Understanding the 

Medical Loss Ratio (MLR)

Tim McNeill, RN, MPH
Agenda 

1. What is the MLR

2. Who does the MLR apply to

3. How to analyze MLR reports

4. How to use MLR data in contracting
What is the Medical Loss Ratio

3 

• The Affordable Care Act (ACA) requires health 

insurance issuers to submit data on the proportion of 

revenues spent on clinical services and quality 

improvement activities

• This ratio Health Insurance Plan income as compared 

to expenses is the Medical Loss Ratio

• ACA requires health plans to issue rebates to enrollees 

if they do not meet the minimum MLR standard

– 80% or 85% depending on the size and type of plan
Who does the MLR apply to?

4 

• All Commercial Health Insurance plans

• Medicare Advantage Plans

– MLR Requirement 85% regardless of size

• Medicare Part D Plans

– MLR Requirement 85% regardless of size
What is a MA Plan?

5 

• Medicare Advantage

• Sometimes called “Part C” or “MA Plans”

• Medicare Advantage plans are required to cover all 

Medicare Part A and Part B benefits

• When a beneficiary elects Medicare Part C (Medicare 

Advantage) they have elected to have their Part A and 

Part B benefits managed by a Private Health Insurance 

plan that is approved by CMS to operate a Medicare 

Advantage Plan
Key Concept

6 

• Four Parts of Medicare

– Part A

• Inpatient hospital, SNF, Home Health, Hospice

– Part B

• Doctor services, office visits, emergency care, ambulance 

services

– Part C

• Medicare Advantage

– Part D

• Prescription Benefit
Medicare Advantage Enrollment

7 

• Kaiser Family Foundation Report (Jan, 2015)

• In 2014, the majority of the 54 million people on 

Medicare are in the traditional Medicare program

• 30% are enrolled in a Medicare Advantage Plan

– There has been consistent growth in the number of Medicare 

Advantage enrollees over time

– Enrollment in Medicare Advantage varies by State and 

Markets within a State
MA Plan Enrollment Map

8 
Determining MA Enrollment in your 

area

9 

• Administration for Community Living, Center for 

Disability and Aging Policy (CDAP) has two tip 

sheets to assist programs with determining the number 

of Original Medicare and Medicare Advantage 

enrollees in each County and some Territories in the 

U.S.

– Medicare Advantage Penetration Analysis Tip Sheet

• http://www.acl.gov/Programs/CDAP/BusinessAcumen/docs/MA_Penetratio

n_Analysis_Tip_Sheet_Final.pdf 

– Medicare Advantage Plan Enrollment –Top Five Plans

• http://www.acl.gov/Programs/CDAP/BusinessAcumen/docs/MA_Plan_Enro

llment_Analysis_Tip_Sheet_Final.pdf 
Medicare Advantage Payments

10

• Medicare pays Medicare Advantage plans a capitated 

(per enrollee) amount to provide all Part A and Part B 

benefits.

• Medicare makes a separate payment to plans for 

providing prescription drug benefits under Medicare 

Part D.

• Under the BBA of 1997 Medicare pays 95% of 

average traditional Medicare costs in each county
Part C Health Plan Premiums

11

• Medicare Advantage plans received a risk-adjusted 

capitated payment amount

• Each Medicare Advantage plan must manage their 

“Risk” and cover the cost of all Medicare Part A and 

Part B benefits required by their enrollees with the 

premium payments collected
Hierarchical Condition Category 

(HCC) Methodology

12

• CMS-HCC model includes both diseases and 

demographic factors

• Clinical diagnostic information must be gathered and 

submitted electronically to the MA plan in order for 

them to submit the data to CMS to obtain the 

appropriate risk adjustment

• Failure to properly document services and the need for 

additional services results in the plan and the provider 

obtaining less than they are owed
Medical Loss Ratio (MLR)

• The Affordable Care Act requires all health 

insurance plans to submit data on their revenue 

and expenses

– Applies to all commercial insurance plans

– Beginning January 1, 2014, applies to all Medicare 

Advantage (Part C) and Part D plans 
MLR Calculation

• MLR Equation Numerator: includes all health 

care paid claims along with any quality 

improvement activity (QIA).

 Claims + QIA 

Premium – Allowable Deductions = MLR
Quality Improvement Activities

• Can be included in the MLR Numerator 

calculation

• Must stand up to audit

• Designed to improve health quality

• Designed to increase the likelihood of desired 

health outcomes in ways that can be objectively 

measured and can produce verifiable results
Quality Improvement Activities 

Defined

• Medication Therapy Management

• Improve health outcomes, including 

– increase likelihood of desired outcomes vs. baseline

– reduce health disparities in specified populations

• Prevent hospital readmissions

• Improve patient safety

– reduce medical errors 

– lower infection and mortality rates

• Increase wellness and promote health activities

• Enhance use of health care data to improve quality, 

transparency, and outcomes
MLR Requirements

• Commercial Plans (began January 1, 2011)

– 80% for individual and small group plans* 

– 85% for the large group market

* ACA defines small group plan as having 1 – 100 

average total number of employees (ATNE). 

• Medicare Advantage (began January 1, 2014)

– 85% for all MA plans 

• Medicare Part D (began January 1, 2014)

– 85% for all Part D plans 
Penalties for MLR Non-Compliance

• Commercial Plans 

– Must submit a pro-rated rebate to all enrollees in the 

amount equal to the difference between actual MLR 

and the required MLR per statute. 

• MA’s and Part D Plans

– Starting with the 1st year of non-compliance: 

o Must send the rebate to CMS

– Non-compliant for three (3) consecutive years:

oProhibition of new enrollments

– Non-compliant for five (5) consecutive years

oTermination of CMS contract
Medical Loss Ratio Tip Sheet

• ACL, Center for Integrated Programs (CIP) has a 

detailed tip sheet explaining the MLR program 

available at the following link:

– Medical Loss Ratio tip sheet

(http://www.acl.gov/Programs/CDAP/BusinessAcu

men/docs/Medical_Loss_Ratio_Tip_Sheet_Final.pd

f) 
Medicare Advantage Prevention and 

Health Improvement Incentives

20

• CY2015 Final Rule expands rewards and incentive 

program that focus on encouraging participation in 

activities that improve health, efficient use of health care 

resources and prevent injuries and/or illness

• Allows MA plans to pay a reward to participants as an 

incentive to participate in defined preventive health 

programs
MA Plan Rewards and Incentive 

Program example

21

• MA Plan identified all of their members with a 

diagnosis of diabetes

– Notifies those beneficiaries that if they participate and 

complete a diabetes self-management training program, 

provided by a DSMT program in the MA network 

– MA plan authorized to pay $75 to each member that 

completes the DSMT class

– MA plan still obligated to pay the network DSMT provider for 

providing the class, based on contracted rate

– Incentive increases participation in EB-DSMT program
Prevention and Wellness Activities

22

• Prevention and Wellness activities benefits for a 

MA plan

– Expenses apply to the MLR

– Preventive health activities reduce the likelihood of high-cost 

disease complications that increase the MLR above the 85% 

threshold 

– Unpredictable disease complications can dramatically raise the 

MLR amount far above allowable limits

– Plans with high MLR have reduced profitability

• Ex. MA plan with a 91% MLR increased premiums for 

2015 by 40% resulting in member dis-satisfaction and 

member disenrollment
Where Do I Find MLR Data?

23

• The Centers for Medicare & Medicaid Services – CMS

– The Center For Consumer Information & Insurance Oversight

– http://www.cms.gov/apps/mlr/mlr-search.aspx

• Insurers must report each year showing how much money was spent on health 

care and activities to improve care in the past year

• Reports are due by June 1 of the following year

– June 1 2015 was the deadline for reporting all expenses for Performance 

Year (PY) 2014

• Reporting is done by State and for markets within a State

– If a Plan operates in multiple States, you will have to look up their 

performance specific to that particular State
MLR Search Tool Site

24

• http://www.cms.gov/apps/mlr/mlr-search.aspx
Select a Reporting Year/State

25

http://www.cms.gov/apps/mlr/mlr-search.aspx - /?state=MD&reporting_year=2013
Open the relevant file

26
Select the State File

27

• If Applicable, select the State within the Zip file that 

you would like to reference

• file://localhost/Users/timmcneill/Desktop/MLR2013_CareFirst_BlueChoice/MLR_Tem

plate_MarylandBC2013_Values.xls
Locked Excel File

28

• Upon Selection of the relevant file, you will open a 

locked Excel File
DC vs MD for the Same Insurer

29

– Maryland 

• file://localhost/Users/timmcneill/Desktop/MLR2013_Care

First_BlueChoice/MLR_Template_MarylandBC2013_Val

ues.xls

– District of Columbia

• file://localhost/Users/timmcneill/Desktop/MLR2013_Care

First_BlueChoice/MLR_Template_District_of_ColumbiaB

C2013_Values.xls
MA Plan Opportunity

30

• Providers that can support the following items bring 

value to a MA plan

– Increase accuracy of HCC risk adjustment data

– Increase access and utilization of prevention and wellness 

activities

– Apply the cost of care of wellness and prevention activities to 

the MLR

– Provide initiatives that reduce cost of care, such as 

readmission reduction programs, and electronically document 

and transmit the data to the health plan for a risk adjustment
Questions 

• Tim McNeill, RN, MPH

• ACL/AoA Consultant

– Phone: (202) 344-5465

– E-mail: tmcneill@me.com