Variation and Trends in Medigap Premiums. Medical Loss Ratios


Medical Loss Ratios (MLRs) are one measure used to gauge the performance of insurance markets. High ratios mean that a large share of premium revenues is paid out for medical care services provided to enrollees. On the other hand, low ratios can mean either very large administrative costs or high profit rates. Under the Affordable Care Act, issuers offering comprehensive major medical coverage in the large group market must attain a minimum MLR of 85 percent, while issuers offering coverage in the small group and individual markets must attain a minimum MLR of 80 percent.22

Under current law, Medigap insurers are required to meet a MLR of 0.65 in the individual market and 0.75 in the group market.23 As displayed on Figure 9, the estimated average enrollment‐weighted medical loss ratio (defined here as incurred claims over earned premiums) has remained between 0.76 and 0.85 from 2001 to 2010. The average Medigap MLR for individual policies over the 2001 to 2010 period was 0.80 while the average for group policies has been 0.83. In 2010, about 5.1 million Medicare beneficiaries were enrolled in Medigap policies with an MLR of less than 0.80.24 Appendix D provides the average enrollment‐weighted MLR by state for 2007‐2010.

Figure 9:
Trend in Enrollment-Weighted Medigap Medical Loss Ratios, 2001-2010

Figure 9: Trend in Enrollment‐Weighted Medigap Medical Loss Ratios, 2001‐2010

Notes: In this context, medical loss ratio refers to incurred claims over earned premiums.small>

Source: ASPE analysis of 2001‐2010 NAIC Medicare Supplement Insurance Experience Exhibit datasmall>

22 The Affordable Care Act’s minimum MLR standard measures the proportion of premium dollars that issuers spend on clinical services and activities that improve quality.

23 O’Sullivan J. “Medicare: Supplementary ’Medigap’ Coverage.” 2007.

24 ASPE analysis of NAIC data. This estimate excludes plans with fewer than 30 enrollees, plans with nonpositive premium revenue, and plans in US Territories in 2010.

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