Advertising and Risk Selection in Health Insurance Markets

Naoki Aizawa and You Suk Kim
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You Suk Kim: https://www.federalreserve.gov/econres/you-suk-kim.htm

No 2015-101, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study impacts of advertising as a channel of risk selection in Medicare Advantage. We show evidence that both mass and direct mail advertising are targeted to achieve risk selection. We develop and estimate an equilibrium model of Medicare Advantage with advertising to understand its equilibrium impacts. We find that advertising attracts the healthy more than the unhealthy. Moreover, shutting down advertising increases premiums by up to 40% for insurers that advertised by worsening their risk pools, which further reduces the demand of the unhealthy. We argue that risk selection may make consumers better off by improving insurers' risk pools.

Keywords: Advertising; Health insurance; Medicare; Risk selection (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015-11-09
New Economics Papers: this item is included in nep-hea, nep-ias and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-101

DOI: 10.17016/FEDS.2015.101

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