Medical Loss Ratio Works in Favor of Wellness Programs

jump rope, sneakers, a towel, and weights placed on the floor
By Robert Hall, JD, MPAff

This edition of Impact magazine focuses on revenue cycle management and payment as important components of your business’s success.

As payment stagnates from Medicare and private payers, it may make sense for you to re-examine your revenue streams to determine whether they can be supplemented by other programs or products. One strategy that may provide a real opportunity for physical therapy practices is wellness programs. This is due to a new quirk in federal policy making that has recently caused wellness programs to be valued more highly by insurers and companies.

This new opportunity is closely related to the Medical Loss Ratio (MLR) law. In Section 1001 of the Affordable Care Act (ACA), Congress set forth limits on how much insurers can spend on administrative costs, marketing, and other non-health care-related costs. The provisions require that for most large employer plans, at least 85% of premiums collected by insurance companies must be spent on health care services and health care quality improvement. Individual and small employer plans must spend at least 80% of premiums on benefits and quality improvement. If they missed the 85% or 80% targets, the ACA requires that insurers send checks to their premium payers in the form of rebates. I have emphasized the term quality improvement because that term’s vagueness has led to both problems (the proliferation of utilization management) and opportunities (such as the new wellness program provision).

Rules around the MLR were initially promulgated in an attempt to keep insurers honest by forcing them to act more like public utilities. In practice, the MLR requires that every dollar spent in premiums by employers and employees have a significant portion devoted to actual medical care. The problem becomes how we define what medical care is and how far it can be stretched as we enter into new payment arrangements based on value. What really is an insurer-implemented quality improvement program? The regulations set forth a four-prong, five-category test, and if you’re really interested, the Society of Actuaries has an excellent presentation on these specifics of the MLR’s categories.1

While it’s true that the MLR was included as part of the ACA, many states had already implemented less well-defined MLR laws prior to the ACA’s passage. Notably, Minnesota required that at least 60% of premium dollars for state-regulated plans be applied to medical losses, but tiered a higher MLR percentage based on whether the plan was a large group, small group, or individual market plan.2 The assumption was that individual and small group plans could have wild swings in medical losses based on health service utilization year over year. If a plan had a small risk pool, even a few catastrophic diagnoses could wreck the MLR for that plan year. New Jersey required an MLR of 75% for group plans and a 65% MLR for individual policies. New York set theirs at 75% and West Virginia set theirs at 65%. Each of these states enforced their MLR rules through state law enforcement mechanisms.2

Under a common-sense definition of the MLR, it is clear that things like advertising and management bonuses on the behalf of the insurance company are not medical care. However, under the MLR, medical care is not singularly defined as the provision of direct patient care. Many would agree with this definition because that’s not the only thing that insurance pays for or should pay for. Even under the Medicare system every single CPT code that you bill includes a number of components that adjust the actual payment for each CPT code beyond your work, and include RVU components like malpractice costs, practice expense, and the location at which the services were provided.

Even with this complexity, the MLR had to be implemented and enforced at the federal level. Partially as a result of the new MLR provision, the Obama Administration initially created a new office within the Department of Health and Human Services. This Office of Consumer Information and Insurance Oversight was initially staffed by some of the luminaries involved in consumer protection in the DC health policy ecosphere, was eventually made into a “Center” within the purview of CMS, and also became tasked with oversight and management of the federal Exchange or Marketplace. The Office evolved into the current Center for Consumer Information and Insurance Oversight (CCIIO), which also oversees state innovation waivers, premium stabilization programs that help smooth out wide swings from year to year in premium cost for plans that list in the Exchange, and employer programs that can help make sure that specific costs can be avoided by employers based on the richness of the health insurance packages they offer to their employees.

I highlight all of this in-the-weeds government gobbledygook not because it’s interesting but because it may help to explain why we find ourselves at the point where the MLR has recently been redefined to our potential benefit. CCIIO seems to have absorbed that the MLR regulations were creating incentives that were not helpful to the actual provision of coordinated care and were unintentionally compounding administrative burden. In fact, CCIIO recently issued a new “Notice of Benefits and Payment Parameters” letter for insurers that proposed a simplification of their MLR quality improvement calculations. This new option allowed insurers to simply claim that .8% of their collected premiums were being spent on quality improvement activities. While audits could be performed to confirm this information, CCIIO based their analysis on historical insurer expenditures on quality improvement over nearly five years.

Right around the time that the ACA was passed, there was deep interest in wellness programs. One leading Harvard Business Review article argued that the ROI on well-run employee wellness programs was 6:1.3 There’s very little in health care that has an ROI this strong. But, as is often the case, there were politics surrounding these ideas. What exactly is a wellness program? While employers funded weight loss competitions, fun runs, stress management/resiliency education, smoking cessation programs, and wellness assessments, should expenditures on those programs be counted as an insurer’s medical losses? What happens if an employee does not want to join a wellness program? Can their employer increase their premium contributions? What happens if a union opposes the program? What about employees who are disabled? Can a fitness subsidy become, in effect, a fitness penalty?

The flexibility created by CCIIO in its 2019 letter (which also ruled that the .8% approximation could be used prospectively by the insurer as opposed to being a time and resource-expensive retrospective assessment) created even more incentive to include utilization management under the umbrella of quality improvement activities. The 2019 letter and later pronouncements from CCIIO also helped to create some important flexibility around wellness programs that may help strengthen your revenue streams, but there were other government programs that shifted the focus to encompass wellness within health. The Office of Personnel Management includes a workplace wellness homepage for government employers with significant resources on various types of workplace wellness programs. The Patient-Centered Outcomes Research Institute hosted a conference on the issue that strongly recommended the inclusion of physical therapy in workplace wellness programs.4 The new Medicare Shared Savings Program (formerly the Accountable Care Organization or ACO model) allowed for $20 payments to enrollees to participate in wellness programs. And in the private sector, the role of the company Chief Wellness Officer was already being analyzed in the New England Journal of Medicine.5

As physical therapy experts report, individuals with acute problems who have received help from physical therapists are prime targets with whom to discuss broader wellness programs on a one-on-one basis.6 Employers as well have learned that the ROI analyses of the HBR article are real—employees can lose weight, address low back pain, miss fewer days of work, and even sleep better because of wellness interventions from physical therapists. Employers know that the need for these interventions is real—globally, physical inactivity led to more than 7% of cardiovascular disease deaths.7 The proportions of non-communicable diseases attributable to physical inactivity range from 1.6% for hypertension to 8.1% for dementia. There is also good evidence that physical inactivity is associated with a higher risk for severe COVID-19 outcomes.8

Wellness programs can help move the health system into one that more effectively considers population health and health equity. APTA houses specific resources that touch on how to consider, plan and implement wellness programs with your local employers to start generating more diverse revenue streams. Even though private payers often do not reimburse these services, short-circuiting the employer/insurer relationship by working directly with employers to offer wellness programs also offers an opportunity to achieve what employers believe they are really paying for – a healthy, productive and engaged workforce that can be an integral component of their success. Shifts in federal rules have opened up the opportunity to create a wellness revenue stream both within and outside of traditional insurance. You owe it to yourself and your business to explore this opportunity. 


1Jones S, Gingery S, Bernardi J, McLaughlin M. Session 14, Impact of Quality Improvement Activities on Medical Loss Ratio. Presentation at: 2019 SOA Health Meeting – June 24, 2019. Accessed July 9, 2021.

2Cauchi R, Landess S. Medical Loss Ratios for Health Insurance. NCSL. Accessed July 9, 2021.

3Berry LL, Mirabito AM, Baun WB. What’s the Hard Return on Employee Wellness Programs? Harvard Business Review. Published December 2010. Accessed July 9, 2021.

4Gifford B, Boress L, Peterson E. Managing Pain And Treating Musculoskeletal Conditions: A PCORI-Sponsored Conference on the Use of Patient-Centered Evidence and Best Practices at Worksite Health Centers. The Center for Workforce Health and Performance website. Published April 2021. Accessed July 9, 2021.

5Brower KJ, Brazeau CM, Kiely SC, et al. The Evolving Role of the Chief Wellness Officer in the Management of Crises by Health Care Systems: Lessons from the COVID-19 Pandemic. NEJM Catalyst Innovations in Care Delivery. 2021;2(5). DOI:

6Loria K. Healthy Growth in Wellness Services. APTA. Published May 1, 2020. Accessed July 9, 2021.

7Katzmarzyk PT, Friedenreich C, Shiroma EJ, Lee I. Physical inactivity and non-communicable disease burden in low-income, middle-income and high-income countries. Br J Sports Med. 2021 Mar 29;bjsports-2020-103640. doi: 10.1136/bjsports-2020-103640. Online ahead of print.

8Sallis R, Young DR, Tartof SY, et al. Physical inactivity is associated with a higher risk for severe COVID-19 outcomes: a study in 48 440 adult patients. Br J Sports Med Epub ahead of print: [July 9, 2021]. doi:10.1136/bjsports-2021-104080

Robert Hall, JD, MPAff, is a senior consultant for PPS working to advocate with private payers. He may be reached at

Copyright © 2018, Private Practice Section of the American Physical Therapy Association. All Rights Reserved.

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