The Incidence of the Healthcare
Costs of Obesity
Presented by Kate Bundorf
Coauthor: Jay Bhattacharya
Academy Health Annual Research Meeting
June 6, 2004
U.S. Trends in Obesity
Proportion Obese - Adults 20-55
0.35
0.30
0.25
0.20
Women
Men
0.15
0.10
0.05
0.00
1971-74
1976-80
1988-94
1999-2000
Source: Anderson, Butcher, and Levine, 2003. Authors’ calculations from the NHANES
The Medical Care Costs of Obesity
• The obese spend $732 (37%) more on
health care on average than normal
weight individuals.
• Among those with private insurance, the
obese spend $423 (38%) more than normal
weight individuals.
• Obesity accounts for 5.3% of medical care
spending in the U.S. and approximately
half is privately financed.
Source: Finkelstein et. al. “National Medical Spending Attributable to Overweight and Obesity: How Much,
and Who’s Paying?”, Health Affairs – Web Exclusive, 14 May 2003.
Research Question
• Who bears the medical care costs of
obesity among those with employersponsored health insurance?
– The vast majority of those under 65 receive
health insurance through an employer.
– Little evidence of explicit risk rating of
premiums in the group market.
– The absence of risk rating may create
inefficiency due to adverse selection and
moral hazard.
Who pays for employer-sponsored
coverage?
• Theory predicts that employees bear the
incidence of health insurance premiums in the
form of lower wages.
• The findings from empirical studies often do not
support the theory (Gruber 2000, Simon 2001,
Levy and Feldman 2001).
• Some empirical evidence supporting the
existence of wage offsets (Woodbury 1983;
Gruber 1994; Sheiner 1999; Pauly and Herring
1999).
The Incidence of Health Insurance Premiums
• Employer incidence (or no insurance)
wit  MRPit
• Employee incidence, no pooling
.
wit  MRPit  pit  MRPit  Emit
• Employee incidence, pooling
1
wit  MRPit  pt  MRPit 
K

k
Emkt
Estimation Strategy
wit    X it   HI it  Oit  HI it  Oit   it
where i indexes individuals and t indexes years
w is the hourly wage
HI is an indicator that the individual is enrolled in health insurance
through her employer
O is an indicator that the individual is obese
X is a vector of individual characteristics that affect either worker
productivity or expected medical costs of health insurance (survey
year, gender, race, marital status, age, education, AFQT score, job tenure, urban,
firm size, industry, occupation)
Data Sources
• National Longitudinal Survey of Youth
– Nationally representative sample of people 14-22 in 1979.
– Survey years 1989-1998
– Sample include full-time workers with employer-sponsored
coverage and uninsured (36,269/29,016 worker years)
• 1998 Linked Medical Expenditures Panel Survey
(MEPS) and the National Health Interview Survey
(NHIS)
– Medical expenditures and other control variables from MEPS
– Height and body weight from NHIS
Difference in Difference Estimate of the
Wage Offset for Obesity
16
14
12
10
Hourly
8
Wage $
6
4
2
0
-$1.69
-$0.43
Insured
Uninsured
Obese
Non-obese
Unadjusted Estimate: $-1.26
Adjusted Estimate: -$1.04
Specification Checks
• Do obese workers with coverage in
someone else’s name experience similar
wage offsets?
• Do overweight workers experience similar
wage offsets?
• Do obese workers experience similar wage
offsets for other fringe benefits for which
the cost of providing is not affected by
obesity?
Incremental medical care costs of obese
relative to normal weight by sex
Male
Female
All Adults
(Unadjusted)
$297
All Adults
(Age Adjusted)
Privately
Insured Adults
(Age Adjusted)
$174
$4
$1,432
***
$1,268
***
$713
***
Can lower wages of the obese be attributed
to higher medical care costs?
Men
(1)
Obese
Current Employer
Coverage
Obese*Current
Employer
Coverage
(2)
Women
(3)
(1)
(2)
-0.695 -0.794 -0.726 -1.256 -1.249
**
**
***
***
2.496
***
2.501
***
-0.030
1.919
***
(3)
0.716
2.386
***
-2.512
**
Reconciling the Estimates
• Incremental annual medical care costs of obesity
for women are between $713 and $1,432
• The annual wage offset for health insurance for
obese women is $5,127
– $2.51 per hour * 2,041 hours annually
• Explanations for the difference
– Loading of health insurance?
– Residual discrimination concentrated in high end jobs
that provide health insurance?
Conclusions
• Workers bear the cost of employer-sponsored
coverage.
• Employment-based health insurance coverage
does not guarantee pooling of risks.
• Wage reductions associated with obesity can be
partially explained by the higher costs of insuring
obese workers.
• Reduces concerns over potential inefficiency
associated with pooling of obesity-related health
care costs.
Can the lower wages of the obese be
attributed to discrimination?
Wage difference between obese and
non-obese workers is:
Interpretation
zero
Pooling and no
discrimination
< incremental expected medical
Partial pooling
expenditures associated with obesity or no pooling
and
discrimination
> Incremental expected medical
No pooling and
expenditures associated with obesity discrimination or
partial pooling
and lots of
discrimination
Data Sources - National Longitudinal
Survey of Youth (NLSY)
• Nationally representative sample of people 14-22 in
1979.
• Survey years 1989-1998 based on availability of health
insurance status.
• Full-time workers (usually worked 7+ hours per day at
full time job).
• Workers with employer-sponsored coverage and
uninsured (36,269/29,016 worker years)
• Primary sample includes workers with employersponsored insurance and uninsured
• Calculate BMI using height (1985) and weight (each year).
• Hierarchical classification of health insurance status
(current employer, other employer, individual, public,
other, uninsured)
Data Sources
• 1998 Linked Medical Expenditures Panel
Survey (MEPS) and the National Health
Interview Survey (NHIS)
– Medical expenditures and other control
variables from MEPS
– Height and body weight from NHIS
NLSY Study Sample
Overweight
Obese
Uninsured
Mean age
Minimum age
Maximum age
1989
0.30
0.11
0.18
28.53
25
32
1990
0.32
0.13
0.16
29.52
26
33
1992
0.34
0.15
0.18
31.56
28
35
1993
0.35
0.16
0.18
32.51
29
36
1994
0.36
0.18
0.16
33.51
30
37
1996
0.38
0.20
0.15
35.54
32
39
1998
0.38
0.23
0.14
37.56
34
41
Adjusted Estimate and Specification Checks
(Table 5)
Obese
Employer-sponsored (ES)
Obese*ES
(1)
(2)
(3)
(4)
-0.038
-0.231
-0.776
0.015
2.490 *** 2.315 *** 2.238***
-1.043*
-0.822
-0.688
Overweight*ES
-0.055
Obese*Individual Insurance
-0.708
Obese*Medicaid
-1.456
29,016
36,809
*** p<0.01, ** p<0.05, * p<0.1. t-stats are listed in parentheses.
Note: All models include full set of control variables. Standard errors adjusted for clustering within individual
Model 1: Fulltime workers either with employer-sponsored coverage or uninsured
Model 2: Fulltime workers with any source of coverage
Model 3: Continuously employed fulltime workers either with employer-sponsored coverage or uninsured
Model 4: Indicators of overweight and obese
-1.243**
-0.455
Obese*Other Employer
Observations
2.688***
16,437
29,016
Effects of Other Fringe Benefits on Wages
(Table 6)
Fringe
health
life
dental
maternity
retirement
profit sharing
training/education
childcare
flex hours
n
35008
34614
34903
32705
34489
34615
34482
34261
34976
Unadjusted
Coefficient
-1.428
-0.028
-0.483
-0.293
-0.12
-0.676
-0.47
0.763
-0.611
T-Stat
1.94*
0.06
0.99
0.51
0.23
1.16
0.98
0.54
1.24
n
27970
27649
27879
25990
27537
27649
27561
27365
27947
*** p<0.01, ** p<0.05, * p<0.1. t-stats are listed in parentheses.
Note: Standard errors adjusted for clustering within individual.
Sample: Full time workers with employer-sponsored health insurance or uninsured
Adjusted
Coefficient
-1.335
0.072
-0.703
-0.757
-0.282
-0.702
-0.409
1.372
-0.444
T-Stat
1.53
0.16
1.43
1.19
0.52
1.2
0.84
0.83
0.86
Difference in Difference Estimates of the
Wage Offset for Health Insurance by Year
2
1
0
-1
*
*
-2
* *
*
-3
-4
All
89
90
92
Unadjusted
93
94
Adjusted
96
*
*
98
Adjusted Estimates by Sex
Men
Women
Obese
-0.726
0.716
Current Employer
Coverage
2.501
***
2.386
***
Obese*Current Employer
Coverage
-0.030
-2.512
**