The Role of Information in Medicare HMO Markets: The Interplay of Advertising and

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DESCRIPTION (provided by applicant): In short, this proposal sets out to study the role of advertising in the Medicare HMO markets. The first goal is to estimate a causal relationship between advertising and market share, using collected, but unreported (to consumers) HMO report card ratings as an instrument for advertising expenditures. This analysis is important in the context of the increasingly prominent role that advertising is now playing in the Part D HMO market. Due to the limited literature in this area, uncovering this important relationship will contribute to both the health economics literature as well as the general advertising economics literature. The second goal is to provide a better estimate of the value of report cards. Prior studies of report cards have generally found that they have a significant, yet small, impact on market share. None of these studies incorporate a role of advertising. This dissertation plans to be the first to study the individual and combined impacts of advertising and report cards on movements in market share. In addition to uncovering a better estimate of the value of report cards, it will provide insight into how a firm's advertising strategies can either mitigate or enhance the report card impact. Lastly, our goal is to provide rigorous empirical evidence to test the link between advertising and favorable selection of health risks. The prior literature has been limited by lack of HMO claims data to study the attracted health risks by HMOs. We plan to circumvent this problem by using individual-survey data from each operating HMO to gather self-reported measures of health risk. The analysis will allow a rigorous test of how advertising is related to favorable selection, and will add to our understanding of the role that advertising plays in the Medicare HMO market.