Under the medical loss ratio or “MLR” provisions of the Patient Protection and Affordable Care Act of 2010 (“PPACA”), health insurance insurers who spend more than a specified percentage of premium dollars on categories of spending other than clinical services and activities designed to improve the quality of health care are required to rebate a portion of the premiums to enrollees. The medical loss ratio is 80% in the small group market and 85% in the large group market. This requirement first applied to insurers in 2011 and, to the extent rebates are required, will be paid in August 2012.

MLR rebates are potentially significant. A study by The Commonwealth Fund released in April 2012 found that if the MLR rules had been in effect in 2010, insurers would have issued an estimated $2 billion in rebates, about half of which was attributable to the group market.