What is the purpose of the Medical Loss Ratio (MLR)?

The purpose of the Medical Loss Ratio (MLR) is to ensure that health insurers spend a minimum percentage of their revenue on medical care and health services rather than on administrative costs or profits. This requirement was introduced to promote efficiency and accountability in the health insurance industry, as it aims to guarantee that a significant portion of the premiums collected from policyholders is actually directed towards providing medical services.

When the MLR is applied, insurers must meet specific thresholds that dictate the percentage of premium dollars that must be invested in medical care—commonly set at 80% for individual and small group plans and 85% for large group plans. If insurers fail to meet these minimum spending requirements, they are often required to provide rebates to policyholders, thereby ensuring that consumers receive value for their healthcare expenditures. This mechanism directly addresses consumer concerns about rising healthcare costs and seeks to tighten spending on administrative overhead, thereby fostering a focus on patient care.

Therefore, the correct answer highlights the MLR's essential role in safeguarding consumers by mandating a baseline level of spending on medical needs, thereby promoting the efficient use of healthcare funds.