How to Control MLR

One of the most frequent challenges for business owners is learning how to control costs. Generally, the biggest cost in business often stems from labor alone. Labor includes pay, but it also includes benefits. Learning how to minimize these large costs may seem like a daunting task, especially if you don’t know where to begin. When it comes to benefits, you want your employees to have adequate benefit offerings. This includes providing healthcare options that are priced reasonably. Your employees also want options that are optimal for their family. When choosing a health insurance plan for your organization, pay attention to the reporting of MLR by insurance companies and know what it means as well as what you can do to control MLR.


What is MLR?

To ensure employee support through their health benefits plan, the Affordable Care Act requires insurance companies to report their MLR, or Medical Loss Ratio. To further explain, this amount includes what insurance companies must spend on the plan participants for their claims and to improve the value of their health plan. After that, the remainder goes towards operational expenses. To keep costs down, there’s an 80/20 rule.


What’s the 80/20 rule and how does it minimize costs?

From the number of premium payments that insurance companies receive, 80% normally goes towards the plan participants. Meanwhile, the other 20% goes towards administrative charges. Depending on the size of the business, the 80/20 rule can however, change. For example, there’s a requirement that insurance companies must spend 85% on the plan participant if the business has more than 50 employees. Ever received a rebate check? In the case where an insurance company fails to meet these requirements, their obligation is to refund a portion of the premium. Those who have individual health plans will receive the rebate directly. However, in the case where health insurance is offered through a business, the rebate will usually go directly to the employer.


How can employers’ control MLR?

The size of your company and the coverage you’re seeking will determine the employer’s portion to pay for health insurance. Insurance companies normally require employers to cover 50% of their employee premiums. When employees are living a healthier lifestyle, they’re less likely to make health insurance claims. The smaller number of claims, the lower the MLR is. To ensure a healthier lifestyle and lower MLR, leadership can begin by taking small actions within their organization.


Prove your trust by doing the research

As an employer, you want your employees to be able to trust the decisions you make on behalf of the company. For example, this entails giving them health insurance options that are fair and affordable. Above all, be transparent with them on why you are choosing the health insurance option. Inform employees of any changes. Down the road, if there’s a better healthcare option, investigate and see if it’s worth to adjust your health insurance plan. Be open to suggestions and moreover, do the research.


Educate your employees

When going through open enrollment, deeply explain on a level that is understandable and answer any questions your employees may have. Provide any expertise on which options may be best to utilize. Your employees are going to want to know about the cost and quality, so be honest and in return, this can help boost your company culture.


Create a healthy culture

Your employees are spending a lot of time working for your business and helping it grow. While that’s important, what kind of environment are you giving your employees? Is there a healthy work-life balance or do your employees instead feel burnout? Offer healthy food in the cafeteria. Create a competition where your employees can get more steps in throughout the day. If they’re healthy in the office, they can take that home to their families to implement. Senior leadership should be the example for their employees to follow.


When should employers know when to make a change?

Employers should re-evaluate their healthcare plans often to make sure their employees are receiving the best benefits that are also cost-effective for the company.

Healthcare can be expensive. Controlling MLR begins by knowing what it means, how it can help minimize costs, and how leadership can take a step further to do their part in cost control. By taking small steps you can overcome challenges in cost and maintain and grow profitability.

For more guidance on MLR, learn how Tandem HR can help.


If you do not have an HR PARTNER, Tandem HR is happy to help.
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