The federal Affordable Care Act (ACA) requires health carriers to spend a minimum amount of the health insurance premium collected on medical care or quality improvement initiatives, commonly referred to as the minimum medical loss ratio standard.  The minimum spending required on medical care and quality improvements for individual and small group (50 or fewer employees) plans is 80 percent or higher and at least 85 percent for large group plans (over 50 employees).  These medical loss ratio standards prohibit individual and small group insurers from allocating more than 20 percent of premiums collected to their profits and administrative expenses, such as staff salaries and marketing, and for large group insurers no more than 15 percent of premiums may go towards profits and administrative costs.  If administrative expenses and profits exceed these thresholds, the difference must be returned to consumers as refunds or rebates.  States are authorized to set higher minimum loss ratios, however, when establishing a higher minimum loss ratio, states must seek to ensure adequate participation by health carriers, competition in the market, and value for consumers.

Health carriers report their medical loss ratio annually to the federal Centers for Medicare and Medicaid Services using the pooled experience in the most recent three calendar years.  According to the Office of Insurance Commissioner's Affordability Report published in 2024, most health insurers in Washington are reporting a medical loss ratio near, at, or higher than 88 percent.

Fully insured individual, small group, and large group health plans issued or renewed on or after January 1, 2027, must have a medical loss ratio of at least 90 percent.  The Insurance Commissioner may adopt rules necessary to implement this requirement.

Medical loss ratio is defined as a health carrier's incurred claims plus the carrier's expenditures for activities to improve health care quality (e.g., prevent hospital readmissions, improve patient safety, reduce medical errors, promote wellness) divided by the health carriers premium revenue (excluding federal and state taxes and licensing and regulatory fees) accounting for payments or receipts related to risk adjustment, risk corridors, or reinsurance.