DEFINITION of 'Benefit Expense Ratio'

An operating metric used in the health insurance industry computed by dividing a company's costs associated with providing health services by the revenues from member premiums. Because of the large dollar values involved, a single percentage change in the benefit expense ratio can significantly impact the corporation's net income. Also called medical loss ratio or health benefit ratio.

BREAKING DOWN 'Benefit Expense Ratio'

The benefit expense ratio compares a health insurer's expenses for providing health care with the revenues it receives. General insurance providers would want to minimize this ratio as it would indicate an increase in top line growth relative to expenses.

In 2010, the Obama administration issued regulations regarding the proportion of premium dollars health insurers spend on patient care relative to administrative expenses. The regulation specifies targets of 80% for small business plans and 85% for large-company plans.

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