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Why does Kaiser Permanente advertise at 24-hour Fitness?

Posted Oct 05 2009 10:00pm

Adverse Selection.

The firm wants to attract healthy individuals at all ages.  Gym membership may be observable, but it is difficult to observe frequency of gym visits.  By advertising at 24-hour Fitness, Kaiser Permanente’s ads have the strongest effect on those who go to the gym most frequently.  If  fitness enthusiasts decide to enroll at Kaiser, the average costs per member will decrease.  The cost decrease is not due to a more efficient health care system, but because of the healthier insured population.  Thus, Kaiser will be able to either 1) reduce premiums to increase market share or 2) increase profits.

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