If managed care reduces utilization and costs through better aligned financial incentives and alternative delivery methods, the “pure” HMO effect, as opposed to attracting more healthy enrollees, how does this reduced utilization impact health outcomes?  Using a quasi-experimental approach that exploits the timing and county specific implementation of Medicaid managed care plans in a specific region of Kentucky in the late 1990s we shed new light on this important question of how Medicaid managed care effects health outcomes.  By utilizing Medicaid claims data to define avoidable asthma hospitalization rates, we find a decrease in avoidable hospitalizations for asthmatic children, which strongly suggests health outcomes improved for these children.