What does the medical loss ratio (MLR) indicate?

The medical loss ratio (MLR) is a key metric that measures the percentage of premium revenues that a health insurance provider spends on medical care and health services for its members, as opposed to non-medical costs such as marketing or administrative expenses. This ratio is important because it reflects how much of the premium income is actively being used to provide direct patient care and improve health outcomes, ensuring that resources are directed towards meeting the healthcare needs of policyholders.

A higher MLR indicates that a greater portion of the premiums collected is being utilized for medical services rather than for overhead or profit, aligning with the healthcare system's goal of prioritizing patient needs and care quality. Regulatory standards often require insurance companies to maintain a minimum MLR, ensuring they return a significant portion of premium income to healthcare services.

Understanding the MLR is critical for both consumers and regulators as it promotes transparency and accountability in health insurance spending.