Medical Cost Ratio

Posted in Finance, Accounting and Economics Terms, Total Reads: 901

Definition: Medical Cost Ratio

Also called Medical care ratio or medical loss ratio, this ratio is used by the health care and health insurance companies to calculate their profits. It is a metric used to measure how much of the revenue earned from premiums is used up in costs given up as claims.


Medical Cost Ratio (MCR) = (Healthcare costs) / (Premium revenues)

The desirable value of MCR is 0.85 or less. This is because at least 15% of the revenue earned from premium must be utilized for the remaining expenses.


If the claims for the year 2014- 15 are $ 75,000and the premiums received for the year are $ 1, 00,000, MCR= 75000/ 100000 = 0. 75

This can interpreted as: 75% of the premiums earned are used in paying claims. The remaining amount is the profit and can be used for other expenses such as advertising, salaries etc.

It can be described as a Benefit- Cost Ratio but is considered a loss ratio because the lesser this ratio, the better.


Hence, this concludes the definition of Medical Cost Ratio along with its overview.


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