Who Pays for Obesity?

Jay BhattacharyaStanford University

April 2011

Obesity is Bad for Your Health and Costs A Lot

Lifetime medical costs related to diabetes, heart disease, high cholesterol, hypertension, and stroke are $10,000 higher among the obese

$31 billion (in Year 2000 $) spent during 1996 for adult overweight/obesity-related CVD treatments alone

Among the overweight, lifetime medical costs can be reduced by $2,200 - $5,300 following a 10 percent reduction in body weight

Health care costs in excess of $76 billion were incurred due to physical inactivity in the year 2000

Key Question: Who Pays for Obesity?

If you pay all the costs of decisions about your weight, there is little place for intervention by others who do not pay these costs.

But if others pay the costs there may be a (Pigouvian) justification for intervention.

Obesity Externalities

Health insurance costsDisability, morbidity, and

mortality costsFamily externalities

Obesity and Private Insurance

Obesity and Health Insurance: Two Stories

Splitting the bill Insurance without moral

hazard

The Social Loss from the Obesity-Health Insurance

Externality Need two things for there to be

a social loss:Pooled insurance – obese people must pay less (on average) for health insurance than their expected medical expenditures

Moral hazard – health insurance must make you fat

Policy Implications of the Framework

If there is no in health insurance pooling There is no social harm through this mechanism

No case for Pigouvian taxes If there is pooling, but no

moral hazardInsurance induces a progressive, costless transfer

Is There Pooling In Private Insurance?

Wages and Obesity

Obese workers earn less than thinner workers with equivalent job experience and education.

Some have argued that this is evidence of labor market discrimination against the obese.

Competitive Wage Setting and Health Insurance

Wage equals the marginal product of the worker

Health insurance premiums reduce wages dollar for dollar

Thinner individuals will get higher wages, but only at firms that provide insurance This implication is testable

Wages of Workers with Employer Provided Health

Insurance

5

7

9

11

13

15

17

19

1989 1990 1992 1993 1994 1996 1998

Obese Non-Obese

Wages of Workers without Employer Provided Health

Insurance

5

7

9

11

13

15

17

19

1989 1990 1992 1993 1994 1996 1998

Obese Non-Obese

Men and WomenTable 5: Analysis of the Wage Offset for Obesity by Age and Sex

(1) (2) (3) (1) (2) (3)Obese -1.21 -1.27 -0.79 -1.66 -1.66 0.43

[0.39]*** [0.39]*** [0.48] [0.39]*** [0.39]*** [0.98]Employer coverage (own) 2.3 2.4 1.81 2.37

[0.33]*** [0.35]*** [0.39]*** [0.33]***Obese*Employer coverage (own) -0.58 -2.64

[0.63] [1.00]***Constant 22.36 20.22 20.12 15.35 9.83 9.51

[9.47]** [9.51]** [9.50]** [10.89] [10.81] [10.81]Observations 19,183 19,183 19,183 11,993 11,993 11,993 R-squared 0.19 0.19 0.19 0.14 0.14 0.14

(1) (2) (3) (1) (2) (3)Obese -0.42 -0.45 -0.11 -1.38 -1.37 1.08

[0.42] [0.42] [0.57] [0.54]** [0.54]** [1.84]Employer coverage (own) 1.77 1.83 1.32 1.88

[0.39]*** [0.42]*** [0.58]** [0.41]***Obese*Employer coverage (own) -0.43 -3.19

[0.76] [1.82]*Constant 9.13 9.45 9.41 20.04 18.69 19.08

[18.15] [18.06] [18.08] [26.95] [26.96] [26.96]Observations 12,585 12,585 12,585 7,755 7,755 7,755 R-squared 0.10 0.10 0.10 0.07 0.08 0.08

(1) (2) (3) (1) (2) (3)Obese -2.06 -2.21 -0.48 -1.83 -1.85 0.49

[0.60]*** [0.60]*** [0.78] [0.51]*** [0.51]*** [0.50]Employer coverage (own) 3.84 4.3 2.8 3.56

[0.53]*** [0.57]*** [0.41]*** [0.49]***Obese*Employer coverage (own) -2.04 -2.87

[1.00]** [0.75]***Constant 0.35 -1.12 0.32 -10.07 -14.78 -15.44

[65.41] [65.10] [65.03] [48.72] [48.60] [48.57]Observations 6,598 6,598 6,598 4,238 4,238 4,238 R-squared 0.24 0.25 0.25 0.27 0.27 0.27Robust standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Men WomenAll Ages

Age <=35

Note: Estimates are weighted and standard errors in parentheses are adjusted for repeated obeservations of individuals. Adjusted estimates include controls for sex, children in the household and its interaction with female, race, martial status, age, education, urban residence, job tenure, employer size, year, industry, and occupation.

Men Women

Age >35Men Women

In jobs with health insurance:• Obese men earn $0.58 less per

hour• Obese women earn $2.64 less

per hour

Medical ExpendituresPrivately Insured, Age

20-50

Source: Bhattacharya and Bundorf (2008)

Table 7: Expenditure and Prevalence Differences by Condition

Women

Condition Non-Obese Obese Difference Non-Obese Obese DifferenceDiabetes 1.15% 4.64% 3.49% *** $4,246 $5,769 $1,522Asthma 9.29% 14.58% 5.30% *** $3,805 $4,147 $342Hypertension 6.18% 22.14% 15.96% *** $3,834 $4,278 $444Coronary Artery Disease 0.13% 0.68% 0.56% *** $19,274 $6,641 -$12,633Angina 0.18% 0.46% 0.29% * $2,637 $8,574 $5,937Myocardial Infarction 0.22% 0.69% 0.48% ** $6,709 $8,240 $1,531Other Heart Disease 3.26% 4.46% 1.21% * $4,333 $3,900 -$433Stroke 0.44% 0.62% 0.17% $10,728 $7,969 -$2,760Emphysema 0.10% 0.24% 0.14% $13,712 $8,851 -$4,861Joint Pain 22.53% 35.57% 13.04% *** $3,740 $4,726 $987Arthritis 8.07% 17.96% 9.89% *** $4,141 $6,097 $1,956 **

Men

Condition Non-Obese Obese Difference Non-Obese Obese DifferenceDiabetes 1.23% 6.60% 5.38% *** $5,425 $4,623 -$802Asthma 7.99% 6.66% -1.33% $2,043 $2,533 $490Hypertension 9.76% 26.84% 17.08% *** $3,276 $2,996 -$280Coronary Artery Disease 0.50% 1.15% 0.64% ** $12,618 $6,959 -$5,658Angina 0.28% 0.74% 0.46% ** $7,766 $9,610 $1,844Myocardial Infarction 0.54% 1.06% 0.52% * $11,812 $6,123 -$5,690Other Heart Disease 2.03% 2.75% 0.72% $2,440 $4,014 $1,574Stroke 0.15% 0.56% 0.41% ** $5,635 $12,730 $7,095Emphysema 0.11% 0.20% 0.09% $1,781 $106 -$1,675Joint Pain 24.93% 31.53% 6.59% *** $4,514 $3,215 -$1,298Arthritis 6.54% 12.60% 6.06% *** $2,926 $4,150 $1,224 ** significant at 10%; ** significant at 5%; *** significant at 1%

Disease Prevalence Expenditures Conditional on Disease

Disease Prevalence Expenditures Conditional on Disease

Table 7: Expenditure and Prevalence Differences by Condition

Women

Condition Non-Obese Obese Difference Non-Obese Obese DifferenceDiabetes 1.15% 4.64% 3.49% *** $4,246 $5,769 $1,522Asthma 9.29% 14.58% 5.30% *** $3,805 $4,147 $342Hypertension 6.18% 22.14% 15.96% *** $3,834 $4,278 $444Coronary Artery Disease 0.13% 0.68% 0.56% *** $19,274 $6,641 -$12,633Angina 0.18% 0.46% 0.29% * $2,637 $8,574 $5,937Myocardial Infarction 0.22% 0.69% 0.48% ** $6,709 $8,240 $1,531Other Heart Disease 3.26% 4.46% 1.21% * $4,333 $3,900 -$433Stroke 0.44% 0.62% 0.17% $10,728 $7,969 -$2,760Emphysema 0.10% 0.24% 0.14% $13,712 $8,851 -$4,861Joint Pain 22.53% 35.57% 13.04% *** $3,740 $4,726 $987Arthritis 8.07% 17.96% 9.89% *** $4,141 $6,097 $1,956 **

Men

Condition Non-Obese Obese Difference Non-Obese Obese DifferenceDiabetes 1.23% 6.60% 5.38% *** $5,425 $4,623 -$802Asthma 7.99% 6.66% -1.33% $2,043 $2,533 $490Hypertension 9.76% 26.84% 17.08% *** $3,276 $2,996 -$280Coronary Artery Disease 0.50% 1.15% 0.64% ** $12,618 $6,959 -$5,658Angina 0.28% 0.74% 0.46% ** $7,766 $9,610 $1,844Myocardial Infarction 0.54% 1.06% 0.52% * $11,812 $6,123 -$5,690Other Heart Disease 2.03% 2.75% 0.72% $2,440 $4,014 $1,574Stroke 0.15% 0.56% 0.41% ** $5,635 $12,730 $7,095Emphysema 0.11% 0.20% 0.09% $1,781 $106 -$1,675Joint Pain 24.93% 31.53% 6.59% *** $4,514 $3,215 -$1,298Arthritis 6.54% 12.60% 6.06% *** $2,926 $4,150 $1,224 ** significant at 10%; ** significant at 5%; *** significant at 1%

Disease Prevalence Expenditures Conditional on Disease

Disease Prevalence Expenditures Conditional on Disease

No Obesity Differences for Other Benefits

Table 4: Difference in difference estimates of the effect of incidence of other benefits on wages

Fringe Benefit n Coefficient SEs n Coefficient SEs

Life Insurance 32643 -0.079 0.465 22914 0.111 0.499

Dental Insurance 32915 -0.518 0.492 23122 -0.838 0.543

Maternity Benefits 30801 -0.305 0.599 21405 -0.862 0.733

Retirement 32518 -0.121 0.532 22809 -0.414 0.618

Profit Sharing 32637 -0.602 0.596 22911 -0.382 0.682

Training/Education 32506 -0.300 0.487 22841 -0.183 0.556

Childcare 32292 0.888 1.520 22657 1.577 1.987

Flexible Working Hours 32985 -0.638 0.497 23187 -0.125 0.580

*** 1%, ** 5%, * 10% stat sig

Unadjusted Adjusted

Note: Standard errors adjusted for clustering within individual. We estimate these models on the sample of workers employed full-time in each year either with employer sponsored coverage or uninsured and present both unadjusted and adjusted estimates. The table entries show the coefficients and standard errors from the interaction terms between obesity and fringe benefits offered from employers. Each table entry represents a different regression. Full regression results are available in Appendix A4.

Who Pays for Obesity In Working Age Populations?

Obese workers at firms providing health insurance pay for their higher health insurance costs through lower wages.

Obese workers at firms without health insurance earn the same as their thinner colleagues.

Medicare and Obesity

There is no mechanism in Medicare financing to charge higher premiums to the obese

Obese individuals pay less for Medicare…They earn lower wages

…and get more They are unhealthier when they turn 65

Does Medicare Induce a Social Loss?

It depends upon the incentives created by the transfer to obese individuals induced by Medicare.

If the transfer does not change eating and exercise incentives, then there is no social loss.

Does More Generous Health Insurance

Make You Fat?

RAND Health Insurance Experiment

Experiment run in the late 1970s to mid-1980sFamilies stayed in experiment for ~5 years

Random Assignment to Insurance

Free plan (no out of pocket costs of health care)

25% coinsurance (families paid 25% of health care costs)

50% coinsurance95% coinsurance

RAND Health Insurance Experiment Reanalyzed

Goal: measure the insurance elasticity of body weight

If insurance induces moral hazard, we should expect the greatest gain in weight among people assigned to the most generous insurance (free plan)

% Obese in the RAND HIE at Entry and Exit of the

Experiment

0

2

4

6

8

10

12

14

16

18

Free 25% 50% 95%

Entry

Exit

Family and Social Network Externalities

Social Networks and Obesity

Source: Christakis and Fowler (2007)

Source: Christakis and Fowler (2007)

Source: Christakis and Fowler (2007)

Source: Christakis and Fowler (2007)

Source: Christakis and Fowler (2007)

Source: Christakis and Fowler (2007)

Interpreting Network Formation

Two possible interpretationsObese people make their friends obese

People pick their friends based on body weight

Policy Implications of Family Externalities

Do the external effects of social networks induce any welfare loss?Is there a transfer?Does the transfer induce a change in behavior?

Law of Unintended Consequences: Food Taxes

Unintended Consequences of

Food Taxes Ideally, a food tax should be

assessed on the 2500th calorie (and above) eaten during the day, not on the 1st

Political economy problems:Is granola junk food? Who decides?

Tax may cause undue hardship for the poor

Food Prices and the Nutritional Status of Poor

Children Anemia is a common condition

among poor children in the U.S. 10% prevalence

Dietary iron intake can prevent some forms of anemia.

Cities with a higher price of ground beef have a higher prevalence of anemia among poor children. 10% difference in price leads to a 1.6

percentage point increase in anemia prevalence

Dependent variable (mean) All Ages All Adults

Vitamin A deficiency (7%)

Price of Peaches 0.035(0.036)

-0.013(0.017)

Price of Milk 0.056(0.046)

0.075**

(0.024)

Vitamin C deficiency (12%)

Price of Peaches 0.181**

(0.050)0.212**

(0.063)

Price of Orange Juice 0.064*

(0.036)0.078*

(0.044)

Folate deficiency (16%)

Price of Orange Juice 0.138**

(0.055)0.196**

(0.072)

Price of Bread 0.195(0.122)

0.258(0.165)

Anemia (10%)

Price of Ground Beef 0.106**

(0.051)0.063(0.048)

Effect of food prices on serum nutrient deficiencies

Evidence from the National Health and Nutrition Examination Survey III