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The Patient Protection and Affordable Care Act introduced medical loss ratio rules into the U.S. health care system with the underlying intent to cap profits—and subsequently costs—by requiring each carrier to have a medical loss ratio of 80 percent for most small employer and individual group policies, and 85 percent for large employer group policies.

In practical terms, MLR is a measurement of both the medical claims and activities that improve the quality of enrollee care. If carriers can show that at least 80 percent of the income they receive from premiums is used toward medical claims or activities that improve care quality, then they’ve met the MLR rule; it’s assumed the remaining 15 percent to 20 percent of premium dollars is used to pay overhead expenses, including marketing, salaries, administrative costs, commissions and profits.

That 15 percent to 20 percent seems like a fairly healthy profit margin until we compare it with the 40 percent profit margins insurance companies were pulling in before to the implementation of PPACA.

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