The Medical Loss Ratio is the percentage of total premium revenue that an insurance company spends on medical care (and a few other minor things) for its members. PPACA requires a large group insurance premium pools to have an MLR of 85% and small group or individual premium pools to have an 80% MLR. The difference is because there are significant scale differences. For instance, the things that I do are required for both small and large groups but take the same amount of time, so my costs can be spread over 5,000 people or fifteen.
Most people in most years will never come close to costing the insurance company the full individual medical loss ratio slice. That is typical because insurance is a guaranteed small loss to avoid a possible large loss. Most people are reasonably healthy in most years or have frequent but cheap contact with the medical system in the form of PCP visits, physical therapy, perhaps a broken bone that needs nothing more than a cast or a single incident of kidney stones.
With the exception of the years when the Kids were born, my family has never had a personal medical loss ratio above 35%. And that is a good thing. That means we’ve been relatively healthy and what ailments have been minor, transitory and acute.