There are few examples where obesity is anything but bad for your health. Obesity—as measured by a body mass index (BMI) above 30—is associated with a significantly reduced lifespan and an increased likelihood to suffer from:
- Heart Disease
Given the overwhelming evidence for a causal—rather than just associative—link between obesity and at least some forms of poor health, public policies that promote exercise and healthy eating are likely to be highly beneficial to overweight individuals who pay heed. Less straightforward, could these policies also be cost-effective for healthier (or "thin") individuals through reduced public health spending and lower pooled insurance rates? In other words, do the health costs incurred by the obese create a negative externality borne by the rest of society?
In a 2011 article published in the Journal of Economic Perspectives, Jay Bhattacharya and Neeraj Sood decided to see if they could identify these negative externalities and, if they existed, quantify the cost they were imposing on society. Specifically, they wanted to see whether there is a net-negative cost to the (non-obese) public in the United States either through increased Medicare claims by the obese later in life or collectively-imposed increases in insurance rates as part of pooled coverage while they are in the workforce.
Fewer years to spend
That there is, on average, an added personal cost to being obese is hard to dispute. The following figure shows the years of life lost at increasing BMI across gender and age groupings:
Clearly, the heavier an individual gets, and the more years he or she lives with obesity (which once obtained is rarely lost), the greater the likelihood of an early demise—at, of course, a great personal cost. More importantly for our question of interest, there is also a preponderance of evidence that, while alive, these individuals also spend more per year on healthcare. Specifically, Bhattachrya and Sood (from here on referred to as "the authors") estimate that becoming obese at age-50 will be associated with $15,000 in added lifetime health spending of which, on average, $5,000 will be covered (as a negative externality) by the public through Medicare.
However, because obese individuals tend to die younger than they otherwise would, they also tend to utilize fewer years of public funding through not only Medicare, but also Social Security—therefore, not evidently creating an overall (or net) external cost to society simply by having a higher annual propensity to access medical care.
Social costs earlier in life?
If an obese individual were to purchase insurance independently from a provider—and assuming a landscape where regulation allowed insurers to price policies based on an individual's risk—then their premium would rise to accommodate their elevated risk level and their obesity would not be imposing a cost on others. However, the authors note that most people do not receive their coverage in this fashion and that, as of 2008, 180 million Americans received their health insurance as part of a pooled group through their employer—where for legal and administrative reasons, costs can't be risk-adjusted for each employee.
Equally sharing the health costs of their collective individual risks, thin employees are paying higher rates than they otherwise would to off-set the health consumption of their obese colleagues. Without a counterbalance, this transfer of wealth from thin to obese imposes a significant social welfare cost.
Alas, the authors find that such a counterbalance may in fact exist in the form of wage compensation.
Other researchers had previously identified a wage gap between the thin and obese, controlling for other individual characteristics. What is fascinating about the charts above is that the wage gap is large when health insurance is provided by the employer and seemingly nonexistent when it is not. The authors find that the wage differential between obese and thin employees with employer-provided insurance is likely to more than offset the costs imposed by increased health expenditures. What does this mean?
Assuming that any skill gaps (between thin and obese) have been controlled for by the authors' regression analysis, these findings may imply that employers—consciously or not—offset the added health costs of obese employees by reducing their nominal wages! If we also assume that these wage reductions are redistributed to thin employees, constituting part of the wage differential, then there would be no net-negative externality from obesity in this employment context.
Does pooled health insurance cause obesity?
The authors also explore the question of moral hazard in pooled health insurance. That is, if you share the cost of obesity with your colleagues rather than incur it yourself, are you more likely to become obese or less motivated to lose weight?
The authors look at a number of studies to answer this question and find little evidence to support the idea that insurance causes obesity. In one particularly interesting finding, the authors looked at a randomized control trial conducted by RAND where uninsured individuals were given varying levels of insurance coverage and then tracked over time. If you believed the argument that insurance causes obesity, you would expect to find that BMI increased at each level of coverage and to a greater extent at higher levels of coverage—where you would personally pay less of the cost of your own health care and face a smaller financial burden by choosing to remain (or become) obese.
While the authors did find that BMI increased in each group of the RAND study, they found no statistically significant difference between BMI across different levels of coverage. From this result, it is hard to argue that insurance recipients are strategically altering their body weight in conjunction with its associated personal health costs. However, the authors do note that because the study (and the health coverage) only lasted for a limited period of time, if the participants really were strategic economic actors, they may have been maintaining their BMI to not incur future personal costs after they lost coverage.
That the authors fail to identify a net-social cost associated with obesity from pooled health insurance does not imply that these costs don't exist or that public policy shouldn't target obesity. Rather, as the authors make clear, it merely alters the prism through which the problem should be viewed. For example, they cite another study (Bhattacharya and Packalen, 2008) that finds that the prevalence of obesity channels medical research funding towards its related ailments—possibly imposing an opportunity cost in forgone medical advancements in other areas.
Similarly, because most people care about the health and productivity of their neighbors, and would likely pay some non-zero amount to support them living a healthier life, funding for policies that seek to reduce obesity are in everyone's interest—regardless of whether or not they incur a net-cost from the prevalence of obesity.
What the findings provide less evidence for is the idea that obesity should in some way be "taxed" as a personal expense that is imposing a collective cost. On average, it seems that the obese do in fact personally incur almost the entire cost of their predicament through lower wages and a shorter life. If they choose to accept these costs, there is not enough evidence for the government to mandate that they change.
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