Functions & Formulae

Each applied formula has its own function page, with a signature, implementations, and tests.

Administrative cost ratio function for payers and health systems

ACR = f(A, D)

Maps the administrative cost of a payer or financing system over a period, and a measure of the money it handles over the same period, to the share of that money used for administration rather than claims or care. The general form allows any denominator. The applied formulas fix it as premium revenue, total payer spending or current health expenditure, and set the ratio beside the United States medical loss ratio, its complement and the rebate that follows from it. Notation follows the Administrative Cost Ratio article.

  • Administrative cost ratio as administrative cost over a chosen denominator

    ACR = A / D

    Divides administrative cost over a period by a denominator for the same period: premium revenue for an insurer (written ACR_P in the article), the payer's total spending on claims, quality improvement and administration (ACR_S), or current health expenditure for a country. The result is a proportion, usually reported as a percentage, and two ratios are comparable only when both parts are defined in the same way.

  • Medical loss ratio as the regulatory counterpart of the administrative cost ratio

    MLR = (C + Q) / (P - T)

    Divides incurred claims for clinical services plus expenditure on activities that improve health care quality by earned premium less federal and state taxes and licensing and regulatory fees, the medical loss ratio defined for United States health insurance issuers in 45 CFR 158.221. The regulation also adjusts the denominator for risk adjustment, risk corridors and reinsurance, applies any credibility adjustment and rounds the result to three decimal places; this simplified form leaves out the adjustments, as the article's example does.

  • Complement of the medical loss ratio as administration plus margin

    MLR_comp = (N + S) / (P - T)

    Rewrites one minus the medical loss ratio, often called the administrative share, using the identity that premium after taxes and fees equals claims, quality improvement, other non-claims costs and the underwriting margin. MLR_comp stands for one minus MLR. The complement mixes administration with profit, so a saving on administration that is kept as margin leaves the medical loss ratio unchanged.

  • Medical loss ratio rebate from the shortfall against the standard

    R = max(0, (P - T) * (MLR_req - MLR))

    Gives the rebate an issuer owes for a reporting year under 45 CFR 158.240: premium after taxes and licensing and regulatory fees multiplied by the gap between the required medical loss ratio and the issuer's ratio. The function max returns the larger of its arguments, so the rebate is zero when the issuer meets or exceeds the standard. Under 45 CFR 158.210 the standard is 0.85 in the large group market and 0.80 in the small group and individual markets, unless a state sets a higher one or the individual market standard has been adjusted for a state.

Administrative Cost Ratio — Functions & Formulae | HealthEconomics.wiki