How to Calculate Medical Loss Ratio

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Medical loss ratio is the ratio of the value of medical services provided to the amount of the premiums paid to a health insurance company. This ratio shows how much of every dollar spent goes to benefit the person with insurance. Subtracting the medical loss ratio from one shows how much money per dollar spent goes toward the company's profits and to paying administrative fees. People can use medical loss ratio on a case-by-case basis or apply it to all of the insurance company's customers. Some health insurers claim medical loss ratios of anywhere between 74 percent and 96 percent.

Determine the premiums paid for a period. This information is usually found in a health insurance company's financial statement. For individuals, this is how much a person pays for his premium each year. For example, a person pays $1,000 a year for health insurance.

Determine the amount of money spent on medical procedures or actual medical help. In the example, during the year, a person needed $870 worth of medical treatment.

Divide the amount of money spent for medical procedures and treatment by the total amount spent on premiums to determine medical loss ratio. In the example, $870 divided by $1,000, equals 87 percent, or 87 cents per dollar.

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About the Author

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.

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  • medical tool image by Bartlomiej Nowak from Fotolia.com