 2012. GAO’s calculations assumed that insurers did not make 

other changes in their business practices in response to a different method for 

calculating MLRs.

GAO found that most of the eight insurers it interviewed reported that factors 

other than the PPACA MLR requirements affected their business practices since 

2011. All eight insurers reported that they increased their premium rates since 

2011 and that they based these decisions on a variety of factors, such as trends 

in medical care claims, competition with other insurers, and other requirements. 

Three of the eight insurers stated that the MLR requirements were one among 

several factors that influenced their decisions about premium rates. Four of the 

eight insurers stated they had recently made changes to their payments to 

agents and brokers, and one reported the MLR requirements were a primary 

driver behind its business decision. All eight insurers GAO interviewed stated that 

the MLR requirements did not affect their decisions to stop offering health plans 

in certain markets and have had no effect or a very limited effect on their 

spending on quality improvement activities.

GAO provided a draft of this product to the Department of Health and Human 

Services (HHS) for comment. HHS responded that it had no general or technical 

comments. 

View GAO-14-580. For more information, 

contact John E. Dicken, 202-512-7114, 

DickenJ@gao.gov.
Page i GAO-14-580 Medical Loss Ratio Requirements

Letter 1 

Background 6

Most Insurers Met or Exceeded the PPACA MLR Standards in 

2011 and in 2012, and Insurers’ Spending on the MLR 

Components Varied by Market 12

Insurers Paid $1.1 Billion in Rebates in 2011 and $520 Million in 

2012, and Would Have Paid About 75 Percent Less with 

Agents’ and Brokers’ Fees and Commissions Excluded, Absent 

Other Changes in Business Practices 17

Most Insurers We Interviewed Reported Factors Other than 

PPACA MLR Requirements as Affecting their Business 

Practices 20

Agency Comments 22

Appendix I PPACA Medical Loss Ratios by State in 2011 and 2012 24

Appendix II Insurers’ Spending of Net Premiums by State for 2011 and 2012 29

Appendix III PPACA Medical Loss Ratio Rebates by State for 2011 and 2012 33

Appendix IV Rebates Insurers Would Have Paid with Agent and Broker Payments 

Excluded from 2011 and 2012 Calculations 37

Appendix V GAO Contact and Staff Acknowledgments 41

Tables

Table 1: The Percent of Insurers that Met or Exceeded the 

PPACA Medical Loss Ratio (MLR) Standards and 

Insurers’ Median PPACA MLRs in 2011 and in 2012, by 

Insurance Market 13

Table 2: Insurers’ Spending as a Percent of Net Premiumsa in 

2011 and 2012, by Insurance Market 15

Contents
Page ii GAO-14-580 Medical Loss Ratio Requirements

Table 3: Insurers’ Spending on Agents’ and Brokers’ Fees and 

Commissions and Other Categories of Non-Claims Costs 

as a Percent of Total Non-Claims Costs in 2011 and 

2012, by Insurance Market 16

Table 4: Amount of PPACA Medical Loss Ratio (MLR) Rebates 

Insurers Paid to Enrollees and Policyholders and Percent 

of Insurers That Paid Rebates in 2011 and 2012, by 

Insurance Market 18

Table 5: Amount of Rebates Insurers Would Have Paid to 

Enrollees and Policyholders with Agents’ and Brokers’ 

Commissions and Fees Excluded from PPACA Medical 

Loss Ratio and Rebate Calculations in 2011 and 2012 20

Table 6: Insurers’ Median PPACA Medical Loss Ratios (MLRs) in 

2011, by State and Insurance Market 24

Table 7: Insurers’ Median PPACA Medical Loss Ratios (MLRs) in 

2012, by State and Insurance Market 26

Table 8: Insurers’ Spending as Percent of Net Premiumsa in 2011 

by State, for all Markets Combined 29

Table 9: Insurers’ Spending as Percent of Net Premiumsa in 2012 

by State, for all Markets Combined 31

Table 10: Total Amount of PPACA Medical Loss Ratio Rebates 

Insurers Paid to Enrollees and Policyholders in 2011, by 

State and Insurance Market 33

Table 11: Total Amount of PPACA Medical Loss Ratio Rebates 

Insurers Paid to Enrollees and Policyholders in 2012, by 

State and Insurance Market 35

Table 12: Amount of Rebates Insurers Would Have Paid to 

Enrollees and Policyholders with Agents’ and Brokers’ 

Commissions and Fees Excluded from PPACA Medical 

Loss Ratio and Rebate Calculations Compared to Actual 

Amount of Rebates Insurers Paid in 2011 by State, for all 

Markets Combined 37

Table 13: Amount of Rebates Insurers Would Have Paid to 

Enrollees and Policyholders with Agents’ and Brokers’ 

Commissions and Fees Excluded from PPACA Medical 

Loss Ratio and Rebate Calculations Compared to Actual 

Amount of Rebates Insurers Paid in 2012 by State, for all 

Markets Combined 39
Page iii GAO-14-580 Medical Loss Ratio Requirements

Figures

Figure 1: PPACA Medical Loss Ratio (MLR) Formula 9

Figure 2: PPACA Medical Loss Ratio (MLR) Rebate Formula 10

Abbreviations

CMS Centers for Medicare & Medicaid Services

HHS Department of Health and Human Services

MLR medical loss ratio 

PPACA Patient Protection and Affordable Care Act

QI quality improvement

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-14-580 Medical Loss Ratio Requirements

441 G St. N.W.

Washington, DC 20548

July 1, 2014

The Honorable John D. Rockefeller IV

Chairman

Committee on Commerce, Science, and Transportation

United States Senate

Dear Mr. Chairman:

The Patient Protection and Affordable Care Act (PPACA) established 

federal minimum medical loss ratio (MLR) standards for private insurers.1

An MLR serves as a basic financial indicator, expressing the percent of 

premiums that insurers spend on their enrollees’ medical claims and 

quality initiatives, as opposed to administrative expenses or “non-claims” 

costs.2 The greater the share of enrollees’ premiums spent on medical 

claims and quality initiatives, the higher the MLR. These minimum MLR 

standards are intended to help ensure that individuals covered under 

private health insurance plans (enrollees) receive adequate value for their 

premiums and to create incentives for insurers to become more efficient 

in their operations. If minimum PPACA MLR standards are not met, then 

insurers are required to pay rebates back to their enrollees. Insurers were 

required to begin paying rebates under PPACA based on their experience 

in 2011. In that year, approximately 80 million individuals were enrolled in 

plans sold by insurers that were subject to these PPACA MLR provisions, 

according to the Centers for Medicare & Medicaid Services (CMS).3

PPACA MLR provisions require insurers to calculate separate MLRs for 

their expenditure of premiums for each market (large group, small group, 

and individual) in each state in which they do business, and require 

higher minimum MLR standards for plans sold in the large group market 

 

1

Pub. L. No. 111-148, §§ 1001(5), 10101(f), 124 Stat. 119, 130, 136, 885 (2010) (adding 

§ 2718 to the Public Health Service Act) (codified at 42 U.S.C. § 300gg-18).

2

For purposes of this report, the term “medical claims” is synonymous with the term 

“clinical services” as used in the law. See 42 U.S.C. § 300gg-18(a)(1); 45 C.F.R. 

§ 158.140 (2013).

3

CMS, The 80/20 Rule: How Insurers Spend Your Health Insurance Premiums (Baltimore, 

Md.: Feb. 15, 2013).
 

Page 2 GAO-14-580 Medical Loss Ratio Requirements

than for plans sold in the small group and individual markets.4 CMS 

oversees the MLR standards and issues regulations to identify insurers’ 

expenses that are to be counted as claims and quality improvement 

activities, as well as non-claims costs.5 For example, marketing expenses 

and spending on agents’ and brokers’ commissions and fees are counted 

as non-claims costs.6

There has been debate among health insurance industry stakeholders 

about the effects of the PPACA MLR requirements—including the 

requirement that insurers count agent and broker compensation as a nonclaims cost—on consumers, insurers, and agents and brokers. For 

example, while insurance industry representatives have expressed 

concern that the requirements could result in insurers leaving certain 

markets in some states, causing instability in those markets, consumer 

advocates and others have asserted that the requirements have resulted 

in greater transparency for enrollees regarding how insurers are using 

their premiums. In addition, the agent and broker industry and others 

have raised concerns that counting agent and broker compensation as a 

non-claims cost in calculating the MLR could cause insurers to decrease 

that compensation, which could reduce the availability of agents and 

brokers to assist consumers in choosing a health plan to meet their 

needs.7

 

4

In general, insurers in the large group market must meet a minimum MLR of 85 percent, 

and insurers in the small group and individual markets must meet a minimum MLR of 

80 percent. This difference reflects the assumption that administrative expenses per 

enrollee are typically lower in the large group market.

Some groups advocating for consumers, however, believe that 

5

Insurers may implement quality improvement activities such as wellness assessments 

and care coordination plans that are designed to increase the likelihood of desired health 

outcomes for their enrollees.

6

45 C.F.R. §§ 158.150(c)(11), 158.160(b)(2)(iv) (2013) (relating to marketing expenses 

and fees and commissions, respectively). Agents and brokers—which are also referred to 

as “producers” in the insurance industry—assist consumers and employers in choosing 

and enrolling in health insurance plans. They also provide assistance after enrollment with 

resolving claims issues and making enrollment changes.

7

Since PPACA established the MLR requirements several bills have been introduced in 

the Congress to exclude agent and broker compensation from the calculation of the MLR, 

thereby providing that such compensation no longer be considered a non-claims cost. 

This change could decrease the incentive to reduce the use of, or compensation to, 

agents and brokers. See H.R. 1206, 112th Cong. § 3 (2011); S. 2068, 112th Cong. § 3 

(2012); S. 2288, 112th Cong. § 3 (2012); S. 650, 113th Cong. § 3 (2013); and H.R. 2328, 

113th Cong. § 3 (2013). As of June 2014, none of these bills had been enacted into law.
 

Page 3 GAO-14-580 Medical Loss Ratio Requirements

counting agent and broker compensation as a non-claims cost provides 

an appropriate incentive for insurers to reduce such costs while not 

unduly impacting the ability of agents and brokers to assist consumers.

You asked us to review the effects of the PPACA MLR requirements on 

enrollees and insurers as well as how excluding agents’ and brokers’ 

commissions and fees from the MLR would affect the rebates that 

insurers pay.8

To examine the extent to which insurers met the PPACA MLR standards 

in 2011 and 2012, and how much they spent on the MLR components of 

medical claims, quality improvement activities, and non-claims costs, we 

analyzed the 2011 and 2012 MLR data that insurers reported to CMS.

In this report, we (1) examine the extent to which insurers 

met the PPACA MLR standards in 2011 and 2012, and how much they 

spent on the PPACA MLR components of medical claims, quality 

improvement activities, and non-claims costs; (2) examine the amount of 

rebates insurers paid in 2011 and 2012 as a result of the PPACA MLR 

requirements, and how this amount would have changed with agents’ and 

brokers’ commissions and fees excluded from the PPACA MLR and 

rebate calculations; and (3) describe the perspectives of insurers on the 

effects of the PPACA MLR requirements on their business practices.

9

 

8

Throughout this report, references to “excluding” or “subtracting” agents’ and brokers’ 

commissions and fees from the MLR calculation or formula means, more specifically, 

excluding these expenses from the denominator of the MLR formula. The MLR formula is 

shown in figure 1 later in this report.

We analyzed the 2011 and 2012 MLR data because the PPACA MLR 

reporting and rebate requirements began in 2011 and the 2012 data were 

the most recently available data at the time of our analysis. We also used 

these data to analyze insurers’ median MLRs and the percent of insurers 

who met or exceeded the minimum MLR standards, by insurance market, 

year, and state. We analyzed how much insurers spent on the MLR 

components of medical claims, quality improvement activities, and nonclaims costs, by insurance market, year, and state. Within the non-claims 

costs component of the MLR, we analyzed insurers’ spending, including 

on agents’ and brokers’ fees and commissions as well as general 

9

Within CMS, the Center for Consumer Information and Insurance Oversight is 

responsible for collecting the MLR data from insurers and overseeing the PPACA MLR 

requirements. Insurers reported their 2011 and 2012 MLR data to CMS by June 2012 and 

June 2013, respectively. The MLR data are based on the insurers’ experience for the prior 

calendar year.
 

Page 4 GAO-14-580 Medical Loss Ratio Requirements

administrative expenses, such as marketing and staff salaries. We also 

examined the amount remaining after subtracting from premiums (less 

taxes and fees) the costs associated with medical claims and quality 

improvement activities as well as non-claims costs. Throughout this report 

we refer to this amount as insurers’ premium surplus.10

To examine the amount of rebates insurers paid based on their 

experience in 2011 and 2012 as a result of the PPACA MLR 

requirements, and how this amount would have changed with agents’ and 

brokers’ commissions and fees excluded from the MLR and rebate 

calculations, we similarly analyzed the 2011 and 2012 MLR data that 

insurers reported to CMS. We used these data to analyze the amount of 

rebates that insurers paid by insurance market, year, and state. We also 

used these data to calculate the amount of rebates insurers would have 

owed if the commissions and fees that insurers paid to agents and 

brokers were not counted as a non-claims cost in calculating the MLR in 

each year, assuming no other changes in insurers’ business practices in 

response to this different method of calculating the MLR. To perform this 

calculation, we subtracted the amount of commissions and fees that 

insurers paid to agents and brokers who are not employed by insurers 

from the MLR formula and recalculated the amount of rebates that 

insurers would have owed as a result.

We reviewed the 

MLR data for reasonableness and consistency, including screening for 

outliers. We also reviewed documentation about the MLR data and spoke 

with CMS officials about steps taken to ensure data reliability. Based on 

this review, we determined that the data used in this report were 

sufficiently reliable for our purposes.

11

To describe the perspectives of insurers on the effects of the PPACA 

MLR requirements on their business practices, we interviewed eight 

We conducted all of these 

analyses by insurance market, year, and state.

 

10Premium surplus includes profit and other reserved capital.

11Because some insurers have employees who sell their plans, we conducted a separate 

calculation of rebates taking into account this type of compensation. We used the MLR 

data to subtract from the MLR formula the amount of salaries and benefits that insurers 

paid to such employees, as well as the commissions and fees that insurers paid to agents 

and brokers that they do not employ.
 

Page 5 GAO-14-580 Medical Loss Ratio Requirements

insurers.12 We selected insurers to achieve variation in size, as 

determined by the number of their enrollees; the concentration of their 

health insurance business within the individual market; whether they paid 

rebates based on their experience in 2011 or 2012; the number of states 

in which they operated; and their not-for-profit status.13 In 2012, one of 

the eight insurers we interviewed operated in all 50 states and had about 

2 million enrollees, three each operated in between 4 and 13 states and 

had between approximately 1 and 7 million enrollees, and the remaining 

four operated in either 1 or 2 states and each had between approximately 

70,000 and 675,000 enrollees. We used a structured interview protocol to 

gather consistent information from insurers about their perspectives on 

the effects of the PPACA MLR requirements on their business practices, 

including the payment of agents and brokers, premium rates, quality 

improvement activities, and decisions to leave any insurance markets.14

We conducted this performance audit from October 2013 to July 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings based 

on our audit objectives.

Our findings are limited to those insurers we spoke with and are not 

representative of the perspectives across all of the insurers reporting 

MLR data to CMS.

 

12The eight insurers we interviewed included seven insurance groups that each operated 

two or more insurance companies and one insurance company that was not part of a 

larger insurance group. Many, but not all, insurance companies are part of a larger 

insurance group.

13While not-for-profit insurers may make profits to help them stay in business, the profits 

must go back into the organization.

14We asked insurers about the effects of the PPACA MLR requirements on their business 

practices from 2011, the first year they were subject to the PPACA MLR requirements, 

through 2014.

To obtain further background information on the PPACA MLR requirements, we also 

interviewed officials from two consumer groups, a trade association representing the 

health insurance industry, and three trade associations representing the agent and broker 

industry.
 

Page 6 GAO-14-580 Medical Loss Ratio Requirements

Under the PPACA MLR requirements, private insurers must report 

annually to CMS their MLRs by each state and insurance market in which 

they operate, as well as the dollar amounts for the components that make 

up their MLRs, such as premiums. Insurers must pay rebates when their 

MLRs do not meet or exceed the minimum applicable PPACA MLR 

standards. Agents and brokers sell insurers’ plans to individuals and 

employers and assist individuals and employers in various ways. 

PPACA requires that private insurers offering group or individual health 

insurance coverage report annually on the various components that are 

used to calculate their PPACA MLRs, and each of these components 

must be reported by state and by market.15 Private insurers first reported 

this information in 2012, based on their 2011 experience. The markets 

include large group, small group, and individual. Large and small group 

employers are defined by the number of their employees. Prior to 

PPACA, a small employer was defined in federal law as having a 

maximum of 50 employees. From the time PPACA was passed in 2010 

until 2016, PPACA gives states the option of continuing to define a small 

group employer as having 50 or fewer employees, but starting in 2016, 

they must define small employers as having from 1 to 100 employees.16

The MLR data that insurers report to CMS include the following 

components, as required by law.

The individual market includes policies sold by insurers directly to 

individuals. Insurers report their MLR data to CMS by entering information 

on a standardized form that includes multiple data fields that make up the 

MLR and rebate formulas.

 

15The PPACA MLR requirements do not apply to certain plans such as self-funded plans, 

in which employers assume the risk for paying for medical claims. Medicare Advantage 

Plans and Medicare Part D prescription drug plans are subject to separate PPACA MLR 

requirements, beginning in 2014. See Pub. L. No. 111-152, § 1103, 124 Stat. 1029, 1047 

(2010) (codified at 42 U.S.C. § 1395w-27(e))(pertaining to MA plans and, by reference 

through 42 U.S.C. § 1395w-112(b)(3), to Medicare Part D plans).

16See Pub. L. No. 111-148, § 1304(b), 124 Stat. 172 (codified at 42 U.S.C. § 18024(b)); 

45 C.F.R. § 158.103 (2013).

Background

PPACA MLR Reporting 

Requirements
 

Page 7 GAO-14-580 Medical Loss Ratio Requirements

• Medical claims. These include claims paid and incurred for clinical 

services and supplies provided to enrollees by physicians and other 

clinical providers.17

• Expenses for quality improvement (QI) activities. These include 

expenses for activities that are designed to increase the likelihood of 

desired health outcomes in ways that can be objectively measured. 

The activities must be primarily designed to (1) improve health 

outcomes; (2) prevent hospital readmissions; (3) improve patient 

safety, reduce medical errors, and lower infection and mortality rates; 

or (4) implement, promote and increase wellness and health activities. 

Insurers are also allowed to include expenses for health information 

technology required to accomplish these activities as well as a 

percentage of their expenses for converting disease classification 

codes.18

• Premiums. These include the sum of all funds paid by an enrollee 

and employer, if applicable, as a condition of receiving coverage from 

the insurer. These also include any fees or other contributions 

associated with the health plan.

• Federal and state taxes and licensing or regulatory fees. These 

include federal income taxes, assessments, state insurance, premium 

and other taxes, and regulatory authority licenses and fees. Federal 

income taxes on investment income and capital gains are excluded.

• Non-claims costs. These include all other insurer expenses—those 

beyond medical claims, expenses for QI activities, and federal and 

state taxes and licensing or regulatory fees. CMS defines non-claims 

costs for the following categories: (1) agents’ and brokers’ fees and 

commissions; (2) cost containment expenses, which reduce the 

number of health services provided or the costs of such services, but 

are not related to an activity to improve health care quality; (3) claims 

adjustment expenses, such as office maintenance and supplies costs, 

not classified as cost containment expenses; (4) salaries and benefits 

 

17Insurers include medical claims incurred during the applicable calendar year and paid 

through March 31 of the following year. Insurers also include unpaid claim reserves for 

claims incurred during the applicable calendar year.

18See 45 C.F.R. §§ 158.150(b), 158.151 (2013). CMS included as QI a portion of those 

expenses for converting disease classification codes (i.e., ICD-10), starting in 2012.
 

Page 8 GAO-14-580 Medical Loss Ratio Requirements

that insurers pay to their employees who sell their plans;19 (5) other 

taxes that may not be excluded from premium revenue; (6) other 

general and administrative expenses, such as salaries and 

advertising; and (7) community benefit expenditures, which include 

expenses for activities such as health educational campaigns that are 

available broadly to the public.20

The remaining amount of premiums that an insurer does not spend on the 

components of medical claims, QI activities, taxes and fees, and nonclaims costs, will be referred to as the insurer’s “premium surplus” in this 

report. Premium surplus includes profit and other reserved capital.

The PPACA MLR is generally calculated by dividing (a) the sum of an 

insurer’s medical claims and expenses for QI activities (the formula 

numerator) by (b) the insurer’s premiums, after excluding from them the 

amount of insurer’s federal and state taxes and licensing or regulatory 

fees (the formula denominator).21

 

19An employee of an insurer who sells health plans would typically only sell those plans 

the employer offers, while agents and brokers who are not employed by an insurer would 

generally sell the health plans of various insurers.

(See fig. 1.)

20See 45 C.F.R. § 158.160(b)(2) (2013). Insurers can exclude from their MLRs certain 

community benefit expenditures for the objectives of improving access to health services, 

enhancing public health and relief of government burden, limited to specified amounts. 

45 C.F.R. § 158.162(b)(1)(vii), (viii) and (c) (2013). Insurers would include any additional 

community benefit expenditures as part of the non-claims cost category of other general 

and administrative expenses. 

21Premiums in the denominator also include any subsidies the insurer has received as 

part of federal or state high-risk pools, such as federal funds provided to insurers who 

participated in PPACA’s Pre-Existing Condition Insurance Plan program. This program 

was designed to extend health insurance to high-risk individuals with pre-existing medical 

conditions and ended in 2014. Medical claims for high-risk pools are also included in 

insurers’ MLR numerator. 

PPACA MLR and Rebate 

Formulas
 

Page 9 GAO-14-580 Medical Loss Ratio Requirements

Figure 1: PPACA Medical Loss Ratio (MLR) Formula

Some insurers, such as those with a small number of enrollees, are 

permitted certain adjustments to their MLRs. These adjustments are 

referred to as credibility adjustments, and they are added to, and thus 

increase, the insurer’s MLR.22

Insurers with a small number of enrollees calculated their MLRs for 2012 

based on their 2011 and 2012 experience combined.

Credibility adjustments are provided to 

address the unreliability associated with calculating an MLR based on a 

small number of enrollees.

23

For each insurer, separate MLRs are calculated for each state and 

market combination in which it does business and each MLR is used to 

determine whether an insurer must pay rebates. Insurers must meet a 

minimum PPACA MLR standard, generally 80 percent for the individual 

and small group markets and 85 percent for the large group market, with 

All insurers will 

calculate their MLRs for their experience in 2013 and subsequent years 

based on data from a 3-year period. That is, insurers will add their data 

for the year for which the MLR is being calculated to their MLR data for 

the 2 prior years.

 

22For more information about credibility adjustments, see GAO, Private Health Insurance: 

Early Experiences Implementing New Medical Loss Ratio Requirements, GAO-11-711

(Washington, D.C.: July 29, 2011). 

23Insurers with 1,000 to less than 75,000 enrollees in 2011 and 2012 combined received a 

credibility adjustment. If these insurers owed rebates in 2011 the rebates were added to 

their claims in 2012.
 

Page 10 GAO-14-580 Medical Loss Ratio Requirements

some exceptions. Specifically, the applicable PPACA minimum MLR 

standard is based on one of the following:

• 85 percent in the large group market, 80 percent in the small group 

market, and 80 percent in the individual market;

• a higher MLR standard if specified by law in the state in which the 

insurer operates; or

• a Department of Health and Human Services (HHS)-approved, 

adjusted MLR standard for a particular state’s individual market.24

When an insurer’s PPACA MLR is lower than the applicable PPACA MLR 

standard, the insurer must pay a rebate. The rebate amount is based on 

the PPACA MLR rebate formula, as shown in figure 2. The difference 

between the applicable PPACA MLR standard and the insurer’s MLR is 

calculated and this difference is multiplied by the insurer’s premiums, 

after federal and state taxes and licensing or regulatory fees are 

removed.

Figure 2: PPACA Medical Loss Ratio (MLR) Rebate Formula

There are different ways in which rebates can be paid out by insurers that 

depend, in part, on whether rebates are associated with individual or 

group market plans. In general, insurers can choose to provide rebates in 

the form of a lump-sum payment or as a premium credit for the following 

MLR year. Insurers in the individual market must provide rebates to their 

enrollees while insurers in the small and large group markets may meet 

this obligation by providing rebates to group policyholders, for example, 

 

24PPACA provides HHS with authority to adjust the 80 percent MLR standard for the 

individual market if the Secretary of HHS determines that the standard could destabilize 

the individual market in a given state. Pub. L. No. 111-148, §§ 10001(5). 10101(f), 

124 Stat. 136, 885 (codified at 42 U.S.C. § 300gg-18(b)(1)(A)(ii)). To date, seven states 

have been granted such adjustments: Georgia, Iowa, Kentucky, Maine, Nevada, New 

Hampshire, and North Carolina. Each state’s adjustment allows for a lower MLR standard 

and is temporary.
 

Page 11 GAO-14-580 Medical Loss Ratio Requirements

employers. In turn, group policyholders are responsible for allocating the 

amount of rebate that is proportionate to the total amount of premium paid 

by enrollees and may retain part of the rebate based on the amount of 

premium that they contributed.

Agents and brokers sell plans for insurers and perform a variety of 

functions on behalf of individuals and employers. According to the Bureau 

of Labor Statistics, in 2012 there were approximately 337,000 jobs held 

by insurance sales agents, which include agents and brokers working 

independently as well as those who are employed by an insurer.25 Agents 

and brokers provide assistance to individuals and employers in choosing 

and enrolling in plans. For example, they may assess an individual’s 

insurance needs and describe the characteristics of different plans that 

best meet those needs. Agents and brokers may also provide assistance 

after an individual or employee has enrolled in a plan, for example, by 

helping enrollees communicate with health plans in trying to resolve 

disputed medical claims or adding a new family member to a current plan. 

Insurers who use agents and brokers to sell their plans typically pay them 

based on a percentage of the plan’s premium or as a flat fee, for 

example, determined by the number of enrollees in the plan.26

 

25This figure also includes sales agents in types of insurance other than health, such as 

life and property. Agents may have licensure in more than one type of insurance.

26In 2014, agents and brokers who completed applicable training may provide assistance 

to consumers with the PPACA-mandated state-based and federally facilitated health care 

exchanges, for example, by helping consumers enroll in a qualified health plan. The 

exchanges are marketplaces where individuals can compare and select among qualified 

health plans offered by participating private issuers of health coverage.

The Role of, and Insurer 

Payments to, Agents and 

Brokers
 

Page 12 GAO-14-580 Medical Loss Ratio Requirements

More than three quarters of insurers met or exceeded the minimum 

PPACA MLR standards in 2011 and in 2012, the median PPACA MLRs 

for all insurers were about 88 percent in each year, and there was 

variation across insurance markets. Insurers’ spending on enrollees’ 

medical claims and non-claims costs as a percentage of premiums varied 

across insurance markets in 2011 and 2012.

Most insurers met or exceeded the PPACA MLR standards established 

for the markets and state in which they operated, but group market 

insurers were more likely to meet or exceed the standards than individual 

market insurers.27

The median PPACA MLRs in 2011 and in 2012 among all insurers were 

about 88 percent, and the median for the large group market was higher 

than that of the small group and individual markets. For example, in 2012 

the median PPACA MLR for insurers in the large group market was about 

91 percent compared to 86 percent in the individual market and 

85 percent in the small group market. (See table 1.) We observed that 

insurers’ median PPACA MLRs slightly increased from 2011 to 2012 and 

the percent of all insurers meeting or exceeding the standards increased 

by about 3 percentage points. However, these 2 years of data may not 

reflect future patterns in MLRs. (See app. I for a listing of the PPACA 

MLRs in each state for 2011 and 2012.)

In 2011, about 76 percent of insurers met or exceeded 

the minimum PPACA MLR standards and, in 2012, 79 percent of insurers 

met or exceeded the standards. As an example of variation across the 

markets, in 2012 about 86 percent of insurers in the large group market 

and 81 percent of insurers in the small group market met or exceeded the 

MLR standards, compared to 70 percent of individual market insurers.

 

27Because our analyses are based on separate MLRs that each insurer reports for each 

market (i.e., individual, small group, or large group) and state combination, “insurers” refer 

to these different MLR reporting combinations.

Most Insurers Met or 

Exceeded the PPACA 

MLR Standards in 

2011 and in 2012, 

and Insurers’ 

Spending on the MLR 

Components Varied 

by Market

Most Insurers Met or 

Exceeded the PPACA 

MLR Standards in 2011 

and in 2012 and Median 

PPACA MLRs among All 

Insurers Were 88 Percent
 

Page 13 GAO-14-580 Medical Loss Ratio Requirements

Table 1: The Percent of Insurers that Met or Exceeded the PPACA Medical Loss 

Ratio (MLR) Standards and Insurers’ Median PPACA MLRs in 2011 and in 2012, by 

Insurance Market

2011 2012

Percent of 

insurers that met 

or exceeded the 

MLR standard

Median 

MLR (%)

Percent of 

insurers that met 

or exceeded the 

MLR standard

Median 

MLR (%)

Individual market 65.1 84.0 69.7 85.8

Small group market 79.7 84.5 81.2 85.1

Large group market 83.7 90.3 86.2 90.7

All markets 76.4 87.5 79.1 88.0

Source: GAO analysis of CMS data. | GAO-14-580

Notes: Some insurers operate in multiple markets and multiple states. A separate MLR is reported for 

each insurer, market, and state combination.

In 2011 and 2012, the percentage of net premiums that insurers spent on 

their enrollees’ medical claims varied across insurance markets.28

Our analysis of the data showed that for the other components of the 

MLR formula—non-claims costs, premium surplus and QI expenses—

there was more of a mix in variation across markets. We found that 

insurers’ spending on non-claims costs as a percent of their net premiums 

varied by insurance market, with insurers in the individual and small 

group markets spending more than insurers in the large group market on 

non-claims costs in 2011 and in 2012. For example, in 2012 insurers in 

the individual market spent about 16 percent of their net premiums on 

non-claims costs compared to the 7 percent that large group insurers 

spent. With regard to premium surplus, our analysis showed that there 

Specifically, insurers in the large group market spent a higher percent of 

their net premiums on medical claims in both years compared to insurers 

in the small group and individual markets. For example, in 2012 insurers 

in the large group market spent about 89 percent of their net premiums on 

medical claims compared to the 85 percent that individual market insurers 

spent and the 84 percent that small group market insurers spent.

 

28Net premiums is the amount of insurers’ premiums after subtracting the insurer’s federal 

and state taxes and licensing or regulatory fees. Net premiums is the denominator in the 

PPACA MLR formula.

The Percentage of 

Premiums Insurers Spent 

on Medical Claims and 

Non-Claims Costs in 2011 

and 2012 Varied by 

Market
 

Page 14 GAO-14-580 Medical Loss Ratio Requirements

was also variation across the insurance markets in 2011 and in 2012, with 

insurers in the individual market having less premium surplus than 

insurers in both the small and large group markets.29 An insurer’s 

premium surplus includes profit and other reserved capital but does not 

account for any PPACA MLR rebates the insurer may have to pay to 

enrollees.30 Insurers’ spending on QI expenses did not vary across 

markets as insurers in each market spent about 1 percent of net 

premiums on QI expenses in 2011 and in 2012. (See table 2.) While our 

analysis showed that from 2011 to 2012 there were some shifts in the 

percentage of spending on these different components among the 

different markets and among all insurers, these two years of data may not 

reflect future patterns in spending. (See app. II for a listing of insurers’ 

spending on the MLR components by state for 2011 and 2012.)

 

29Premium surplus is the amount remaining after subtracting from net premiums the costs 

associated with medical claims, quality improvement activities, as well as non-claims 

costs.

30Because state regulators require insurers to maintain specific levels of capital to conduct 

business, insurers may maintain some of their profits for this purpose. Insurers that 

operate in more than one market within a state may have had profits in some markets 

within a state and not others.
 

Page 15 GAO-14-580 Medical Loss Ratio Requirements

Table 2: Insurers’ Spending as a Percent of Net Premiumsa in 2011 and 2012, by 

Insurance Market

Medical 

claims

(%)

Non-claims 

costs

(%)

Premium 

surplusb 

(%)

Quality 

improvement 

expenses

(%)

Total

(%)

2011

Individual 82.5 16.1 0.7 0.8 100

Small group 82.8 12.4 3.9 0.8 100

Large group 88.8 7.6 2.9 0.7 100

All markets 86.7 9.6 3.0 0.7 100

2012

Individual 84.7 15.5 -1.1 0.9 100

Small group 83.5 11.9 3.7 0.9 100

Large group 89.1 7.4 2.7 0.8 100

All markets 87.3 9.3 2.6 0.8 100

Source: GAO analysis of CMS data. | GAO-14-580

Note: For each market, we calculated sums for insurers’ spending on medical claims, non-claims 

costs, premium surplus, as well as quality improvement expenses. We then divided each by the sum 

of insurers’ net premiums in each market. Rows may not sum to 100 due to rounding.

a

Net premiums is the amount of insurers’ earned premiums after subtracting the insurer’s federal and 

state taxes and licensing or regulatory fees. Net premiums is the denominator in the PPACA medical 

loss ratio formula.

b

The insurer’s premium surplus is the amount remaining after subtracting from net premiums the 

costs associated with medical claims and quality improvement activities as well as non-claims costs.

Three of the six non-claims cost categories generally comprised the 

largest share of insurers’ spending, and there was some variation across 

the markets in spending on each of these three categories.31

 

31We did not analyze community expenditures as a separate category of non-claims 

costs. Insurers may have excluded a certain amount of such expenses from the 

denominator of their MLRs, and any additional amounts would be included in the nonclaims cost category of other general and administrative expenses.

The three 

categories that made up the largest share of insurers’ spending on nonclaims costs were agents’ and brokers’ fees and commissions, other 

general expenses, and other claims adjustment expenses. We found that 

insurers’ spending on these three categories of non-claims costs varied 

by market. Insurers in the small group market spent a higher share on 

agents’ and brokers’ fees and commissions than insurers in the individual 

and large group markets. For example, in 2012 small group insurers 
 

Page 16 GAO-14-580 Medical Loss Ratio Requirements

spent about 42 percent of their total non-claims costs on agents’ and 

brokers’ fees and commissions compared to the 23 percent that large 

group insurers spent. In comparison, insurers in the individual and large 

group markets spent a higher share of non-claims costs than insurers in 

the small market on other general expenses, such as salaries, rent, and 

travel; and on other claims adjustment expenses including office and 

computer maintenance. (See table 3.)

Table 3: Insurers’ Spending on Agents’ and Brokers’ Fees and Commissions and Other Categories of Non-Claims Costs as a 

Percent of Total Non-Claims Costs in 2011 and 2012, by Insurance Market

Agents’ and 

brokers’ fees and 

commissionsa 

(%)

Other general 

expensesb

(%)

Other claims 

adjustment 

expensesc

(%)

Cost 

containment 

expensesd

(%)

Direct sales’ 

salaries and 

benefitse

(%)

Other 

Taxesf

(%)

Total

(%)

2011

Individual 29.8 43.2 14.0 6.8 6.1 0.1 100

Small group 40.9 34.2 12.1 6.6 6.0 0.2 100

Large group 23.0 43.9 17.3 8.4 6.9 0.5 100

All markets 29.8 40.7 15.1 7.6 6.5 0.3 100

2012

Individual 28.1 45.1 13.8 7.2 5.7 0.1 100

Small group 42.2 31.8 11.8 7.2 6.5 0.4 100

Large group 23.1 42.9 16.6 9.5 7.2 0.8 100

All markets 29.9 39.8 14.6 8.4 6.8 0.5 100

Source: GAO analysis of CMS data. | GAO-14-580

a

Agents’ and brokers’ fees and commissions include all expenses paid to agents and brokers, who 

are not employees of the insurer, for the sale and solicitation of the insurer’s policies.

b

Insurers’ other general and administrative expenses include salaries, accreditation and certification 

fees, rent, legal fees and expenses, travel, advertising and utilities.

c

Insurers’ other claims adjustment expenses include costs such as office maintenance, computer 

maintenance, maintenance of records, and general clerical and secretarial costs.

d

Cost containment expenses includes expenses that reduce the number of health services provided 

or the cost of such services.

e

Direct sales’ salaries and benefits include compensation to employees of insurers who sell their 

plans.

f

Other taxes include state sales taxes and any other taxes that have not been removed from the 

medical loss ratio denominator.
 

Page 17 GAO-14-580 Medical Loss Ratio Requirements

Insurers paid about $1.1 billion in total rebates to enrollees and 

policyholders who paid premiums in 2011, the first year that insurers were 

subject to the PPACA MLR requirements, and about $520 million in 

rebates in 2012. These amounts would each have decreased by about 

75 percent had agents’ and brokers’ fees and commissions been 

excluded from the MLR and rebate calculations, assuming insurers made 

no other changes that could affect their MLRs. Of the $1.1 billion in total 

rebates that insurers paid in 2011, insurers in the large group market paid 

37 percent of this total, or $405 million in rebates, the largest amount 

across the three insurance markets.32

We found that the average rebate amounts insurers paid per enrollee and 

the likelihood that insurers paid rebates varied by insurance market.

Of the $520 million in total rebates 

that insurers paid in 2012, insurers in the small group market paid the 

largest amount in rebates (about $207 million). (See app. III for a listing of 

the rebate amounts that insurers paid in each state for 2011 and 2012.)

33

 

32The total rebate amounts for 2011 and 2012 are somewhat higher than those CMS 

reported. According to CMS officials, the rebate amounts CMS reported for 2011 and 

2012 did not include the rebates that insurers paid for plans that had annual coverage 

limits of $250,000 or less. See CMS, 2012 MLR Rebates by State, accessed April 23, 

2014,

Insurers across the three markets paid an average rebate of $83.60 per 

enrollee in 2011 and $58.50 per enrollee in 2012. Rebate amounts varied 

by insurance market each year, and individual and small group insurers 

paid higher per-enrollee rebates compared to insurers in the large group 

market. To illustrate, individual market insurers paid an average rebate of 

$68.30 per enrollee in 2012 compared to the average rebate of $39.20 

that insurers in the large group market paid. In both 2011 and 2012, 

insurers in the individual market were more likely to pay rebates than 

insurers in the small and large group markets. For example, in 2012 

about 30 percent of individual market insurers paid rebates and about 

14 percent of large group insurers did so. The total and average rebate 

amounts that insurers paid decreased from 2011 to 2012 overall and 

within each market, with the greatest decrease occurring in the large 

http://www.cms.gov/CCIIO/Resources/Data-Resources/Downloads/2012-mlrrebates-by-state-08-01-2013.pdf, and CMS, The 80/20 Rule: How Insurers Spend Your 

Health Insurance Premiums, accessed April 23, 2014, 

http://www.cms.gov/CCIIO/Resources/Files/Downloads/mlr-report-02-15-2013.pdf.

33We calculated the average rebate amount by dividing the total amount of rebates 

insurers paid by the total number of individuals (including dependents) enrolled in their 

plans.

Insurers Paid 

$1.1 Billion in 

Rebates in 2011 and 

$520 Million in 2012, 

and Would Have Paid 

About 75 Percent 

Less with Agents’ and 

Brokers’ Fees and 

Commissions 

Excluded, Absent 

Other Changes in 

Business Practices
 

Page 18 GAO-14-580 Medical Loss Ratio Requirements

group market. (See table 4.) However, these two years of data may not 

reflect future rebate patterns.34

Table 4: Amount of PPACA Medical Loss Ratio (MLR) Rebates Insurers Paid to 

Enrollees and Policyholders and Percent of Insurers That Paid Rebates in 2011 and 

2012, by Insurance Market

Total amount 

of rebates 

(dollars in millions)

Average rebate 

amount per enrolleea

(in dollars) 

Percent of insurers 

who paid rebates

2011

Individual 400.8 95.3 34.9

Small group 296.1 90.6 20.3

Large group 405.0 71.0 16.3

Total 1,101.9 83.6 23.6

2012

Individual 201.1 68.3 30.1

Small group 206.9 67.0 18.6

Large group 112.1 39.2 13.7

Total 520.1 58.5 20.8

Source: GAO analysis of CMS data. | GAO-14-580

Note: Some insurers operate in multiple markets and states. A separate MLR and rebate amount, if 

applicable, is reported for each insurer, market, and state combination.

a

The average rebate amount is the total amount of rebates insurers paid divided by the total number 

of individuals (including dependents) enrolled in their plans.

Our analysis of the data showed that rebates would have been reduced 

by about 75 percent if agents’ and brokers’ fees and commissions were 

excluded from the MLR and rebate calculations.35

 

34Insurers will calculate their MLRs based on data from a 3-year period, beginning in 

2013. This may affect the amount of rebates that insurers must pay.

Specifically, we found 

that the rebates paid by insurers to enrollees and policyholders who paid 

premiums in 2011 would have fallen from $1.1 billion to about 

35To perform our calculations, we subtracted from the MLR denominator agents’ and 

brokers’ fees and commissions for each year and recalculated the MLR with the new 

denominator. We determined whether the insurer would have met or exceeded the 

applicable PPACA MLR standard, based on the recalculated MLR, and if an insurer would 

not have met or exceeded the standard, we calculated a rebate amount. To determine the 

rebate amount, we multiplied the difference between the recalculated MLR and the 

applicable standard by the amount of premium, after subtracting taxes and agents’ and 

brokers’ fees and commissions.
 

Page 19 GAO-14-580 Medical Loss Ratio Requirements

$272 million, and in 2012 would have fallen from $520 million to about 

$135 million.36 There was variation in the impact of the recalculated MLRs 

across the three markets. For example, in both years, the differences 

between the actual and recalculated rebate amounts were greater, on a 

percentage basis, in the small group market compared to the individual 

market. (See table 5.) These rebate calculations are based on the 

assumption that insurers did not make other changes during this time that 

would have affected their MLRs. However, if the formula had been 

different, insurers might have made different business decisions in those 

years.37 (See app. IV for a listing of the rebate amounts that insurers 

would have paid with agents’ and brokers’ commissions and fees 

excluded from the MLRs in each state for 2011 and 2012.)

 

36We also performed a calculation that excluded the salaries and benefits that insurers 

pay their employees who sell their plans, in addition to the fees and commissions that 

insurers pay agents and brokers whom they do not employ, and found further reductions 

in the recalculated rebate amounts. Total rebate amounts would have been further 

reduced to about $213 million in 2011 and about $115 million in 2012. 

37For example, if insurers had increased the fees and commissions that they pay agents 

and brokers because the fees and commissions were excluded from the MLR formula 

(without increasing their premiums by the same amount), then rebates would have 

decreased more than our estimates. This is because insurers’ MLRs would have 

increased more than the increases we calculated.
 

Page 20 GAO-14-580 Medical Loss Ratio Requirements

Table 5: Amount of Rebates Insurers Would Have Paid to Enrollees and 

Policyholders with Agents’ and Brokers’ Commissions and Fees Excluded from 

PPACA Medical Loss Ratio and Rebate Calculations in 2011 and 2012

Total amount 

of rebates 

(dollars in millions)

Amount of rebates 

with agent and broker 

compensation 

excluded 

(dollars in millions)

Difference 

(percent change)

2011

Individual 400.8 119.1 -70.3

Small group 296.1 26.6 -91.0

Large group 405.0 126.0 -68.9

Total 1,101.9 271.7 -75.3

2012

Individual 201.1 64.2 -68.1

Small group 206.9 45.0 -78.3

Large group 112.1 26.1 -76.7

Total 520.1 135.3 -74.0

Source: GAO analysis of CMS data. | GAO-14-580

All eight insurers that we interviewed reported that they increased their 

premium rates since 2011 due to a variety of factors, and most (five of the 

eight) reported that the factors were largely unrelated to PPACA MLR 

requirements. Key factors cited for making premium changes included: 

trends in medical claims, competition with other insurers, the PPACA 

requirements that insurers offer their plans on a guaranteed-issue basis 

as well as provide essential health benefits in their plans,38 and the percapita fees associated with PPACA’s reinsurance program.39

 

38See Pub. L. No. 111-148, §§ 1201, 1563(c), 10103, 10107, 124 Stat. 154, 264, 892, 911 

(codified at 42 §§ 300gg-1 et seq.).

For 

example, one insurer that has increased premiums in the individual 

market since 2011 stated that its increased premiums were due in part to 

the increased costs that the insurer told us was associated with it 

39The purpose of this reinsurance program is to stabilize premiums by partially offsetting 

claims for high-risk individuals in the individual market. All insurers must make 

contributions, beginning in January 2014, and those in the individual markets are eligible 

for payments. This program is temporary and will operate from 2014 to 2016. See Pub. L. 

No. 111-148, §§ 1341, 10104(r), 124 Stat. 208, 906 (codified at 42 U.S.C. § 18061).

Most Insurers We 

Interviewed Reported 

Factors Other than 

PPACA MLR 

Requirements as 

Affecting their 

Business Practices
 

Page 21 GAO-14-580 Medical Loss Ratio Requirements

providing coverage on a guaranteed-issue basis, as mandated under 

PPACA.40

Four of the eight insurers we interviewed reported they did not make any 

recent changes to their agents’ and brokers’ fees and commissions, and 

of the four that did make changes, one reported that the MLR 

requirements were a primary driver behind that decision. All four of the 

insurers who did make changes told us that they have reduced fees and 

commissions in certain markets since 2011 either by changing their 

payment method from a percent of premiums to a flat fee, or by reducing 

the set percentage of premiums that they pay to agents and brokers.

Three of the eight insurers reported that the PPACA MLR 

requirements were one factor among a variety of factors that influenced 

their decisions regarding premium rates, and two of these insurers told us 

that the MLR requirements have generally moderated their premium 

increases. For example, one insurer that has increased its premium rates 

in the individual market since 2011 stated that without the PPACA MLR 

requirements in place the insurer would have likely increased rates 

further. Another insurer explained that if it does not meet the PPACA MLR 

standards in its planning, it will adjust its premium rate increases to avoid 

the associated expense and administrative work required to issue rebates 

to enrollees.

41

 

40PPACA requires that certain health plans be offered on a guaranteed-issue basis, that 

is, that an insurer accept every applicant and meet coverage requirements such as 

providing women’s preventative services (e.g., well-women visits), without cost sharing for 

the enrollee.

According to one insurer, paying agents and brokers on a flat fee basis 

will help the insurer reduce the fees and commissions it pays over time 

because otherwise the insurer would increase such payments every time 

it increases its premium rates. While one of the four insurers stated that 

the PPACA MLR requirements were the primary driver of its decision to 

reduce agent and broker compensation, the other three insurers that also 

reduced their agent and broker compensation cited other influencing 

factors. For example, insurers told us that they reduced such 

compensation since 2011 because of the general trend preceding 

enactment of PPACA to pay agents and brokers a flat fee rather than a 

percentage of premiums. According to insurers, this reduction in 

compensation allows them to operate more efficiently by lowering their 

41We asked insurers about their business practices from 2011, when the PPACA MLR 

requirements took effect, to the present. This time period is broader than the period for 

which we analyzed MLR data.
 

Page 22 GAO-14-580 Medical Loss Ratio Requirements

non-claims costs as well as offer more competitive premium rates for their 

plans.

All eight insurers we interviewed told us that the PPACA MLR 

requirements have not affected where they do business and have had no 

effect, or a very limited effect, on their spending on QI activities since 

2011. Two of the eight insurers we interviewed stated that they exited 

certain insurance markets since the PPACA MLR requirements began, 

but they did not attribute those decisions to the MLR requirements. For 

example, one insurer who operated in all 50 states told us that it left the 

individual market in three states in 2014, in part because of its concerns 

in each market over maintaining a sufficient network of providers and 

being able to provide affordable coverage. The insurer further explained 

that a low number of enrollees in each market contributed to its decisions 

to no longer operate in the three states. None of the insurers we 

interviewed reported that the PPACA MLR requirements have generally 

influenced their spending on QI activities since 2011, and all eight 

insurers reported other influencing factors, such as customer and 

employer demand for QI programs, competition among insurers, and the 

goal of improving enrollees’ health outcomes, which in turn could lower 

the use and costs of health care services.

Five of the eight insurers we interviewed also commented that the 2013 

PPACA MLR calculation, which is based on a 3-year period including 

2013 and the prior 2 years, will likely reduce some of the effects in the 

MLR formula of year-to-year variability in enrollees’ medical claims. 

Variability in medical claims occurs when actual and expected medical 

claims differ, and one source of such variability is the effect of large 

claims. One insurer, who paid rebates in 2011, noted that it would not 

have owed rebates had the MLR formula been based on 3 years of 

insurers’ experience. In comparison, another insurer told us that it will 

likely owe rebates for 2013 because the MLR data it reported in 2011 and 

2012 will be averaged into 2013. The insurer added that over time, 

however, it believes the 3-year MLR formula should be beneficial for the 

insurer by reducing the likelihood of owing rebates.

We provided a draft of this product to HHS for comment. HHS responded 

that it had no general or technical comments. Agency Comments
 

Page 23 GAO-14-580 Medical Loss Ratio Requirements

We are sending copies of this report to the Secretary of Health and 

Human Services and other interested parties. In addition, the report is 

available at no charge on the GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-7114 or DickenJ@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. GAO staff who made key contributions to this report 

are listed in appendix V.

Sincerely yours,

John E. Dicken

Director, Health Care
Appendix I: PPACA Medical Loss Ratios by 

State in 2011 and 2012

Page 24 GAO-14-580 Medical Loss Ratio Requirements

This appendix presents information on insurers’ median PPACA medical 

loss ratios by state and insurance market for 2011 (see table 6) and for 

2012 (see table7).

Table 6: Insurers’ Median PPACA Medical Loss Ratios (MLRs) in 2011, by State and 

Insurance Market 

Median MLR (%)

State 

Individual 

marketa Small group 

marketb Large group marketc All Markets

Alabama 76.9 87.2 101.8 92.2

Alaska 83.9 88.4 93.1 91.6

Arizona 83.9 80.3 91.2 84.0

Arkansas 81.2 84.4 88.6 85.9

California 81.6 84.2 90.5 87.6

Colorado 90.1 83.5 88.1 87.0

Connecticut 80.7 84.5 87.6 86.6

Delaware 80.6 85.3 90.0 88.6

District of Columbia 102.5 78.1 82.7 82.4

Florida 80.4 85.1 88.1 85.6

Georgia 84.2 83.6 91.1 85.1

Hawaii 94.2 87.5 90.5 89.9

Idaho 89.9 85.5 93.1 90.4

Illinois 82.3 84.1 88.9 86.9

Indiana 83.2 85.6 95.2 87.6

Iowa 84.6 83.8 93.3 87.3

Kansas 79.1 83.5 90.6 87.0

Kentucky 81.5 89.1 91.0 88.1

Louisiana 81.1 82.0 89.9 84.1

Maine 90.3 89.2 88.1 89.0

Maryland 81.8 81.5 85.8 83.9

Massachusetts 90.8 89.1 88.5 89.1

Michigan 82.1 83.6 92.1 86.1

Minnesota 92.0 87.2 92.7 91.3

Mississippi 84.2 87.4 91.2 87.6

Missouri 79.6 82.0 90.1 86.1

Montana 79.0 78.1 94.5 82.0

Nebraska 82.4 81.7 91.9 87.5

Nevada 80.9 81.7 91.1 83.9

Appendix I: PPACA Medical Loss Ratios by 

State in 2011 and 2012
Appendix I: PPACA Medical Loss Ratios by 

State in 2011 and 2012

Page 25 GAO-14-580 Medical Loss Ratio Requirements

Median MLR (%)

State 

Individual 

marketa Small group 

marketb Large group marketc All Markets

New Hampshire 83.5 89.8 91.0 90.6

New Jersey 95.3 85.6 87.0 86.7

New Mexico 87.8 88.3 93.8 92.5

New York 99.2 94.3 87.8 91.0

North Carolina 79.4 82.6 89.5 83.8

North Dakota 85.4 84.5 89.8 87.6

Ohio 95.2 87.7 92.8 90.8

Oklahoma 77.8 81.3 88.4 85.4

Oregon 85.7 85.9 91.9 88.4

Pennsylvania 87.6 86.1 88.4 87.8

Rhode Island 87.0 86.9 92.9 88.0

South Carolina 79.9 78.6 88.7 86.0

South Dakota 86.6 89.5 95.0 89.5

Tennessee 79.7 82.1 89.9 85.5

Texas 84.1 83.4 90.6 88.1

Utah 79.5 84.4 92.3 85.6

Vermont 105.0 89.4 92.8 92.6

Virginia 79.6 81.2 90.7 83.5

Washington 87.4 87.4 90.4 88.0

West Virginia 75.0 83.7 97.5 86.8

Wisconsin 93.8 94.6 94.7 94.6

Wyoming 83.2 87.4 94.8 89.4

Source: GAO analysis of CMS data. | GAO-14-580

Notes: The PPACA MLR is calculated by dividing (a) the sum of an insurer’s medical claims and 

expenses for quality improvement (QI) activities by (b) the insurer’s premiums, after excluding from 

them the amount of insurer’s federal and state taxes and licensing or regulatory fees. PPACA MLRs 

over 100 percent indicate that the insurer’s claims and QI expenses for a particular market were 

greater than the premiums it collected for that year after excluding the applicable taxes and fees. 

Insurers operating in the insular areas of American Samoa, Guam, Northern Mariana Islands, Puerto 

Rico, and United States Virgin Islands were also subject to the PPACA MLR requirements. In 2011 

HHS granted seven states temporary adjustments to the 80 percent MLR standard for the individual 

market, and each state’s adjustment allowed for a lower MLR standard. The states were Georgia, 

Iowa, Kentucky, Maine, Nevada, New Hampshire, and North Carolina.

a

The individual market includes plans sold by insurers directly to individuals.

b

The small group market includes plans sold by insurers to small employers. Prior to PPACA, a small 

employer was defined in federal law as having a maximum of 50 employees. Under PPACA, a small 

employer is defined as having from 1 to 100 employees. In 2011, states had the option of continuing 

to define a small employer as having 50 or fewer employees. Starting in 2016, states must define a 

small employer as having from 1 to 100 employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 

172 (codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).

c

The large group market includes plans sold by insurers to large employers. Prior to PPACA, a large 

employer was defined in federal law as having a minimum of 51 employers. Under PPACA, a large 
Appendix I: PPACA Medical Loss Ratios by 

State in 2011 and 2012

Page 26 GAO-14-580 Medical Loss Ratio Requirements

employer is defined as having 101 or more employees. In 2011, states had the option of continuing to 

define a large employer as having 51 or more employees. Starting in 2016, states must define a large 

employer as those having 101 or more employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).

Table 7: Insurers’ Median PPACA Medical Loss Ratios (MLRs) in 2012, by State and 

Insurance Market

Median MLR (%)

State 

Individual 

marketa Small group 

marketb Large group marketc All Markets

Alabama 85.5 86.8 92.2 91.2

Alaska 83.4 82.3 94.0 84.4

Arizona 85.4 79.7 89.6 85.4

Arkansas 82.0 80.9 86.7 83.3

California 83.2 84.2 91.4 89.1

Colorado 89.2 85.4 89.9 88.2

Connecticut 84.9 84.2 88.4 87.3

Delaware 81.4 84.1 89.8 84.1

District of Columbia 106.1 81.3 85.5 84.9

Florida 82.9 85.6 89.2 87.1 

Georgia 85.5 83.4 93.0 87.0 

Hawaii 95.0 89.1 88.3 90.3 

Idaho 86.2 83.5 92.4 89.6

Illinois 81.6 83.5 90.0 85.2

Indiana 91.8 85.7 92.7 88.4

Iowa 83.6 84.8 92.8 88.2

Kansas 85.1 82.2 91.4 89.2

Kentucky 85.6 88.3 96.4 89.4

Louisiana 81.9 81.9 89.8 85.7

Maine 100.8 85.5 86.3 85.7

Maryland 79.5 83.7 87.0 85.1

Massachusetts 91.5 88.2 89.1 89.7

Michigan 78.7 83.0 91.2 85.9

Minnesota 93.0 90.2 95.3 93.7

Mississippi 86.0 88.4 94.5 89.9

Missouri 82.7 83.0 90.9 88.8

Montana 89.7 82.8 93.8 85.4

Nebraska 85.5 84.8 89.8 86.2

Nevada 85.3 80.8 89.7 85.9
Appendix I: PPACA Medical Loss Ratios by 

State in 2011 and 2012

Page 27 GAO-14-580 Medical Loss Ratio Requirements

Median MLR (%)

State 

Individual 

marketa Small group 

marketb Large group marketc All Markets

New Hampshire 78.3 88.8 91.0 88.0

New Jersey 109.5 86.8 87.0 87.7

New Mexico 89.3 86.5 93.0 91.5

New York 95.1 93.0 86.9 91.6

North Carolina 81.9 82.2 92.5 84.5

North Dakota 87.5 89.3 93.5 89.3

Ohio 87.9 89.3 94.2 92.2

Oklahoma 78.4 83.8 90.2 86.3

Oregon 90.2 84.7 90.0 88.9

Pennsylvania 94.1 87.8 91.9 89.8

Rhode Island 101.9 86.8 93.7 90.5

South Carolina 84.1 80.5 94.1 86.8

South Dakota 98.5 91.8 92.4 92.2

Tennessee 83.6 82.4 94.4 85.8

Texas 81.7 84.7 89.7 87.0

Utah 82.0 82.5 91.1 86.5

Vermont 108.6 89.7 91.8 92.9

Virginia 83.7 81.1 91.1 86.4

Washington 89.9 86.5 90.9 90.2

West Virginia 77.8 82.8 95.5 86.3

Wisconsin 86.7 92.5 95.4 92.8

Wyoming 84.1 82.4 87.2 83.1

Source: GAO analysis of CMS data. | GAO-14-580

Notes: The PPACA MLR is calculated by dividing (a) the sum of an insurer’s medical claims and 

expenses for quality improvement (QI) activities by (b) the insurer’s premiums, after excluding from 

them the amount of insurer’s federal and state taxes and licensing or regulatory fees. PPACA MLRs 

over 100 percent indicate that the insurer’s claims and QI expenses for a particular market were 

greater than the premiums it collected for that year after excluding the applicable taxes and fees. 

Insurers operating in the insular areas of American Samoa, Guam, Northern Mariana Islands, Puerto 

Rico, and United States Virgin Islands were also subject to the PPACA MLR requirements. In 2012 

HHS granted four states temporary adjustments to the 80 percent MLR standard for the individual 

market and each state’s adjustment allowed for a lower MLR standard. The states were Georgia, 

Iowa, Maine, and New Hampshire.

a

The individual market includes plans sold by insurers directly to individuals.

b

The small group market includes plans sold by insurers to small employers. Prior to PPACA, a small 

employer was defined in federal law as having a maximum of 50 employees. Under PPACA, a small 

employer is defined as having from 1 to 100 employees. In 2012, states had the option of continuing 

to define a small employer as having 50 or fewer employees. Starting in 2016, states must define a 

small employer as having from 1 to 100 employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 

172 (codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).

c

The large group market includes plans sold by insurers to large employers. Prior to PPACA, a large 

employer was defined in federal law as having a minimum of 51 employers. Under PPACA, a large 
Appendix I: PPACA Medical Loss Ratios by 

State in 2011 and 2012

Page 28 GAO-14-580 Medical Loss Ratio Requirements

employer is defined as having 101 or more employees. In 2012, states had the option of continuing to 

define a large employer as having 51 or more employees. Starting in 2016, states must define a large 

employer as those having 101 or more employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).
Appendix II: Insurers’ Spending of Net 

Premiums by State for 2011 and 2012

Page 29 GAO-14-580 Medical Loss Ratio Requirements

This appendix presents information on insurers’ spending as a percent of 

their net premiums, by state for all markets combined for 2011 (see 

table 8) and for 2012 (see table 9).

Table 8: Insurers’ Spending as Percent of Net Premiumsa in 2011 by State, for all 

Markets Combined

State 

Medical 

claims

(%)

Non-claims 

costsb

(%)

Premium 

surplusc

(%)

Quality 

improvement 

activities

(%)

Total

(%)

Alabama 90.0 5.4 4.3 0.3 100

Alaska 86.0 8.5 4.6 1.0 100

Arizona 83.4 12.9 2.8 1.0 100

Arkansas 83.6 13.1 2.5 0.9 100

California 89.1 7.9 2.6 0.5 100

Colorado 86.4 10.4 2.5 0.7 100

Connecticut 84.0 9.0 6.1 0.9 100

Delaware 84.2 10.0 5.3 0.5 100

District of Columbia 83.7 8.9 6.7 0.8 100

Florida 83.1 11.5 4.6 0.8 100

Georgia 84.8 11.3 2.9 1.0 100

Hawaii 89.7 7.0 2.6 0.7 100

Idaho 86.9 12.1 0.3 0.6 100

Illinois 86.7 9.3 3.4 0.6 100

Indiana 84.9 9.3 4.9 0.8 100

Iowa 85.8 10.8 2.5 0.9 100

Kansas 87.1 11.2 1.2 0.6 100

Kentucky 83.6 10.4 4.9 1.1 100

Louisiana 84.0 10.8 4.8 0.4 100

Maine 88.1 7.4 3.6 0.8 100

Maryland 86.2 10.7 2.0 1.0 100

Massachusetts 87.6 9.7 1.9 0.8 100

Michigan 87.2 10.4 1.7 0.8 100

Minnesota 86.9 9.1 3.4 0.7 100

Mississippi 86.9 11.7 0.9 0.4 100

Missouri 83.2 11.2 4.6 1.0 100

Montana 87.3 11.9 0.3 0.5 100

Nebraska 87.3 10.7 1.6 0.4 100

Nevada 83.4 12.3 3.0 1.3 100

Appendix II: Insurers’ Spending of Net 

Premiums by State for 2011 and 2012
Appendix II: Insurers’ Spending of Net 

Premiums by State for 2011 and 2012

Page 30 GAO-14-580 Medical Loss Ratio Requirements

State 

Medical 

claims

(%)

Non-claims 

costsb

(%)

Premium 

surplusc

(%)

Quality 

improvement 

activities

(%)

Total

(%)

New Hampshire 87.1 9.3 2.7 0.9 100

New Jersey 86.0 11.8 1.4 0.7 100

New Mexico 88.7 10.9 -0.8 1.2 100

New York 89.3 7.0 3.0 0.7 100

North Carolina 84.5 12.6 2.2 0.7 100

North Dakota 90.1 6.0 3.4 0.6 100

Ohio 85.3 10.7 3.0 0.9 100

Oklahoma 84.4 10.7 4.4 0.6 100

Oregon 88.2 9.4 1.9 0.6 100

Pennsylvania 86.3 9.8 3.1 0.8 100

Rhode Island 85.4 11.6 2.2 0.8 100

South Carolina 83.0 12.0 4.3 0.7 100

South Dakota 89.0 8.9 1.1 1.0 100

Tennessee 81.7 12.2 4.5 1.5 100

Texas 83.5 11.6 4.1 0.8 100

Utah 86.1 10.9 2.3 0.8 100

Vermont 88.0 10.7 0.4 0.9 100

Virginia 85.5 8.6 5.0 0.9 100

Washington 86.9 9.8 2.2 1.1 100

West Virginia 86.8 8.7 3.6 1.0 100

Wisconsin 90.4 9.0 -0.2 0.8 100

Wyoming 87.2 9.9 2.7 0.2 100

Source: GAO analysis of CMS data. | GAO-14-580

Notes: The markets include large group, small group, and individual. Under PPACA, a small employer 

is defined as having from 1 to 100 employees and a large employer is defined as having 101 or more 

employees. However, in 2011 states had the option of continuing to define small and large employers 

with definitions established in federal law prior to PPACA (small group as having a maximum of 50 

and large group as having 51 or more employees). Starting in 2016, states must define small and 

large employers under the PPACA definition. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013). The individual market includes plans 

sold by insurers directly to individuals. Insurers operating in the insular areas of American Samoa, 

Guam, Northern Mariana Islands, Puerto Rico, and United States Virgin Islands were also subject to 

the PPACA medical loss ratio (MLR) requirements. Rows may not sum to 100 due to rounding.

a

Net premiums is the amount of insurers’ earned premiums after subtracting the insurer’s federal and 

state taxes and licensing or regulatory fees. Net premiums is the denominator in the PPACA MLR 

formula.

b

Non-claims costs include cost containment expenses, all other claims adjustment expenses, direct 

sales’ salaries and benefits, agents’ and brokers’ fees and commissions, other taxes and other 

general and administrative expenses.

c

The insurer’s premium surplus is the amount remaining after subtracting from net premiums the 

costs associated with medical claims and quality improvement activities as well as non-claims costs. 
Appendix II: Insurers’ Spending of Net 

Premiums by State for 2011 and 2012

Page 31 GAO-14-580 Medical Loss Ratio Requirements

An insurer’s premium surplus includes profit and other reserved capital but does not account for any 

PPACA MLR rebates the insurer may have to pay.

Table 9: Insurers’ Spending as Percent of Net Premiumsa in 2012 by State, for all 

Markets Combined

State 

Medical 

claims

(%)

Non-claims 

costsb

(%)

Premium 

surplusc

(%)

Quality 

improvement 

activities

(%)

Total

(%)

Alabama 92.2 10.0 -2.6 0.4 100

Alaska 87.0 8.0 4.2 0.9 100

Arizona 84.3 12.3 2.2 1.2 100

Arkansas 84.7 13.1 1.2 1.0 100

California 88.7 7.8 2.9 0.6 100

Colorado 87.6 10.0 1.7 0.7 100

Connecticut 86.1 9.5 3.5 0.9 100

Delaware 84.8 10.2 4.4 0.7 100

District of Columbia 87.0 8.3 3.8 1.0 100

Florida 85.4 11.5 2.2 0.9 100

Georgia 87.3 10.9 0.8 1.0 100

Hawaii 90.5 7.4 1.4 0.7 100

Idaho 88.8 13.6 -3.0 0.7 100

Illinois 86.6 9.1 3.6 0.6 100

Indiana 84.2 9.6 5.3 0.8 100

Iowa 86.2 10.9 2.1 0.8 100

Kansas 87.4 11.6 0.5 0.6 100

Kentucky 83.9 10.4 4.6 1.2 100

Louisiana 84.8 10.7 4.0 0.6 100

Maine 88.7 7.9 2.5 0.9 100

Maryland 87.1 10.2 1.4 1.3 100

Massachusetts 88.3 8.8 1.9 1.0 100

Michigan 86.2 11.0 1.9 0.9 100

Minnesota 89.7 9.2 0.4 0.8 100

Mississippi 90.1 11.8 -2.4 0.5 100

Missouri 85.4 10.4 3.3 1.0 100

Montana 89.3 10.7 -0.6 0.6 100

Nebraska 87.6 10.8 1.2 0.4 100

Nevada 83.3 10.9 4.4 1.5 100

New Hampshire 86.2 9.2 3.7 0.9 100
Appendix II: Insurers’ Spending of Net 

Premiums by State for 2011 and 2012

Page 32 GAO-14-580 Medical Loss Ratio Requirements

State 

Medical 

claims

(%)

Non-claims 

costsb

(%)

Premium 

surplusc

(%)

Quality 

improvement 

activities

(%)

Total

(%)

New Jersey 85.4 11.2 2.5 0.9 100

New Mexico 91.9 10.9 -4.4 1.6 100

New York 88.7 6.2 4.3 0.7 100

North Carolina 81.2 11.7 6.2 0.8 100

North Dakota 91.5 6.7 1.2 0.6 100

Ohio 86.8 9.9 2.4 0.9 100

Oklahoma 85.5 9.7 4.1 0.7 100

Oregon 88.3 9.5 1.5 0.7 100

Pennsylvania 88.4 9.9 0.9 0.8 100

Rhode Island 87.1 11.3 0.9 0.7 100

South Carolina 85.5 11.9 1.7 0.9 100

South Dakota 89.7 8.6 0.7 1.0 100

Tennessee 83.1 12.1 3.2 1.6 100

Texas 85.2 11.0 2.9 1.0 100

Utah 87.5 10.7 1.0 0.8 100

Vermont 90.3 9.4 -0.6 0.9 100

Virginia 86.9 8.5 3.7 0.9 100

Washington 88.2 9.9 0.8 1.1 100

West Virginia 87.9 8.1 3.4 0.6 100

Wisconsin 89.5 8.8 0.9 0.9 100

Wyoming 82.8 10.1 6.7 0.3 100

Source: GAO analysis of CMS data. | GAO-14-580

Notes: The markets include large group, small group, and individual. Under PPACA, a small employer 

is defined as having from 1 to 100 employees and a large employer is defined as having 101 or more 

employees. However, in 2011 states had the option of continuing to define small and large employers 

with definitions established in federal law prior to PPACA (small group as having a maximum of 50 

and large group as having 51 or more employees). Starting in 2016, states must define small and 

large employers under the PPACA definition. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013). The individual market includes plans 

sold by insurers directly to individuals. Insurers operating in the insular areas of American Samoa, 

Guam, Northern Mariana Islands, Puerto Rico, and United States Virgin Islands were also subject to 

the PPACA medical loss ratio (MLR) requirements. Rows may not sum to 100 due to rounding.

a

Net premiums is the amount of insurers’ earned premiums after subtracting the insurer’s federal and 

state taxes and licensing or regulatory fees. Net premiums is the denominator in the PPACA MLR 

formula.

b

Non-claims costs include cost containment expenses, all other claims adjustment expenses, direct 

sales’ salaries and benefits, agents’ and brokers’ fees and commissions, other taxes and other 

general and administrative expenses.

c

The insurer’s premium surplus is the amount remaining after subtracting from net premiums the 

costs associated with medical claims and quality improvement activities as well as non-claims costs. 

An insurer’s premium surplus includes profit and other reserved capital but does not account for any 

PPACA MLR rebates the insurer may have to pay.
Appendix III: PPACA Medical Loss Ratio 

Rebates by State for 2011 and 2012

Page 33 GAO-14-580 Medical Loss Ratio Requirements

This appendix presents information on the total amount of PPACA 

medical loss ratio rebates that insurers paid to enrollees and 

policyholders who paid premiums, by state and insurance market for 2011 

(see table 10) and for 2012 (see table 11).

Table 10: Total Amount of PPACA Medical Loss Ratio Rebates Insurers Paid to 

Enrollees and Policyholders in 2011, by State and Insurance Market 

Rebate amounts (in dollars)

State Total

Individual 

marketa Small group marketb Large group marketc

Alabama 4,220,331 3,189,860 1,030,471 0 

Alaska 1,280,908 0 1,280,908 0 

Arizona 29,617,637 12,931,977 8,852,429 7,833,231

Arkansas 7,976,578 533,645 5,856,324 1,586,610

California 77,405,460 20,644,294 42,633,080 14,128,086

Colorado 26,171,887 3,063,156 653,254 22,455,477

Connecticut 13,176,140 4,216,883 459,952 8,499,305

Delaware 2,563,523 1,062,076 0 1,501,447

District of Columbia 55,183,584 199,633 9,337,321 45,646,630

Florida 123,625,660 47,257,109 50,713,189 25,655,361

Georgia 19,764,771 2,889,653 1,754,466 15,120,652

Hawaii 195,053 0 0 195,053

Idaho 1,124,918 144,303 980,615 0 

Illinois 26,611,126 7,794,746 12,200,294 6,616,086

Indiana 14,305,969 2,894,670 9,243,360 2,167,939

Iowa 1,469,276 0 1,469,276 0 

Kansas 4,177,418 3,573,859 603,559 0 

Kentucky 15,326,103 232,937 4,119,316 10,973,850

Louisiana 4,272,659 3,018,598 0 1,254,060

Maine 2,579,922 0 0 2,579,922

Maryland 29,368,794 12,892,466 2,281,663 14,194,665

Massachusetts 13,492,100 750,600 10,292,374 2,449,125

Michigan 14,034,163 11,998,544 2,035,619 0 

Minnesota 8,956,885 494,492 0 8,462,393

Mississippi 6,235,077 6,133,419 101,658 0 

Missouri 61,468,647 16,348,539 38,984,778 6,135,330

Montana 2,567,493 1,685,051 882,442 0 

Nebraska 4,832,049 3,704,559 1,127,491 0 

Appendix III: PPACA Medical Loss Ratio 

Rebates by State for 2011 and 2012
Appendix III: PPACA Medical Loss Ratio 

Rebates by State for 2011 and 2012

Page 34 GAO-14-580 Medical Loss Ratio Requirements

Rebate amounts (in dollars)

State Total

Individual 

marketa Small group 

marketb Large group marketc

Nevada 5,184,115 828,521 3,973,839 381,755

New Hampshire 77,507 0 0 77,507

New Jersey 8,847,312 1,291,536 0 7,555,776

New Mexico 3,874,411 0 3,874,411 0 

New York 96,075,052 6,048,297 3,663,077 86,363,678

North Carolina 19,461,110 3,192,881 894,587 15,373,642

North Dakota 10,160 10,160 0 0 

Ohio 11,331,726 8,195,193 3,136,533 0 

Oklahoma 20,641,441 6,947,424 13,282,727 411,290

Oregon 4,645,593 2,630,847 1,209,614 805,132

Pennsylvania 52,294,403 21,383,386 345,698 30,565,319

Rhode Island 0 0 0 0 

South Carolina 19,630,152 15,277,769 4,297,790 54,594

South Dakota 47,948 47,948 0 0 

Tennessee 30,631,189 18,569,459 3,251,333 8,810,396

Texas 168,534,316 136,040,527 14,307,687 18,186,102

Utah 4,963,580 2,741,795 1,364,193 857,591

Vermont 2,679,964 333,946 0 2,346,018

Virginia 44,066,000 5,010,247 23,183,222 15,872,530

Washington 594,031 432,333 0 161,698

West Virginia 2,703,790 2,268,826 434,964 0 

Wisconsin 10,167,510 649,028 4,854,402 4,664,080

Wyoming 1,112,043 932,840 179,203 0 

Source: GAO analysis of CMS data. | GAO-14-580

Note: Insurers operating in the insular areas of American Samoa, Guam, Northern Mariana Islands, 

Puerto Rico, and United States Virgin Islands were also subject to the PPACA medical loss ratio 

requirements.

a

The individual market includes plans sold by insurers directly to individuals.

b

The small group market includes plans sold by insurers to small employers. Prior to PPACA, a small 

employer was defined in federal law as having a maximum of 50 employees. Under PPACA, a small 

employer is defined as having from 1 to 100 employees. In 2011, states had the option of continuing 

to define a small employer as having 50 or fewer employees. Starting in 2016, states must define a 

small employer as having from 1 to 100 employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 

172 (codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).

c

The large group market includes plans sold by insurers to large employers. Prior to PPACA, a large 

employer was defined in federal law as having a minimum of 51 employers. Under PPACA, a large 

employer is defined as having 101 or more employees. In 2011, states had the option of continuing to 

define a large employer as having 51 or more employees. Starting in 2016, states must define a large 

employer as those having 101 or more employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).
Appendix III: PPACA Medical Loss Ratio 

Rebates by State for 2011 and 2012

Page 35 GAO-14-580 Medical Loss Ratio Requirements

Table 11: Total Amount of PPACA Medical Loss Ratio Rebates Insurers Paid to 

Enrollees and Policyholders in 2012, by State and Insurance Market 

Rebate amounts (in dollars)

State Total

Individual 

marketa Small group marketb Large group marketc

Alabama 314,374 314,374 0 0 

Alaska 1,645,701 937,064 708,637 0 

Arizona 18,711,068 2,531,582 5,644,562 10,534,924

Arkansas 4,171,735 864,644 2,115,463 1,191,628

California 65,666,231 18,739,344 41,973,768 4,953,120

Colorado 11,486,675 1,296,964 403,311 9,786,401

Connecticut 5,530,448 1,408,528 4,121,920 0 

Delaware 1,361,054 633,103 0 727,951

District of Columbia 5,149,792 85,582 2,003,528 3,060,682

Florida 54,560,916 39,766,048 13,345,485 1,449,383

Georgia 17,817,736 7,208,571 10,329,073 280,093

Hawaii 1,551,371 0 0 1,551,371

Idaho 2,300,265 214,330 2,085,935 0 

Illinois 6,240,594 2,998,021 1,506,688 1,735,886

Indiana 22,656,341 890,422 20,564,825 1,201,094

Iowa 264,438 125,524 0 138,914

Kansas 4,043,320 2,748,348 1,294,972 0 

Kentucky 14,405,533 10,966,162 2,444,800 994,572

Louisiana 2,473,246 1,215,914 487,347 769,985

Maine 501,240 0 0 501,240

Maryland 13,143,978 6,899,337 0 6,244,641

Massachusetts 40,126,759 3,140,949 35,699,941 1,285,870

Michigan 18,810,417 10,542,615 7,059,979 1,207,824

Minnesota 1,435,260 983,686 0 451,574

Mississippi 5,851,556 3,550,203 881,517 1,419,837

Missouri 19,186,416 3,059,896 11,073,463 5,053,056

Montana 1,537,571 1,395,689 0 141,882

Nebraska 2,000,151 1,345,830 544,744 109,577

Nevada 4,159,345 969,396 2,516,061 673,888

New Hampshire 1,171,335 497,882 0 673,453

New Jersey 10,768,382 0 6,631,571 4,136,811

New Mexico 239,567 80,853 158,714 0 

New York 35,290,183 3,932,003 3,454,360 27,903,820
Appendix III: PPACA Medical Loss Ratio 

Rebates by State for 2011 and 2012

Page 36 GAO-14-580 Medical Loss Ratio Requirements

Rebate amounts (in dollars)

State Total

Individual 

marketa Small group 

marketb Large group marketc

North Carolina 10,478,768 2,800,469 2,665,508 5,012,791

North Dakota 19,792 19,792 0 0 

Ohio 486,681 360,491 126,190 0 

Oklahoma 16,009,195 5,927,336 6,075,797 4,006,061

Oregon 3,327,997 863,555 585,236 1,879,206

Pennsylvania 6,877,987 6,056,538 159,066 662,383

Rhode Island 18,053 0 0 18,053

South Carolina 6,169,507 6,015,932 153,575 0 

South Dakota 41,240 0 0 41,240

Tennessee 5,676,201 3,707,437 1,263,676 705,088

Texas 46,695,311 40,904,426 2,034,381 3,756,504

Utah 4,665,982 815,854 3,262,953 587,175

Vermont 126,810 0 0 126,810

Virginia 11,874,030 1,601,343 7,065,955 3,206,732

Washington 806,496 785,946 0 20,550

West Virginia 1,120,757 848,779 271,978 0 

Wisconsin 3,567,932 765,370 0 2,802,562

Wyoming 1,477,087 201,532 542,820 732,735

Source: GAO analysis of CMS data. | GAO-14-580

Note: Insurers operating in the insular areas of American Samoa, Guam, Northern Mariana Islands, 

Puerto Rico, and United States Virgin Islands were also subject to the PPACA medical loss ratio 

requirements.

a

The individual market includes plans sold by insurers directly to individuals.

b

The small group market includes plans sold by insurers to small employers. Prior to PPACA, a small 

employer was defined in federal law as having a maximum of 50 employees. Under PPACA, a small 

employer is defined as having from 1 to 100 employees. In 2012, states had the option of continuing 

to define a small employer as having 50 or fewer employees. Starting in 2016, states must define a 

small employer as having from 1 to 100 employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 

172 (codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).

c

The large group market includes plans sold by insurers to large employers. Prior to PPACA, a large 

employer was defined in federal law as having a minimum of 51 employers. Under PPACA, a large 

employer is defined as having 101 or more employees. In 2012, states had the option of continuing to 

define a large employer as having 51 or more employees. Starting in 2016, states must define a large 

employer as those having 101 or more employees. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013).
Appendix IV: Rebates Insurers Would Have 

Paid with Agent and Broker Payments 

Excluded from 2011 and 2012 Calculations

Page 37 GAO-14-580 Medical Loss Ratio Requirements

This appendix presents information on the amount of rebates that 

insurers would have paid to enrollees and policyholders who paid 

premiums with agents’ and brokers’ commissions and fees excluded from 

the PPACA medical loss ratio and rebate calculations (absent other 

changes in business practices), compared to the actual amounts that 

insurers paid, by state for 2011 (see table 12) and for 2012 (see table 13).

Table 12: Amount of Rebates Insurers Would Have Paid to Enrollees and 

Policyholders with Agents’ and Brokers’ Commissions and Fees Excluded from 

PPACA Medical Loss Ratio and Rebate Calculations Compared to Actual Amount of 

Rebates Insurers Paid in 2011 by State, for all Markets Combined

Rebate amounts (in dollars)

State 

Actual amount 

insurers paid 

Without agents’ 

and brokers’ 

commissions and fees

Difference 

(% change)

Alabama 4,220,331 2,717,619 -36

Alaska 1,280,908 412,957 -68

Arizona 29,617,637 2,935,154 -90

Arkansas 7,976,578 382,738 -95

California 77,405,460 10,933,330 -86

Colorado 26,171,887 13,204,301 -50

Connecticut 13,176,140 657,733 -95

Delaware 2,563,523 2,024,723 -21

District of Columbia 55,183,584 37,751,449 -32

Florida 123,625,660 18,863,983 -85

Georgia 19,764,771 4,205,820 -79

Hawaii 195,053 59,391 -70

Idaho 1,124,918 106,461 -91

Illinois 26,611,126 4,396,035 -83

Indiana 14,305,969 1,445,408 -90

Iowa 1,469,276 0 -100

Kansas 4,177,418 999,233 -76

Kentucky 15,326,103 211,106 -99

Louisiana 4,272,659 683,325 -84

Maine 2,579,922 1,311,783 -49

Maryland 29,368,794 16,018,019 -45

Massachusetts 13,492,100 6,082,374 -55

Michigan 14,034,163 2,992,204 -79

Minnesota 8,956,885 5,050,162 -44

Appendix IV: Rebates Insurers Would Have 

Paid with Agent and Broker Payments 

Excluded from 2011 and 2012 Calculations 
Appendix IV: Rebates Insurers Would Have 

Paid with Agent and Broker Payments 

Excluded from 2011 and 2012 Calculations

Page 38 GAO-14-580 Medical Loss Ratio Requirements

Rebate amounts (in dollars)

State 

Actual amount 

insurers paid 

Without agents’ 

and brokers’ 

commissions and fees

Difference 

(% change)

Mississippi 6,235,077 4,050,093 -35

Missouri 61,468,647 7,872,733 -87

Montana 2,567,493 422,145 -84

Nebraska 4,832,049 861,853 -82

Nevada 5,184,115 68,494 -99

New Hampshire 77,507 0 -100

New Jersey 8,847,312 3,737,623 -58

New Mexico 3,874,411 0 -100

New York 96,075,052 9,376,682 -90

North Carolina 19,461,110 2,840,313 -85

North Dakota 10,160 0 -100

Ohio 11,331,726 1,203,396 -89

Oklahoma 20,641,441 2,747,220 -87

Oregon 4,645,593 1,699,414 -63

Pennsylvania 52,294,403 31,057,232 -41

Rhode Island 0 0 0 

South Carolina 19,630,152 1,707,491 -91

South Dakota 47,948 0 -100

Tennessee 30,631,189 9,309,181 -70

Texas 168,534,316 42,209,454 -75

Utah 4,963,580 486,863 -90

Vermont 2,679,964 1,883,498 -30

Virginia 44,066,000 4,722,362 -89

Washington 594,031 58,584 -90

West Virginia 2,703,790 1,306,546 -52

Wisconsin 10,167,510 204,151 -98

Wyoming 1,112,043 542,092 -51

Source: GAO analysis of CMS data. | GAO-14-580

Notes: The markets include large group, small group, and individual. Under PPACA, a small employer 

is defined as having from 1 to 100 employees and a large employer is defined as having 101 or more 

employees. However, in 2011 states had the option of continuing to define small and large employers 

with definitions established in federal law prior to PPACA (small group as having a maximum of 50 

and large group as having 51 or more employees). Starting in 2016, states must define small and 

large employers under the PPACA definition. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013). The individual market includes plans 

sold by insurers directly to individuals. Insurers operating in the insular areas of American Samoa, 

Guam, Northern Mariana Islands, Puerto Rico, and United States Virgin Islands were also subject to 

the PPACA medical loss ratio requirements.
Appendix IV: Rebates Insurers Would Have 

Paid with Agent and Broker Payments 

Excluded from 2011 and 2012 Calculations

Page 39 GAO-14-580 Medical Loss Ratio Requirements

Table 13: Amount of Rebates Insurers Would Have Paid to Enrollees and 

Policyholders with Agents’ and Brokers’ Commissions and Fees Excluded from 

PPACA Medical Loss Ratio and Rebate Calculations Compared to Actual Amount of 

Rebates Insurers Paid in 2012 by State, for all Markets Combined

Rebate amounts (in dollars)

State 

Actual amount 

insurers paid

Without agents’ 

and brokers’ 

commissions and fees

Difference 

(% change)

Alabama 314,374 240,188 -24

Alaska 1,645,701 427,816 -74

Arizona 18,711,068 2,327,960 -88

Arkansas 4,171,735 1,160,162 -72

California 65,666,231 6,818,746 -90

Colorado 11,486,675 686,892 -94

Connecticut 5,530,448 1,103,280 -80

Delaware 1,361,054 1,203,270 -12

District of Columbia 5,149,792 2,454,703 -52

Florida 54,560,916 15,232,312 -72

Georgia 17,817,736 2,920,457 -84

Hawaii 1,551,371 1,394,767 -10

Idaho 2,300,265 301,454 -87

Illinois 6,240,594 2,187,437 -65

Indiana 22,656,341 1,763,988 -92

Iowa 264,438 149,567 -43

Kansas 4,043,320 1,000,904 -75

Kentucky 14,405,533 3,468,822 -76

Louisiana 2,473,246 1,079,876 -56

Maine 501,240 0 -100

Maryland 13,143,978 7,579,820 -42

Massachusetts 40,126,759 28,483,017 -29

Michigan 18,810,417 6,413,173 -66

Minnesota 1,435,260 842,951 -41

Mississippi 5,851,556 2,523,128 -57

Missouri 19,186,416 2,629,432 -86

Montana 1,537,571 893,756 -42

Nebraska 2,000,151 1,049,561 -48

Nevada 4,159,345 1,280,956 -69

New Hampshire 1,171,335 342,650 -71

New Jersey 10,768,382 651,598 -94
Appendix IV: Rebates Insurers Would Have 

Paid with Agent and Broker Payments 

Excluded from 2011 and 2012 Calculations

Page 40 GAO-14-580 Medical Loss Ratio Requirements

Rebate amounts (in dollars)

State 

Actual amount 

insurers paid

Without agents’ 

and brokers’ 

commissions and fees

Difference 

(% change)

New Mexico 239,567 63,448 -74

New York 35,290,183 6,989,447 -80

North Carolina 10,478,768 1,736,726 -83

North Dakota 19,792 16,419 -17

Ohio 486,681 328,436 -33

Oklahoma 16,009,195 2,931,977 -82

Oregon 3,327,997 2,085,421 -37

Pennsylvania 6,877,987 2,525,182 -63

Rhode Island 18,053 0 -100

South Carolina 6,169,507 415,006 -93

South Dakota 41,240 30,962 -25

Tennessee 5,676,201 1,224,962 -78

Texas 46,695,311 8,049,784 -83

Utah 4,665,982 277,430 -94

Vermont 126,810 0 -100

Virginia 11,874,030 3,557,241 -70

Washington 806,496 746,827 -7 

West Virginia 1,120,757 487,604 -56

Wisconsin 3,567,932 227,232 -94

Wyoming 1,477,087 858,543 -42

Source: GAO analysis of CMS data. | GAO-14-580

Notes: The markets include large group, small group, and individual. Under PPACA, a small employer 

is defined as having from 1 to 100 employees and a large employer is defined as having 101 or more 

employees. However, in 2012 states had the option of continuing to define small and large employers 

with definitions established in federal law prior to PPACA (small group as having a maximum of 50 

and large group as having 51 or more employees). Starting in 2016, states must define small and 

large employers under the PPACA definition. See Pub. L. No. 111-148, §1304(b), 124 Stat. 172 

(codified at 42 U.S.C. § 18024(b)); 45 C.F.R. § 158.103 (2013). The individual market includes plans 

sold by insurers directly to individuals. Insurers operating in the insular areas of American Samoa, 

Guam, Northern Mariana Islands, Puerto Rico, and United States Virgin Islands were also subject to 

the PPACA medical loss ratio requirements.
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 41 GAO-14-580 Medical Loss Ratio Requirements

John E. Dicken, (202) 512-7114 or DickenJ@gao.gov

In addition to the contact named above, Gerardine Brennan, Assistant 

Director; George Bogart; Romonda McKinney Bumpus; Pamela Dooley; 

Julianne Flowers; and Laurie Pachter made key contributions to this 

report.

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(291164)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO’s commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO’s website (http://www.gao.gov). Each weekday 

afternoon, GAO posts on its website newly released reports, testimony, 

and correspondence. To have GAO e-mail you a list of newly posted 

products, go to http://www.gao.gov and select “E-mail Updates.”

The price of each GAO publication reflects GAO’s actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO’s website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TDD (202) 512-2537.

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information.

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact:

Website: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548

Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548

GAO’s Mission

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Phone

Connect with GAO

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Congressional 

Relations

Public Affairs

Please Print on Recycled Paper.