[1] For example, if an insurance company pays $60 in claims for every $100 in collected premiums, then its loss ratio is 60% with a profit ratio/gross margin of 40% or $40.
Some portion of those 40 dollars must pay all operating costs (things such as overhead and payroll), and what is left is the net profit.
Conversely, insurers that consistently experience high loss ratios may be in bad financial health.
[5] In an amendment written by Senator Al Franken, the Patient Protection and Affordable Care Act of 2010 now mandates minimum MLRs of 85% for the large group market and 80% for the individual and small group markets.
[6] Insurers that do not spend 80–85% of their premiums in health care costs must now issue rebates to consumers.