Historical and projected loss ratio. The loss ratio is the relationship between the claims paid by the insurance company and the premiums received. In 2015, companies in Oregon had loss ratios between 78 percent and 143 percent for health insurance. These ratios vary based on the type and mix of products offered in 2015. Insurance companies seek loss ratios below 100 percent because the company will always incur some administrative costs.
This ratio means that for every dollar in premium, the company pays out 78 cents to $1.43 in medical claims. Most companies reported an underwriting loss in 2015, meaning they paid out more in medical claims and administrative costs then they received in premium. Most of these losses were in the individual market.
Under the Affordable Care Act, an insurance company is required to pay rebates to individual and small group policyholders when it fails to spend at least 80 percent of premiums collected on medical care and quality improvement. It must spend at least 85 percent of premiums on these activities in a state’s large group market or pay a rebate.
In 2014, about 49,400 Oregonians saw rebates totaling $3.1 million. The division does not approve rates that would appear to result in rebates because it means the company expects to spend too little on medical care and too much on administration and profit.
However, insurance rates are based on projections - companies estimate how much they expect to pay in claims in the upcoming year, how much they expect to incur in administrative costs, and how much they expect to realize as profit. Because these are projections, it is possible that some companies may end up owing rebates, depending on how actual experience compares to the federal medical loss ratio threshold.