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

North American Actuarial Journal, Forthcoming

35 Pages Posted: 20 Jul 2022

See all articles by Patrick L. Brockett

Patrick L. Brockett

University of Texas at Austin - Department of Information, Risk and Operations Management

Linda L. Golden

University of Texas at Austin - Red McCombs School of Business

Pengyu Wei

Nanyang Technological University (NTU)

Charles C. Yang

Florida Atlantic University

Date Written: June 28, 2022

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.

Note:
Funding Information: None.

Conflict of Interests: None.

Keywords: Medicare Advantage; health outcome efficiency; medical service utilization efficiency; medical loss ratio; data envelopment analysis

JEL Classification: I13, I11, H51

Suggested Citation

Brockett, Patrick L. and Golden, Linda L. and Wei, Pengyu and Yang, Charles C., Medicare Advantage, Medical Loss Ratio, Service Efficiency, and Efficiently Positive Health Outcomes (June 28, 2022). North American Actuarial Journal, Forthcoming , Available at SSRN: https://ssrn.com/abstract=4156433

Patrick L. Brockett

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States

Linda L. Golden

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

Pengyu Wei

Nanyang Technological University (NTU)

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

Charles C. Yang (Contact Author)

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States

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