X-Ell Employee Benefits, LLC

1680 Route 23 North, Suite 310, Wayne, NJ  07470

Loss Ratio Requirement

 

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NJ Small Employer (2-50)

Reform Law Summary

The laws mandate that for every small employer health premium dollar an insurance company collects, it must pay out 80 cents, or 80%, in claims expenses.  This ensures that carriers operate within a 20% (25% prior to 1/5/2009) administration margin with extracting excessive profits.

 

Within the allowable 20% operating margin, carriers must pay all of their operational expenses, including the funding of their reserve accounts (money set aside to protect against unforeseen catastrophic claims losses). 

 

If a carrier only pays out 67% of its collected premiums in claims expenses, it must refund the excess premium revenue to its active small employer policyholders.  If the claims expenses exceed 80%, oh well . . . That's their problem!

 

Forecasting accuracy is critical to a carrier's profitability, especially given the fact that medical underwriting is not permitted.