Medicaid Managed Care: Efficiency, Medical Loss Ratio, and Quality of Care

The recent final rule on Medicaid managed care establishes the minimum medical loss ratio (MLR) requirement for Medicaid managed care and contains several provisions to strengthen delivery and payment reforms and improve efficiency and quality of care. Accordingly, this research examines the quality of Medicaid managed care and the effect of MLR and efficiency. The results show that, medical services efficiency has an insignificant (but negative) effect on the quality of care, which indicates that there may be room to improve medical services efficiency without significantly reducing the quality of care. The MLR does have a significantly positive effect on the aggregate quality ratings, however the magnitude of this effect is very small. This indicates that a minimum MLR requirement of 80% or 85% does not make a large difference on quality ratings.