Medical Loss Ratio (MLR)

Cost ratio of total benefits used compared to revenues received. Usually referred to by a ratio, such as 0.96–which means that 96% of premiums were spent on purchasing medical services. The goal is to keep this ratio below 1.00–preferably in the 0.80 range, since the MCO’s or insurance company’s profit comes from premiums. Currently, successful HMOs do have MLRs in the 0.70-0.80 range.  The ratio between the cost to deliver medical care and the amount of money that was taken in by a plan. Insurance companies often have a medical loss ratio of 96 percent or more: tightly managed HMOs may have medical loss ratios of 75 percent to 85 percent, although the overhead (or administrative cost ratio) is concomitantly higher. See also Loss Ratio and Incurred Claims Loss Ratio.