Arizona Health Insurance Practice Exam

What does the medical loss ratio aim to ensure in health insurance plans?

1. Lower premiums for consumers

2. A minimum percentage of premium dollars spent on care

3. Maximum profits for insurers

4. Higher out-of-pocket costs for consumers

The correct answer is: A minimum percentage of premium dollars spent on care

The medical loss ratio is a key provision of the Affordable Care Act (ACA) that mandates health insurance companies to spend a certain percentage of premium dollars on medical care and services rather than on administrative costs or profits. This percentage is typically set at 80% for individual and small group plans and 85% for large group plans. By requiring insurers to allocate a minimum portion of premium income towards actual healthcare services rather than overhead expenses or profit margin, the medical loss ratio helps ensure that consumers receive value for their premiums. This provision is designed to create a balance in the insurance market by discouraging excessive administrative spending and ensuring that a significant portion of premium dollars directly supports the health needs of policyholders. This focus on healthcare spending is aimed at improving care access and quality while controlling costs, benefiting consumers and ultimately the healthcare system as a whole.