Medical Loss Ratio (MLR) is the percent of premiums an insurance company spends on claims and expenses that improve health care quality.

Healthcare-Questions_300x108Under the ACA, insurance companies must spend at least 80% (85% for large group insurers) of premium dollars on medical care rather than administrative costs.

Insurers who do not meet this ratio are required to provide rebates to their policyholders.

Insurance carriers have a specific formula to calculate MLR part of which is “average total number of employees” (ATNE). For MLR purposes, ATNE is the number of full-time, part-time and seasonal employees who were issued a W-2 for a given calendar year.

Insurers will reach out annually to employers with fewer than 50 employees to collect this information, calculate their MLR, and determine if a rebate is necessary.

If an insurer determines a rebate is necessary, they are required to send a letter to employees covered under the plan advising them of the rebate.

The employer receiving the rebate must communicate their rebate allocation intentions to employees.

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