Advertising in Health Insurance Markets

Abstract

We study the effect of television ads in the market for health insurance for the elderly. Regulators are concerned about firms potentially using ads to skim, or attract an advantageous risk pool as well as the potential for firms to use misinformation to take advantage of the elderly. On the other hand, ads could provide useful information or remind people to reconsider their options, making regulation potentially welfare reducing. Using the discontinuity in advertising exposure created by the borders of television markets, we estimate television advertising to have on average zero lift on the share of seniors who choose private Medicare Advantage (MA) plans over government-provided Traditional Medicare (TM) with enough precision to reject the null of positive ROI from market expansion. Leveraging the unilateral cessation of advertising by United Healthcare for three years, we additionally find that rival advertising provided zero average impact on United's brand share with enough precision to reject positive ROI from business stealing. Additionally, advertising is not more effective in counties with a healthier population, potentially easing the concern over cream skimming. The lack of advertising effect cannot be attributed to the shape of the advertising response curve or to long-run effects.