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, 2028, must have a medical loss ratio of at least 90 percent. The Insurance Commissioner may adopt rules necessary to implement this requirement.
The Insurance Commissioner may require health carriers to submit information regarding a carrier's calculation of the medical loss ratio as part of a carrier's health plan rate filings for plan years beginning on or after January 1, 2027. This information may include: (1) a carrier's reimbursement or payments to a carrier's owned or affiliated health care providers or facilities, health care benefit managers, or other entities; (2) a carrier's use of nonclaims-based payments; and (3) a carrier's payments for quality improvement, risk mitigation, and other incentive-based activities.
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.
The substitute bill:
(In support) The Patient Premium Value Act requires at least 90 percent of health insurance premiums to go to actual direct patient medical care and not to excessive administrative costs or profits. This bill is especially important right now. Federal program changes and market adjustments over the last several years have caused health premium rates to skyrocket. Rates will continue to increase unless we take swift measures to address it. Washington families face rising costs in every other category of spending and when health insurance premiums spike, families are forced to delay care.
The medical loss ratio is a basic accountability measure. It ensures that insurers are delivering what people believe they are paying for, healthcare. This bill does not micromanage or dictate what insurers do, it simply sets a reasonable expectation that premium dollars are spent on patients, not on paperwork.
Insurers will no doubt claim that this bill will cause premiums to rise, that the market will somehow be destabilized, and some may even threaten to leave the state. We've heard it all before. Without legislative action, health insurance premiums will certainly continue to rise, year after year, as they have done. For the 2026 small group market, rates increased an average of 30 percent more than the carriers even requested. The Office of the Insurance Commissioner (OIC) Report upon which this bill is based indicates exactly the opposite, that premiums would go down. Several of these insurers are sitting on massive, unrestricted surpluses over and above all future costs of claims.
The health care affordability crisis has become untenable. For Washingtonians who buy their own individual insurance, premium rates have more than doubled since 2013, going from $268 a month, back then on average, to $784 each month on average. Federal premium assistance is declining, and our state care savings premium assistance program is stretched. Washington needs to take a more proactive approach. It makes sense to ask insurers to tighten their belts with a stronger medical loss ratio (MLR). Massachusetts has had a higher MLR standard for over a decade successfully, and that law returned $75 million in rebates back to individuals and small businesses last year alone. This bill should go even further and support the OIC's existing authority to keep insurers from gaming the MLR formula by buying up clinics and padding their overall premiums.
Consumers pay more and more in premiums every year but receive less and less value and have far less access to necessary services due to ever-increasing cost sharing. In a time when most businesses, especially small businesses, are tightening their belts, we should expect no less of the insurance companies that continue to charge consumers exponentially more every year. Washingtonians simply cannot afford to keep paying more and more every year for health insurance, especially when too much of those premiums are going towards carrier administration and profits, rather than towards patient care.
Corporate insurers are inefficient by design and typically have a rate of administrative waste that is 15 percent higher than that of Medicare, according to a report published in Health Affairs. There are many ways the industry can circumvent these honest attempts to require better behavior through loopholes, accounting tricks, and cuts to service.
(Opposed) The OIC published a report in July 2024 on health care affordability, which noted that raising the MLR would have potentially modest healthcare cost savings. The report also noted the individual market has experienced many shocks and changes, which have produced uncertainty and made it difficult to accurately set premiums for the individual market. Increasing MLR requirements is designed to reduce the margin of error issuers have in pricing. Consequently, the combination of uncertainty in the market and higher MLR requirements may reduce the incentives for insurers to participate in the individual market. Since that report was published, instability has only intensified. Federal policy changes under H.R. 1, combined with the scheduled expiration of enhanced federal premium tax credits, are expected to increase coverage losses and worsen risk pools. Importantly, 2026 rates do not yet reflect H.R. 1 changes, meaning additional volatility is still ahead. Increasing the MLR does not address the real drivers behind rising premiums. Approximately 85 percent of Americans' premium dollars go to cover the cost of hospital-based services, prescription drugs, and physician fees.
An unintended consequence of this bill is that carriers may exit the market, which could ultimately lead to a collapse of the individual market, reducing choice, and ultimately increasing costs for consumers. These dollars support essential services and investments that directly benefit consumers. Administrative costs not included in the 90 percent MLR include things like translation services, medical interpreters, 24-7 nurse advice lines, customer service and call center operations, online provider directories, member benefit programs such as rewards cards that encourage vaccinations, annual wellness exams, preventive screenings, whole-person care benefits like medically tailored meals and food boxes, and technology investments, like the electronic prior authorization tool. Raising this cap would limit a health carrier's ability to make these critical investments and ultimately reduce the value and the support available to consumers.
Medical loss ratio is an accounting measure, not a quality or access standard. A strict 90 percent floor leaves less flexibility to invest in these services, potentially making the patient experience worse, not better. A rigid MLR leaves less room to absorb unexpected changes in utilization or medical costs, increasing the likelihood of a sharper year-to-year premium swings or carriers exiting certain markets altogether.
(Other) The Affordable Care Act created the MLR to give consumers and employers more value for the premiums that they pay, so that a bigger percentage of the premium goes to pay for the healthcare services that an individual needs. However, there has been a fair amount of recent research that has showed that insurers are able to manipulate the MLR formula so that the insurer can meet an MLR standard. Probably the clearest example of this is when health insurers vertically integrate to acquire their own provider groups. There has been research indicating that those insurers can pay a higher rate to the provider groups that they own and thereby put money into the numerator of the MLR calculation making it easier for the insurer to meet that standard.
There is work on an amendment to try to strengthen the Insurance Commissioner's ability to really dig into what is happening and what the carriers' practices are with respect to their MLR calculations. The Affordable Care Act allows states to set a higher MLR standard, but there is some uncertainty about how much authority there is for state to modify the MLR formula and what the consequences would be in terms of whether the federal government would continue to administer the MLR or whether the state would need to do that ourselves.
(In support) Representative Alicia Rule, prime sponsor; Patrick Connor, NFIB; Emily Brice, Northwest Health Law Advocates; Sean Graham, Washington State Medical Association; Lois Cook, America's Phone Guys; Jim Freeburg, Patient Coalition of Washington; Steven Field; and Andre Stackhouse, Whole Washington.