The MLR is a comparison of how much of your premium goes towards paying medical claims compared to how much the insurer pays for administrative costs and keeps as profits.  For example, an 82% MLR would mean that 82% of the total premiums paid by policyholders was going towards paying claims, and the other 18% was kept by the insurer for administrative expenses and profits.

The MLR is important because it is used as a measure of the reasonableness of premiums.  Under New York’s prior approval law, insurer’s requested premium increase must meet a minimum MLR of 82%*.  (The MLR is not the only factor the Department looks at determine whether a proposed premium is reasonable.)

The MLR is also important because if, at the end of the year, the MLR is below the minimum (i.e. the premium was excessive), the Department has the authority to order corrective action, including refunds to policyholders.

* The minimum MLR for Medicare Supplement (Medigap) insurance differs. Commercial for-profit insurers must meet a minimum MLR of 75% for Group insurance and 65% for Individual insurance. Not-for-profit insurers must meet a minimum MLR of 80% for Group and Individual insurance.