American Economic Review Vol. 108 No. 3 2018

Advertising and Risk Selection in Health Insurance Markets

Naoki Aizawa¹; You Suk Kim²

¹ Department of Economics at the University of Wisconsin-Madison, 180 Observatory Drive, Madison, WI 53706, and University of Minnesota (email: ) · ² Research and Statistics, Board of Governors of the Federal Reserve System, 20th and C Street NW, Washington, DC 20551 (email: )

Abstract

This paper studies the impact of advertising as a channel for risk selection in Medicare Advantage. We provide evidence that insurer advertising is responsive to the gains from risk selection. Then we develop and estimate an equilibrium model of Medicare Advantage with advertising, allowing rich individual heterogeneity. Our estimates show that advertising is effective in attracting healthy individuals who are newly eligible for Medicare, contributing to advantageous selection into Medicare Advantage. Moreover, risk selection through advertising substantially lowers premiums by improving insurers' risk pools. The distributional implication is that unhealthy consumers may be better off through cross-subsidization from healthy individuals.

DOI

10.1257/aer.20151485

Volume

108

Issue

3

Pages

828-867

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓