A loss ratio tells you part of the renewal story, and hides the rest.
Loss ratio compares claims to premium, and carriers use it at renewal. But how much it matters depends on your group size and funding type. Here is what it measures, what it leaves out and how we use it in a renewal review.
What loss ratio measures and what it misses
The Formula
Incurred claims divided by premium. Run your own numbers in our loss ratio calculator.
Small Groups Are Often Community Rated
Small groups are generally rated on community factors, so your own claims may not drive the renewal.
Experience Rating and Credibility
Larger groups are rated on their own claims, weighted by how much credibility the carrier gives that experience.
Pooling and Large Claims
Carriers often cap the effect of a single large claim, and the pooling level changes the picture.
Incurred but Not Reported Claims
Claims that have happened but are not yet paid can make a mid-year loss ratio look better than it is.
Level-Funded and Self-Funded Plans
With these plans, claims experience feeds directly into cost, so loss ratio and stop-loss terms matter more.
Medical loss ratio rebates are a separate rule
What the Rule Requires
Under the ACA, insurers must spend a minimum share of premium on care and quality or pay rebates.
Thresholds
The minimum is 80 percent for individual and small group coverage and 85 percent for large group coverage.
What Employers Do With a Rebate
Rebates raise plan-asset and notice questions that depend on who paid the premium.
Loss ratio questions from Michigan employers
What is a loss ratio?
It is incurred claims divided by premium over a period. A ratio of 80 percent means claims were 80 cents for every premium dollar.
Does our loss ratio set our renewal?
It depends. Small groups are generally community rated. Larger groups are experience rated, with the carrier weighting your claims by credibility.
What is a good loss ratio?
There is no single number. Carriers look at the ratio alongside group size, trend, pooling and their own targets.
What is a medical loss ratio rebate?
It is a refund an insurer owes when it spends less than the ACA minimum share of premium on claims and quality. The minimum is 80 percent for small group and 85 percent for large group.
Does loss ratio matter on a level-funded plan?
Yes. Claims experience feeds directly into cost, so we review claims, stop-loss terms and funding together.
What do you need to review our loss ratio?
Send the renewal and any claims or experience reports from your carrier. You can send them through our renewal page.
Ready? Send us your renewal, or talk it through with someone first. General information, not legal or tax advice.
Where these details come from.
CMS: Medical Loss Ratio: Federal MLR rule and rebate guidance.
KFF: Medical Loss Ratio: Background on the 80 and 85 percent thresholds.
U.S. DOL: MLR rebates: Treatment of rebates by plan sponsors.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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