This issue brief provides an overview of federal capitation rate setting standards and specific guidance regarding the medical loss ratio (MLR) for Medicaid managed care plans, which are the primary Medicaid delivery system in nearly three-quarters of the states, accounting for over half of federal and state Medicaid spending in fiscal year (FY) 2020. The MLR is a component of the rate setting approach meant to protect Medicaid from paying for excessive health plan administrative expenses or profits by ensuring that a sufficient percentage of the total capitation is spent on services or quality improvement.
This issue brief also describes the variation across states on several dimensions, including whether or not health plans must return any revenue if the minimum MLR target is not met and what is known about MLR results to date. The brief concludes with a discussion of a number of policy issues relevant to developing and implementing a Medicaid MLR.