New laws are being proposed across the nation that deal with “medical loss ratios” in dental insurance. A medical loss ratio, otherwise known as MLR, is the minimum percentage of total premiums (from a dental plan’s pool of enrollees) that is spent on patient care or clinical quality improvements. The remainder of premiums may be spent on overhead expenses such as:
The Affordable Care Act (ACA, otherwise known as Obamacare) required commercial insurance plans to spend between 80 percent and 85 percent of their collected premiums on medical care for enrollees (depending on the size of the health plan). Self-funded plans, common in the large group health insurance market, were exempted from the MLR rule. While well-intended, an inadvertent effect of the MLR spending rule is that it created a situation where insurance companies were incentivized to grow total costs in order to increase their revenue.
There is some evidence that the MLR may have contributed to insurance premium increases. Between 2013 and 2019, average health insurance premiums increased by 129 percent. The Heritage Foundation observed, "the national average monthly premium paid in the individual market in 2013 was $244, while by 2019 it was $558—more than doubling (a 129 percent increase) from 2013 to 2019. In contrast, over the same period, the average monthly premium paid in the large-group employer market increased by only 29 percent—from $363 in 2013 to $468 in 2019. (For comparison purposes, we applied the same analysis to the MLR data for the large-group employer market). The large-group employer market is not subject to most of Obamacare’s new insurance regulations. It is also more stable than the individual market, with less customer turnover and less change over time to the risk pool."
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The degree to which the MLR rule increased health insurance costs is unclear, but it is clear it failed to reduce the cost of health insurance for Americans. A paper in the American Economic Journal: Applied Economics stated, “The Affordable Care Act introduced minimum MLR provisions for all health insurance sold in fully insured commercial markets, thereby capping insurer profit margins, but not levels. While intended to reduce premiums, we show this rule creates incentives to increase costs. Using variation created by the rule's introduction as a natural experiment, we find medical claims rose nearly one-for-one with distance below the regulatory threshold: 7 percent in the individual market and 2 percent in the group market. Premiums were unaffected.”
The idea of a medical loss ratio minimum for dental plans (often called a dental loss ratio) has been proposed in several states. In 2024, the American Dental Association reported that nine state dental societies introduced legislation for dental loss ratios. These states were:
States that proposed dental loss ratio bills previous to 2024 included Arizona, Colorado, Nevada, and New Mexico. Massachusetts was among the first states in the nation to pass a dental loss ratio bill.
Given the failure of the ACA’s medical loss ratio to rein in health insurance premiums and the resulting increases in premiums despite the MLR rules, some consumers and industry pundits are concerned that dental loss ratios have ignored the lessons learned from the ACA.
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