FPGEE for National Association of Boards of Pharmacy (NABP) Practice Exam

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What is Medical Loss Ratio (MLR) in the context of health insurance?

Amount of premium earned
Profit margin for healthcare delivery
Difference between premiums received and healthcare expenses
Rate of patient satisfaction

The correct answer is: Difference between premiums received and healthcare expenses

Medical Loss Ratio (MLR) in health insurance refers to the ratio that measures the portion of premium dollars that an insurance company spends on providing medical care and improving healthcare quality for its policyholders, compared to the amount of premium income it earns. The correct answer, which identifies MLR as the difference between premiums received and healthcare expenses, captures the essence of how MLR is calculated. MLR is expressed as a percentage and is significant because regulations stipulate minimum MLRs that insurers must adhere to. For example, insurers are generally required to spend a minimum of 80% of the premiums from individual and small group plans on medical care and health improvement activities, with the remaining 20% possibly covering administrative costs and profit. Understanding MLR is essential for evaluating the efficiency of an insurance company in managing healthcare costs relative to profits. The other options do not encapsulate the definition of MLR accurately: the amount of premium earned does not directly relate to expenses; the profit margin for healthcare delivery does not consider expenses versus premiums; and the rate of patient satisfaction is unrelated to the financial calculation of MLR.