The formula to calculate the Medical Loss Ratio (MLR) is:
\[ MLR = \frac{PMSC + QIA}{PR - AD} \]
Where:
Let's say the paid medical services claims (PMSC) are $500,000, the expenses for activities that improve health care quality (QIA) are $100,000, the premium revenue (PR) is $1,000,000, and the allowable deductibles (AD) are $50,000. Using the formula:
\[ MLR = \frac{500,000 + 100,000}{1,000,000 - 50,000} = \frac{600,000}{950,000} \approx 0.63 \]
So, the medical loss ratio is approximately 0.63 or 63%.