Where Your Fully Insured Premium Actually Goes
The law says 85 cents of every large-group premium dollar goes to care. That's true. It's also measured on the carrier's whole book, after taxes, with quality programs counted as care. Here's the rule, the fine print, and a two-number check of your own group.
The Rule
The law sets a floor on care. Not a budget for catastrophe.
The ACA's medical loss ratio rule tells a fully insured carrier how much of its premium has to go to claims and quality improvement. It doesn't split that money into routine and catastrophic. One claims pool pays for both. These are federal floors; a state can set a higher one, and then its number applies.
85%
Large group floor
At least 85 cents of each premium dollar, after taxes and regulatory fees, has to go to claims and quality improvement. Admin, commissions, sales and profit share the rest.
Source: 45 CFR 158.210(a); a higher state floor replaces it (158.211)
80%
Small group floor
Small group is 1 to 50 employees in most states. California, New York and Vermont use 1 to 100. Colorado moved back to 50 for 2026.
Source: 45 CFR 158.210(b); PACE Act; Colorado SB24-073
3 years
Measured on
The carrier's whole market in your state, large group and small group separately, pooled over the reporting year and the two before it. Never your group alone.
Source: 45 CFR 158.220
Sept 30
Rebate deadline
A carrier under the floor rebates the shortfall by September 30 of the next year. Group rebates go to the policyholder, which is usually you.
Source: 45 CFR 158.240(e), 158.242(b)
One Premium Dollar
Three parts. Only one of them is care.
Taxes and fees come off first. The ratio is figured on what's left: at least 85 cents to claims and quality, up to 15 cents to everything the carrier does to run, sell and profit from the plan.
One large-group premium dollar
Off the top
Taxes and regulatory fees
- State premium taxes
- Federal and state assessments and licensing fees
- Size varies by state
- Left out of the ratio on both sides
At least 85%
Claims and quality
- Every claim, from a $150 office visit to a $1.2 million cancer case
- Pharmacy, minus the rebates the carrier and its PBM keep
- Quality improvement: care management, wellness, patient safety
- One pool. No separate catastrophic bucket.
Up to 15%
Everything else
- Claims processing and service
- Broker and agent commissions
- Sales and marketing
- Overhead and profit
The Fine Print
Six things the 85% doesn't tell you.
- It's not your group's number.The ratio is tested on the carrier's whole large group or small group market in your state, pooled over three years (45 CFR 158.220). Your group can run a 65% loss ratio, leave 35 cents of every dollar with the carrier, and nobody owes you anything.
- Taxes and fees come off before the math.Premium taxes and federal and state assessments are subtracted from premium before the ratio is figured (45 CFR 158.162). So the 15% is 15% of a smaller number, and taxes sit on top of it.
- Quality programs count as care.The 85% is claims plus quality improvement spending (45 CFR 158.221). Care management, wellness, patient safety and some health IT all qualify. Some of it helps your people. All of it is carrier spending that never shows up as a claim.
- Big claims are pooled, and you pay for the pool.There's no catastrophic bucket inside your premium. In an experience-rated large group renewal, claims over a pooling point are pulled out of your experience and replaced with a pooling charge. Small group premiums are community rated, so your own claims don't set your rate at all.
- Pharmacy rebates count. You still don't see them.Since 2022, rebates kept by the carrier or its PBM come off claims before the ratio is figured (45 CFR 158.140). That keeps the ratio honest. Your renewal still won't list them, and a fully insured contract gives you nothing to negotiate.
- Payments to affiliates count as claims.When the carrier owns the clinic, the specialty pharmacy or the care management vendor, what it pays that affiliate is a claim. Whatever margin the affiliate keeps rides inside the 85%. The bigger the carrier's family of companies, the more of "care" stays in the family.
Check Your Group
Two numbers from your renewal. One honest ratio.
Large group renewals usually include an experience exhibit: premium and incurred claims by month. Put the yearly totals here and see how much of your premium went to your people, and how that compares with the floor the carrier answers to.
68%
Your loss ratio
$640,000
Didn't go to your claims (32%)
85%
The federal floor, on the carrier's statewide book
Your claims used 68% of your premium. The 85% federal floor (some states set a higher one) isn't tested on your group: it's the carrier's whole large group book in your state, over three years, after taxes and fees. A light year on your group is margin on theirs, and no rebate is owed for it.
Starts with an illustrative 150-employee group. Use incurred claims for the same 12 months as the premium, from your renewal's experience exhibit. Taxes and fees are inside the "didn't go to your claims" figure, and the floor is figured after them, so the two percentages aren't a dollar-for-dollar test. Nothing you type leaves this page.
Small group renewals rarely show claims, because your claims don't set your rate. If yours doesn't, ask. If the carrier won't share them, that's an answer too.
The Fair Comparison
Self-funding doesn't delete the 15%. It itemizes it.
The usual pitch compares a carrier's 15% with a TPA's admin fee. That's not a fair fight. Line up every fixed cost on both sides, then look at where a good year's money ends up.
| Cost | Fully insured | Self-funded |
|---|---|---|
| Claims administration | Inside the carrier's retention | TPA or ASO fee, itemized |
| Catastrophic protection | Pooled across the carrier's book, inside premium | Stop-loss premium, which carries its own carrier margin |
| Pharmacy | Carrier's PBM, rebates unseen | Your PBM contract, rebate terms negotiable |
| Network | Included | Network access fee |
| Broker or consultant | Commission inside retention | Commission or flat fee, itemized |
| Premium tax | On the whole premium | On the stop-loss premium only |
| A good claims year | Carrier margin | Stays in your plan |
| Claims data | Summary, if any | The full file |
Self-funding trades a fixed premium for variable claims inside a cap. The funding models guide covers the whole spectrum, from level-funded to captives.
Is the trade right for you?
Score your self-funding readiness.
Seven questions, a readiness score, and the funding model that fits. Sixty seconds, no login.
Score my funding fit →At Renewal
Five things to ask for before you sign.
- Your loss ratio, 24 months, on an incurred basis.Premium and claims by month, with any pooled claims shown separately.
- The retention, itemized.Admin, commission, taxes and fees, risk and profit. One blended percentage tells you nothing.
- The pooling point and the pooling charge.What you pay for the carrier's large-claim pool, and which of your claims it absorbed.
- How pharmacy rebates are handled.Whether any reach your rates, and in what form. The answer is usually "they're reflected in pricing". Ask how.
- Any MLR rebate in the last three years.When it arrived and what you did with it. The employee share is a plan asset under ERISA (DOL Technical Release 2011-04).
The full renewal timeline and a claims data request letter are on the templates page.
Quick Answers
The questions everyone asks.
How much of a fully insured premium goes to claims?
At least 85% in the large group market and 80% in the small group market, after taxes and regulatory fees come off the top. That's the federal medical loss ratio floor in 45 CFR 158.210. Claims and quality improvement spending count toward it. Admin, broker commissions, sales and profit come out of the rest.
Is part of my premium set aside for catastrophic claims?
Not as a separate bucket. A million-dollar claim and a routine office visit are paid from the same claims dollars. Carriers spread large claims across their whole book. In experience-rated large group renewals that usually shows up as a pooling point and a pooling charge, which you can ask to see itemized.
If my group runs a low loss ratio, do I get money back?
Not because of your group alone. The MLR is tested on the carrier's whole large group or small group market in your state, pooled over three years. Your group can run a 60% loss ratio while the carrier's book clears 85%, and nothing is owed. A rebate only comes when the whole book misses the floor.
Who gets an MLR rebate on a group plan?
The policyholder, which is usually the employer, by September 30 of the following year. The Department of Labor treats the share tied to employee premium contributions as plan assets under ERISA (Technical Release 2011-04), so it has to be used for participants, through a refund, a premium holiday or a benefit enhancement.
What counts as small group for the 80% floor?
In most states, employers with 1 to 50 employees. The PACE Act of 2015 lets states extend that to 100, and California, New York and Vermont do. Colorado moved back from 100 to 50 starting in 2026.
Do pharmacy rebates count toward the 85%?
They count against it. Since the 2022 reporting year, rebates kept by the carrier or its PBM have to be subtracted from claims before the ratio is figured. That keeps the ratio honest. It doesn't put the rebates in front of you: a fully insured renewal doesn't show them, and you can't negotiate them.
Does self-funding avoid the 15%?
It replaces it with itemized fixed costs: a TPA, stop-loss premium (which carries the stop-loss carrier's own overhead and profit), PBM and network fees, and broker compensation. Add all of them up before comparing. The bigger differences are that unspent claims dollars stay with you and you get the claims data.
The rules on this page come from 45 CFR Part 158, read in October 2026. Educational, not legal advice. Read the regulation.
Put it to work
Reading is step one. These do the math on your plan.