The Nexus Between Obesity
and Comprehensive Health
Insurance
The Buffet Problem
• It is difficult not to over-consume at zero or
low marginal cost.
– It is difficult not to overeat at a buffet or while on a
cruise (or at a conference).
– This is the reason we no longer see bumper-tobumper warranties on anything but the powertrain
of cars.
– We pay for insurance, then only pay the copay for
more health care services.
Comprehensive Health
Insurance is Like a Health
Care Buffet
• We over-consume because, with low copays
and low or no deductibles, medicating is
cheaper than watching what we eat. Copay
– 50% higher rate of obesity among those on
Medicaid, compared to privately insured.
– People in countries with public, universal health
care appear more likely to become obese, as they
become relatively more affluent.
IOTF map
The Inverse of Engel’s Law
• We over-consume because (in the converse
of Engel’s Law) we choose to spend part of
our discretionary income on dining/health
care rather than weight control.
– We treat food prepared for us and health care as
luxury products. (Hence, spending grows faster
than income).
– Nearly half of Americans’ food budget is spent
outside the home.
– Obesity has spread with affluence, particularly
where public health care prevails.
The Problem of Moral Hazard
• Moral hazard arises when a party does not
bear the full consequences of his/her actions,
leaving some other party to bear some
consequences. Tends to act with less care.
– Just as we are more careful about our health while
we are waiting for our health insurance to take
effect after a job change…
– And may defer necessary health care…
– Once we have insurance, we tend to be less
vigilant about weight gain, because our health
insurer will cover most of the cost of remediating.
Moral Hazard and Obesity
• We over-consume because a portion of the
cost is borne by the health insurer; which is to
say, normal weight members of our insurance
pool.
– Those who struggle to control weight as a means
of controlling hypertension and cholesterol are
often counseled by their doctors to give up in favor
of drug therapy. It’s not uncommon for these
people to give up attempts to control their weight,
too.
– Insurance mandates for treatment of diabetes
seem to lead to a 10% higher BMI among those
with the disease.
Negative Consumption
Externalities
• When some part of the costs of an
individual’s actions falls on third parties.
– Similar problem to second hand smoke.
– The fact that obese individuals pay the same
insurance premiums as normal weight individuals
of the same age, creates a transfer payment from
thinner to heavier individuals.
– To the extent that individuals are more likely to
add weight as they age, these transfers from
heavier to thinner individuals are likely to involve
transfers from the young to the old.
The Negative Externality of
Obesity
• Percent of obese population grew as
the costs of obesity to the insured
individual went down due to:
– falling out-of-pocket and copay expenses
during the 1970s & 80s.
– And a surge in medical, prescription and
surgical remedies for the effects of obesity.
Implications: Scolding Will
Have Little Effect
• E.g., Surgeon General’s warnings go on to
cigarette packages 1966 & 1970.
• Rand Fact Sheet proposals may have little
effect.
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–
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Reducing potion size.
Limiting access to ready-to-eat foods.
Limiting access to snack foods at work & school.
Reducing food advertising.
Implications: Economic
Options
• Obesity rated insurance premiums.
– Similar effect to a tax.
– Eliminates transfer from normal weight & over
weight to obese, and therefore, the externality.
• Higher co-pays and deductibles.
– Between 20% & 30% copays appear effective.
• Personal economic stake in weight loss.
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Health savings accounts.
More Cash& Counsel programs.
Swiss model, without the price controls.
Costs already coming down, obesity will too.