Medical Cost Ratio


DEFINITION of 'Medical Cost Ratio'

A comparison of a health insurance company's healthcare costs to its premium revenues. The medical cost ratio is one indicator of the insurer's financial health. Health insurance companies, like other types of insurers, are for-profit companies and must remain profitable to stay in business.

BREAKING DOWN 'Medical Cost Ratio'

For most major health insurance companies, a medical cost ratio of 85% or less is desirable. An 85% medical cost ratio means that a health insurer spends 85% of the premium dollars it receives on healthcare, leaving 15% for profit and non-medical costs such as administrative expenses, payroll, overhead and advertising.

  1. Profit Margin

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  2. Premium Income

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  3. Actuarial Risk

    The risk that the assumptions that actuaries implement into a ...
  4. Health Insurance Portability And ...

    An act created by the U.S Congress in 1996 that amends both the ...
  5. Premium

    1. The total cost of an option. 2. The difference between the ...
  6. Healthcare Sector

    A category of stocks relating to medical and healthcare goods ...
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