Pursuit of Truthiness

my gut tells me I know economics

Who Pays for Obesity?

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Is obesity a true social problem, or just a problem that many individuals face?

Should the government use Bloomberg-style coercive regulations to try to fight obesity, or stick to funding medical and public health research? What if many people really are happier eating whatever they want and drinking Big Gulps than being thin- what right does everyone else have to make their decisions for them?

One reason you might claim that right is to say “I pay for part of their health care, and obesity raises health costs”. Your income taxes do pay for Medicare and Medicaid. But one other reason you might think you pay for the health costs of others is that high-cost people covered by your insurer (like the obese, on average)  raise premiums for everyone else.

Jay Bhattacharya and Kate Bundorf, economists at Stanford’s med school, found that this is not the case in their 2009 paper. They show that obese workers receive lower wages at firms that offer health insurance to their workers, and that the difference in wages is about equal to the difference in health costs. By comparison, when firms don’t offer health insurance, obese workers make the same as everyone else. They interpret this to mean that obese workers pay for their own higher health costs in the form of lower wages.

But as the authors acknowledge, this isn’t necessarily the case. Firms that offer health insurance are pretty different; they offer higher compensation overall, and operate in different industries. It is possible that being obese makes you less productive at these firms, but not at the kind of firms that don’t offer insurance, and this is the reason for the wage differential.

My paper, forthcoming in the November issue of Economics Letters (ungated version here), shows that Bhattacharya and Bundorf got it right. Obese workers really do pay for their higher health costs in the form of lower wages. I take advantage of state laws that require health insurance to cover diabetes. Because diabetes is about four times as prevalent among the obese, these laws raise the cost of insuring obese people relative to others. After these laws are passed, wages go down for obese workers with employer-provided health insurance by roughly the expected cost of diabetes treatment (the wage decrease is relative to non-obese workers and obese workers in states that didn’t pass the law). This means that obese workers are paying for their own higher costs rather than passing them on to you.

Most Americans are insured through their employers. This means that if obese people are passing their health costs on to others (causing an externality), it is through the smaller sectors of individual insurance, charity care, and government insurance. I leave it to you to decide whether the possibility that 10-15% of people pass on weight-related health costs to others means no one should have Big Gulps. Perhaps you can implement an ID system, where you can get the get the food and drink you want as long as you show your employer-based insurance card or step on a scale. Or not.

If despite this blog post, you would like to read more on the subject, check out  Bhattacharya and Sood’s overview in the Journal of Economic Perspectives (JEP is wonderful- totally free and often understandable to non-economists).

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