If you’re like most people, you’re probably concerned with how the recent health reform legislation will impact your business. There’s certainly a lot for business owners to think about – what decisions do I need to make, what reports will I need to file, what should I tell my employees, and how will this impact my rates? What may not be on your radar screen, though, is a requirement that goes into effect January 1, 2011.

Starting next year, insurance companies must maintain a minimum Medical Loss Ratio (MLR) of 80% for individual and small group plans (100 employees or less) and 85% for large group plans or they will have to issue a refund to their policyholders. In simple terms, the MLR is the amount insurance companies pay for medical expenses – things that improve the health of the patient. Basically, that is 80-85 cents out of each dollar you pay in premium.

While on the surface this seems fair – after all, you’re paying premiums to make sure your employees are taken care of when they need medical attention; certainly it makes sense that most of your premium dollars should go to pay for these expenses, and 80‐85% seems like a reasonable amount.

What’s not so clear, though, is what should be counted as a medical expense. For instance, if an insurance company provides wellness benefits or a disease management program, is that considered a medical expense, or does it fall into the 15‐20% that is allowed for administrative costs? It’s not an easy question, but the answer may determine what sort of benefits insurance companies continue to offer to their members.

Another major concern is how the MLR will affect insurance agents and brokers. As you know, your agent is your advocate. He or she surveys the market and presents you with a wide range of health insurance option; consults with you and makes plan recommendations; assists with the enrollment process; and provides support and customer service throughout the plan year. Agents are paid by the insurance company for the services they provide – sometimes a set dollar amount, often a percentage of the total premium. They are an important part of the process – are you going to stop what you are doing to learn all about insurance, create analysis tools, learn the latest plans and make a decision on your own? No – you need someone who deals with it every day.

The National Association of Insurance Commissioners has been charged with defining what is and what is not included in the MLR. Their deadline is December 31, 2010.