You pay your premiums. Your employees pay theirs. And somehow, every year, those costs go up while your benefits seem to shrink like a cheap cotton t-shirt in the dryer. What gives?
If you’ve ever wondered why healthcare keeps getting more expensive while delivering less, let me introduce you to the hidden villain of the health insurance world: the Medical Loss Ratio (MLR). Never heard of it?
It’s a little-known rule buried in the Affordable Care Act that, on the surface, looks like a win for consumers. But in reality, it’s the reason why insurers keep raising prices.
Let’s break it down so you can finally understand how to play the benefits game and stack the deck in your favor.
What Is the Medical Loss Ratio?
The Medical Loss Ratio (MLR) is supposed to make sure that insurance companies spend most of your premium dollars on actual medical care. The law says insurers must use at least 80% of the money they collect (85% for larger employer plans) on healthcare services and quality improvements.1
That means they can only keep 15-20% for things like administrative costs, marketing, and—oh yeah—executive bonuses and profits.
Sounds fair, right? As part of the Affordable Care Act (ACA), the MLR was supposed to revolutionize the American healthcare system and control costs. So what happened?
The ACA: What Went Wrong?
When the Affordable Care Act (ACA) passed in 2010, it was sold as a fix to a broken healthcare system. You probably remember the promises—lower premiums, better access, no more denial of coverage for pre-existing conditions. It was supposed to be the beginning of a new era where you, your employees, and millions of Americans could finally afford reliable healthcare without drowning in red tape or hidden costs.
One of the ways it was supposed to do that was with the MLR limits. It sounded good: Instead of letting greedy insurance companies keep most of the money they bring in, there would be a limit on how much they could profit. But as with many things, there were unintended consequences.
At first glance, the MLR looks like a protection against greedy insurance companies pocketing too much of your money. But here’s the catch: it actually rewards them for making healthcare more expensive.
Think about it like this:
- If an insurance company collects $1,000 in premiums per person per month, they can only keep $200 (because 80% has to go toward care).
- But if they increase premiums to $1,500 per person, they now get to keep $300—even though the ratio stays the same.
Instead of cutting costs and delivering better value, insurers win when healthcare gets more expensive.
Imagine you got paid a percentage of your bar tab for the night, instead of having to shell out for your drinks—would you start spending less? Not likely. You’d be ordering top-shelf whiskey all night because for every $35 drink, you get paid $7, while for the cheap $5 drink you only get $1. That’s exactly what insurers are doing with your premiums–increasing prices to make their 20% cut even larger. Only you’re the one with the benefits hangover.
What This Means for You
If You’re a Business Owner:
Every year, you’re faced with two terrible options:
- Pay more for the same (or worse) coverage.
- Downgrade your plan and hope your employees don’t revolt or bolt for the competition.
Insurers tell you the rising costs are due to “market trends” and “medical inflation,” but now you know the truth: insurers don’t actually want lower costs because that would mean smaller profits.
If You’re an Employee:
Your paycheck is shrinking because premiums, deductibles, and out-of-pocket costs keep climbing. Meanwhile, every time you try to use your insurance, it feels like you’re navigating a booby-trapped jungle with a broken compass.
And yet, despite spending thousands of dollars a year, you still have to fight tooth and nail to get basic care covered. Insurers make money when premium costs go up and, not when you get healthier or receive care.
MLR Is the Floor, Not the Ceiling (And That’s a Problem)
One of the biggest myths about the MLR is that it protects you from high costs. However, it only says that a minimum amount must go toward care—not that insurers have to charge reasonable rates or spend wisely. The system isn’t designed to be efficient—it’s designed to be profitable.
To go back to our bar analogy, if there was a BLR (Bar Loss Ratio) it would tell the bar owner that the most they can profit off your drink is 20%. Is that bar going to sell $5 happy hour drink specials where they can only keep $1, or are they going to push the whiskey that’s older than your grandparents and sells for $100 a glass? Let’s see: they keep $1 or $20 per drink—not a hard choice.
If they are guaranteed to sell about the same number of drinks, of course they will sell the expensive ones, even if their costs to fill your glass are slightly higher.
How to Fight Back
The good news? You’re not powerless. You don’t have to sit idly by and keep paying inflated rates. Here’s how to start turning the tables:
1. Stop Trusting Insurance Companies to Look Out for You
They’re not your friends. They’re not “partners in health.” They’re businesses whose entire goal is to maximize profit. The sooner you accept that, the better decisions you’ll make.
2. Work with Independent Benefits Advisors
Most brokers push whatever big insurance companies tell them to sell. Instead, work with an independent advisor who actually works for you, not the insurers. They can help you build custom employee benefits packages that make sense for your business—not just for an insurance company’s bottom line.
3. Analyze How Your Plan Is Being Used
- Are your employees actually using the benefits you’re paying for?
- Are they running into obstacles that make them avoid care?
- Are they getting stuck with surprise bills because they don’t understand the fine print?
The more you understand what’s working (and what’s not), the better you can design a plan that actually benefits your people—not just the insurance company.
4. Educate Your Employees (Because Insurers Won’t Do It for You)
The less people understand their coverage, the more money insurers make. Make sure your employees know how to use their healthcare employee benefits efficiently so they don’t rack up unnecessary costs (which ultimately get passed back to you in the form of higher premiums).
Outsmarting the System
The Medical Loss Ratio was supposed to keep insurers in check. Unfortunately, it became another way for them to justify endless price hikes.
To make the most of your healthcare benefits, you have to get smarter about how you approach them. That means:
- Ditching the traditional insurance playbook
- Working with independent advisors
- Tracking your plan’s performance
- Designing benefits around your team’s actual needs
You can’t control the insurance industry. But you can outmaneuver it. And when you do, you’ll finally stop feeling like you’re paying more and getting less.
Ready to break free from bloated, overpriced health plans? The Benefit Doctor can help you build smarter strategies that put you back in control. Let’s talk.
1https://www.cms.gov/marketplace/private-health-insurance/medical-loss-ratio