How does TV advertising affect health insurance enrollment?
While TV ads can help boost enrollment for an insurer, the gains may not be great enough to offset the cost of the ad campaign.
A new study suggests that health insurers may be wasting their money on TV ads.
The study was conducted by University of Chicago Economics Professor Bradley T. Shapiro in Marketing Science, a journal by INFORMS, an international organization for operations, research and analytics professionals.
The research sought to examine the widely held assumption that insurers benefit from the gobs of money they spend on TV advertising. Between 2004 and 2012, the study notes, annual TV advertising for health insurers doubled, from $200 million to $400 million. In the years since the Affordable Care Act took effect in late 2013, insurers have likely spent even more due to the increased number of people enrolling in individual health plans.
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The study tried to measure the effect of advertising by comparing the volume of an insurer’s advertising with its enrollment in that TV market.
The results of the study suggest that while TV ads can help boost enrollment for an insurer, the gains may not be great enough to offset the cost of the ad campaign. Shapiro argued that an insurer might be better off trying to attract more customers by slightly lowering premiums.
The study also suggested that concerns about insurers using TV advertisements to “cream skim,” or attract the most profitable customers, may be misplaced. In fact, the data show that TV advertisements have the greatest effect in enrollment in less healthy counties.
Shapiro concedes that advertising could play an important role in the insurance market even if each company’s ad campaigns don’t appear to be having a big impact. The insurers could be advertising simply to blunt the effect of their competitors’ marketing efforts. They don’t want their competitors to be the only ones on the airwaves.
Finally, the study did not find much evidence that advertising is the reason that an increasing number of seniors are choosing Medicare Advantage plans over traditional Medicare. Shapiro estimates that eliminating all MA advertising would only reduce MA enrollment by 0.23 percent.