Medical Loss Ratio in Managed Care and Audited Financial Statements

What is Medical Loss Ratio? Medical loss ratio (MLR) is a formula standard enacted by the Affordable Care Act of 2010. It measures the proportion of a managed care organization's (MCO) spending on medical and related benefits compared to revenue. It is to ensure that MCOs are spending enough of their premium revenue on medical expenses such as clinical care and other high-impact initiatives that support quality healthcare improvements. The HealthChoice required spending threshold percentage is 85%.

If an MCO does not meet the required 85% spending threshold on medical care and efforts to improve the quality of care, the Maryland Department of Health will access them a penalty. See MCO MLR Reports on this page for more information.

Activities That Improve Health Care Quality

  1. Clinical care
  2. Quality improvements - ​According to the Code of Federal Regulations (CFR) 45 CFR § 158.150​, quality improvement activities must:
    • ​​Improve health outcomes including increasing the likelihood of desired outcomes compared to a baseline and reduce health disparities among specified populations.
    • Prevent hospital readmissions through a comprehensive program for hospital discharge.
    • Improve patient safety, reduce medical errors, and lower infection and mortality rates.
    • Implement, promote, and increase wellness and health activities.