The Patient Protection and Affordable Care Actintroduced medical loss ratio rules into the U.S. health caresystem with the underlying intent to cap profits—and subsequentlycosts—by requiring each carrier to have a medical loss ratio of 80percent for most small employer and individual group policies, and85 percent for large employer group policies.

In practical terms, MLR is a measurement of both the medicalclaims and activities that improve the quality of enrollee care. Ifcarriers can show that at least 80 percent of the income theyreceive from premiums is used toward medical claims or activitiesthat improve care quality, then they've met the MLR rule; it'sassumed the remaining 15 percent to 20 percent of premium dollarsis used to pay overhead expenses, including marketing, salaries,administrative costs, commissions and profits.

That 15 percent to 20 percent seems like a fairly healthy profitmargin until we compare it with the 40 percent profit marginsinsurance companies were pulling in before to the implementation ofPPACA.