Medicare Advantage, Medical Loss Ratio, Service Efficiency, and Efficiently Positive Health Outcomes

Abstract

Within the context of Medicare’s enunciated triple aims of better health, better care, and lower costs, we examine the effectiveness of medical loss ratio (MLR) on health outcomes of Medicare Advantage insurers. We simultaneously examine the effect of an efficiency measure for the insurer performance: medical service utilization efficiency (an assessment of how efficiently an insurer provides medical services). This research is based upon collection and integration of several data sources: health outcome data, financial data, and medical service utilization data. The assessment procedure employs a two-stage analytical approach: efficiency analysis followed by regressions. We quantify insurer efficiency using data envelopment analysis (DEA), which determines the relative efficiency of an insurer when the inputs and outputs can both be multivariate. We then run regressions with the dependent variables being functional health outcomes (“improving or maintaining mental health,” “improving or maintaining physical health,” and “improving or maintaining physical and mental health”) and health improvement efficiency (how cost-efficient the insurer is in improving functional health outcomes). Independent variables include MLR, medical service utilization efficiency, and a rich set of control variables. We find that neither MLR nor medical service utilization efficiency provides a good regulatory and evaluation indicator for stimulating/producing functional health outcomes. On the other hand, they do both significantly relate to health improvement efficiency, and hence are both reasonable regulatory and monitoring indicators for efficiently producing positive health outcomes. Our results suggest that to enhance health improvement efficiency, medical service utilization efficiency should be incorporated as a cost-efficient regulatory and monitoring indicator when evaluating Medical Advantage insurers.