CCIIO modifies employee counting method for MLR provision

The Center for Consumer Information and Insurance Oversight (CCIIO) has issued technical guidance regarding the employee counting method for determining market size for purposes of the Patient Protection and Affordable Care Act’s (ACA; P.L. 111-148) medical loss ratio (MLR) provision. In addition, the CCIIO has issued technical guidance on the process for a state to submit a request for adjustment to the individual market MLR standard.


The ACA requires health insurance issuers to submit data on the proportion of premium revenues spent on clinical services and quality improvement, known as the MLR. The minimum MLR for large group plans (defined as those with 51 or more employees) is 85 percent. The minimum MLR for individuals and small group plans (defined as those with 50 or fewer employees) is 80 percent. If minimums are not maintained, rebates must be provided to health plan participants.

Counting employees.

Previous CCIIO guidance specified that, for MLR purposes, an employer’s number of employees is determined by averaging the total number of all employees employed on business days during the preceding calendar year, and that each full-time, part-time, and seasonal employee should be included. However, the CCIIO noted that this approach differs from the method utilized for purposes of the HHS-operated risk adjustment program established under ACA section 1343, as well as the methods utilized for rating and other purposes in many states. This has led to increased complexity and reporting burden for issuers, the CCIIO has determined.

Therefore, beginning with MLR reports filed in the 2018 calendar year (i.e., for the 2017 MLR reporting year), health insurance issuers may continue to use the employee counting method specified above. In addition, health insurance issuers may elect to use the same employee counting method that is used for the HHS-operated risk adjustment program. The HHS-operated risk adjustment program defers to the applicable state counting method, unless the state method does not take into account non-full-time employees. In that circumstance, the risk adjustment program utilizes the full-time equivalent method described in IRC Sec. 4980H(c)(2). In addition, when a small employer participating in the SHOP Exchange ceases to be a small employer solely by reason of an increase in the number of its employees and the employer continues to be treated as a small employer for purposes of SHOP participation under ACA section 1304(b)(4)(D) and 45 CFR §155.710(d), an employer should be treated as a small employer for purposes of the MLR program if the issuer elects to use the risk adjustment program’s counting method.

State adjustment to individual MLR standard.

The CCIIO has also issued technical guidance on the process for a state to submit a request for adjustment to the individual market MLR standard. PHSA Sec. 2718(d) provides that the MLR standard in the individual market may be adjusted if the HHS determines it is appropriate on account of the volatility of the individual market due to the establishment of the Exchanges. Starting in 2018, an adjustment may be granted if the state can demonstrate that a lower MLR standard could help stabilize its individual market.

The technical guidance provides the address and format required for state requests for an adjustment of the individual market MLR standard. All requests must be made to the following email address: The request must include the proposed adjusted MLR standard and an explanation of how the adjustment will help stabilize the state’s individual market, as well as the proposed effective date and duration of the adjustment (up to three years).

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