Signature
MLR_comp = (N + S) / (P - T)
| Inputs | Definition | Unit |
|---|---|---|
N | Non-claims costs other than taxes, licensing and regulatory fees and quality improvement, such as claims processing, cost containment, utilisation review, fraud prevention, broker fees and general administration | currency, for example millions of dollars |
S | Underwriting gain or margin of the insurer: premium after taxes and fees less claims, quality improvement and N. Negative for an insurer in deficit | currency |
P | Earned premium for the reporting year | currency |
T | Federal and state taxes and licensing and regulatory fees | currency |
MLR_comp | One minus the medical loss ratio, the share of premium after taxes and fees not spent on claims or quality improvement | proportion, usually reported as a percentage |
|---|
Function
Administrative cost ratio function for payers and health systems
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.
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Implementations
Excel
Medical loss ratio complement in one cell
Excel returns the complement from named cells holding other non-claims costs, the margin, earned premium and taxes and fees.
=(OtherAdmin+Margin)/(Premium-Taxes)
Assumptions
Premium after taxes and fees fully allocated to four components
Claims, quality improvement, N and S are measured over the same period and on the same basis as P and T, so that P minus T equals C plus Q plus N plus S and the complement equals one minus MLR exactly. A credibility adjustment or risk programme adjustment applied to the ratio alone breaks this identity.
Worked examples
Medical loss ratio complement of the illustrative insurer
The article's insurer has other administration of $60 million and a margin of $28 million, the premium left after taxes, claims, quality improvement and administration. Over adjusted premium of $480 million the complement is about 0.183 (18.3%), against 12.0% for administration over premium.
N = 60; S = 28; P = 500; T = 20; MLR_comp = 0.183
Medical loss ratio complement after the illustrative cut in claims control
After the cut in claims control, administration falls to $55 million and the margin to $21 million, so the complement falls to about 0.158 (15.8%), the counterpart of a medical loss ratio of 0.842.
N = 55; S = 21; P = 500; T = 20; MLR_comp = 0.158
Common errors
Reading one minus the medical loss ratio as administrative cost
The complement includes the insurer's margin. For the article's insurer it is 18.3% of adjusted premium, of which administration accounts for 12.5 percentage points (60 divided by 480) and margin for about 5.8 (28 divided by 480).
Sources
Federal definition of non-claims costs for medical loss ratio reporting
Code of Federal Regulations. Title 45, section 158.160: other non-claims costs. Paragraph (b)(2) lists cost-containment expenses not counted as quality improvement, agents and brokers fees and commissions, and general and administrative expenses. The complement identity follows algebraically from this section and the ratio in section 158.221. Current text checked 1 October 2026.
Canonical Identity
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