The Economics of Obesity
John Cawley
Cornell University
National Bureau of Economic Research
JHC38@cornell.edu
Outline
• Background
– The Epidemiologic Transition
– Obesity: definitions and measurement
– Prevalence and trends worldwide
• The economics of obesity
– Intuition of a basic economic model of obesity
– Economic causes of obesity
– Economic consequences of obesity
– Economic approaches to prevention and treatment
• Summary; take-away points
The Epidemiologic Transition
• Epidemiologic Transition: A long-term shift in mortality and
disease patterns whereby pandemics of infection are gradually
replaced by degenerative and man-made diseases as the chief form
of morbidity and primary cause of death.
Top 3 Causes of Death in the United States
1900
Rank
Cause
2009
Death
Rate
Cause
Death
Rate
1
Pneumonia and
influenza
202.2
Diseases of heart
195.2
2
Tuberculosis
194.4
Malignant neoplasms
184.9
3
Diarrhea, enteritis and
ulceration of intestines
142.7
Chronic lower respiratory
disease
44.7
“Actual” Causes of Death, U.S.
McGinnis and Foege (1993) JAMA: The leading ‘causes’ of premature death are not
diseases (e.g. cancer) but the health behaviors that lead to those diseases. Policy should
focus on changing those “actual” causes of death.
Definition and Measurement of Obesity
• Body Mass Index (BMI)= kg/m2
• Clinical weight classifications for adults:
– Overweight defined as BMI>=25 (for 6’ tall person, 184 lbs)
– Obesity defined as BMI>=30 (for 6’ tall person, 221 lbs)
• Clinical weight classifications for children: less agreement
– Overweight: BMI >= historic 85th percentile
– Obese: BMI >= historic 95th percentile
– Alternately, both defined using sex-specific BMI-for-age charts
• In calculating BMI, measured wt, ht preferable to self-reports
because of tendency to underreport weight (Plankey et al., 1997)
– Can result in severe misclassification bias
– In NHANES 2003-2010, 14.8% of the truly obese are false negatives
because of underreporting of weight
More Accurate Measures of Fatness
• BMI a poor measure of fatness
– Ignores body composition: kg of muscle treated as same as kg of fat
– BMI may exaggerate racial disparities in obesity, predict morbidity less
accurately than direct measures of fatness (Cawley and Burkhauser, 2008)
• More accurate measure: percent body fat
– Obesity defined as PBF>=25 for men, PBF>=30 for women
– Measured by various means:
• Dual X-ray absorptiometry (DXA): uses two wavelengths of X rays to measure
bone, lean tissue
• Bioelectrical Impedance Analysis (BIA): sends weak electrical signal through
body; lean mass a conductor and fat an insulator
• Skinfold thickness
Trends in
Adult
Overweight,
Selected
Countries,
1970-2020
(proj)
Source: Wang et al.
(2011) Lancet
Trend in Childhood Overweight in
Selected Countries, 1974-2010
Source: Swinburn et al. (2011) Lancet
Current Prevalence of Obesity
• Worldwide, in 2008:
– Roughly 1.4 billion adults (35%) were overweight
– Roughly 500 million adults (12%) were obese
– Source: WHO (2013)
• Prevalence varies considerably by country
Source: WHO (2014)
• Published by Oxford
University Press in
2011
Part I: Disciplinary Perspectives on Obesity
•
•
•
•
•
•
•
•
•
•
Epidemiology: Aviva Must et al.
Demography: Chris Himes
Cliometrics: Scott Carson
Anthropology: Penny Gordon-Larsen et al.
Psychology: Traci Mann et al.
Sociology: Jeff Sobal
Economics: John Cawley
Behavioral Economics: George Loewenstein et al.
Politics: Rogan Kersh et al.
Fat Studies: Esther Rothblum
Usefulness of Economics in Studying Obesity
•
Offers widely-accepted theoretical framework for human
behavior (constrained maximization)
–
–
•
Economists ask different questions, generate different predictions
Focus on different causes: prices, income, tradeoffs
Offers clearly-defined rationales for government intervention
–
•
Fix market failures
Offers useful methods for estimating causal effects, not just
correlations
–
–
–
Determining causes and consequences of obesity
Determining what interventions or policies work
Which policies work best: cost-effectiveness analysis
Intuition of a Basic Economic Model
of Obesity (Cawley, 2004, 2011)
• Individuals choose their diets (quantity, quality) and
physical activity in order to maximize their utility
(happiness)
– Body weight a function of historic calorie surpluses
(consumed – expended); i.e. it is the result of these decisions
• Money and time are scarce, so in order to maximize
their utility people consider costs and benefits, and the
relevant trade-offs
Implications of Economic Model
• Individuals may rationally accept higher body weight
in exchange for other things they value
– Fact that person is clinically overweight is not proof they are
irrational
• To understand obesity, we need to understand why
some people find it optimal to engage in the health
behaviors that lead to obesity:
–
–
–
–
–
Low income?
High prices of healthy foods?
High time cost to acquire fresh fruits and vegetables?
High opportunity cost of time (children, paid work)?
High marginal utility of eating, being sedentary?
Implications of Economic Model
• When costs and benefits change, people will alter their
choices
– Suggests possible explanations for recent rise in obesity
• Falling real prices of energy-dense foods
• Increased entertainment options
• More sedentary employment
• Telling people they “should” behave differently will
have no effect
– If you want to change people’s behavior, you need to make it
in their interest to change – alter the tradeoffs that they face,
incentivize behavior change
Economic Explanations for
Rise in Obesity
• Falling prices of high-calorie (energy dense) foods
– 1990-2007: price of 2L of Coke fell 34.9% (Christian and Rashad, 2009)
– Lakdawalla and Philipson (2002): 40% of recent rise in weight due to
lower food prices
– Currently analyzing data from experiment that manipulated food prices
• Technological change made preserved packaged snacks cheaper,
more enjoyable (Cutler et al., 2003)
• Increased maternal employment contributes to youth obesity in
high-SES families (Anderson et al., 2003)
– Cawley and Liu (2012): working mothers spend significantly fewer
minutes cooking, eating with children, playing with children. Fathers
make up little of the slack
• Additional income has no detectable effect on weight of the
elderly (Cawley et al., 2010)
– Does not support claim of WHO that rising obesity due to rising incomes
• Advertising: currently studying impact of advertising of specific
branded food items on consumption of those same items
We May Never Know
What Caused the Rise in Obesity
• The rise in obesity was due to very few additional calories per day
– Rise in youth obesity 1971-2008 due to additional 41 cal/day (Wang et al.,
2012)
– For adults, an additional 100 calories per day leads to eventual weight gain
of 10 lbs. (Hall et al., 2011)
• Historic data on calories consumed and burned are so noisy it is
impossible to say with any exactness what caused the rise in
obesity
• Don’t need to know causes of rise; can counter through other
means
– We may not want to reverse certain possible contributors (lower food prices,
increased maternal employment)
Consequences of Obesity
• Fat releases hormones that affect:
– Morbidity: resistin causes Type II diabetes, leptin causes CVD
(Trayhurn and Beattie 2001)
– Mortality:
• WHO (2013) estimates overweight and obesity responsible for 2.8
million deaths per year worldwide
• In US: 365,000 deaths per year; = 3 jumbo jets crashing daily
• Costs of obesity frequently divided into:
– Direct costs: health care costs
– Indirect costs: labor market impacts
• Higher job absenteeism
• Lower wages: e.g. 11.2% lower for obese white females (Cawley,
2004)
• Threat to U.S. military readiness (Cawley and Maclean, 2012);
overweight now #1 reason US military rejects applicants
Estimated Direct Medical Care Costs
of Obesity, by Country
Country
Health Care Costs
of Obesity
Percent of Health
Care Spending
Year
Source
Australia
AUD$ 6.6 billion
2005
Colagiuri et al. (2010)
Canada
CAN$ 3.9 billion
Approx 7.6% of
national health
expenditures
2.6% of national
health expenditures
2006
Anis et al. (2009)
England
£ 2.3 billion
3.3% of NHS
expenditures
2007
Foresight (2007)
Ireland (ROI
+ NI)
€ 526 million
2.7% of total health
expenditure
2009
Scotland
£ 175 million
2% of NHScotland
budget
2007-08
SafeFood report (incl.
Dee, O’Neill and
Doherty) (2012)
Scottish Government
(2010)
US$ 190.2 billion
20.6% of national
health expenditures
2005
United States
Cawley and
Meyerhoefer (2012)
Estimated Job Absenteeism Costs of
Obesity, by Country
Country
Job Absenteeism
Costs of Obesity
Year
AUD $3.6 billion
(incl. other
productivity losses)
£1.3 – 1.5 billion
2008
Access Economics
(2008)
2002
House of Commons
Select Committee (2004)
Ireland (ROI +
NI)
€ 371 million
2009
SafeFood report (incl. Dee,
O’Neill and Doherty) (2012)
Scotland
£195 million for
long-term sickness
United States
US$ 4.3 billion
Australia
England
2007-08
2005
Source
Scottish Government
(2010)
Cawley, Rizzo and Haas
(2007)
Medical Care Costs of Obesity:
Correlation vs Causation
• A randomized controlled trial would be most accurate
way to measure impact of obesity on medical care costs
• However, would be unethical
• Studies typically report the correlation of obesity with
medical care costs
– Compare costs of obese to those of the non-obese
• May not accurately reflect causal effect of obesity
– Could be over-estimates if individuals become obese as a result
of (e.g.) injury/illness
– Could be under-estimates if those with poor access to health care
more likely to become obese
Our Approach
• Cawley and Meyerhoefer, Journal of Health Economics
(2012)
– Data: Medical Expenditure Panel Survey, 2000-05
– Methods:
• Can’t conduct RCT so must look for “natural” experiment
• Method of instrumental variables using BMI of a biological
relative as an instrument
– Treats genetic variation in weight as natural experiment; akin to
“Mendellian Randomization”
– Addresses two problems:
» Endogeneity of weight / omitted variables bias
» Reporting error in weight
– See Kline & Tobias J Appl Econometrics (2008), Smith et al BMJ
(2009)
Findings
• Obesity raises annual medical care costs of adults by $2,741 (160%)
– Example: Raises medical costs from roughly $1,700 (avg for non-obese) to
roughly $4,500 (average for obese)
– Nearly twice the previous estimates; i.e. obesity is more costly than previously
appreciated
– Cost of obesity higher for women ($3,613) than men ($1,152)
• Impact of obesity on per capita medical care costs by category:
– Inpatient care: $1,116
– Prescription drugs: $919
– Outpatient care: $860
• Aggregate annual costs of adult obesity for the U.S.:
– $190.2 billion
– Equals 20.6% of U.S. National Health Expenditures
Source: Cawley and Meyerhoefer, Journal of Health Economics (2012)
Predicted Medical Expenditures by BMI – Men
Healthy weight
Overweight
Obese
Source: Cawley and Meyerhoefer, Journal of Health Economics (2012)
Predicted Medical Expenditures by BMI – Women
Underweight
Healthy weight
Overweight
Obese
Source: Cawley and Meyerhoefer, Journal of Health Economics (2012)
Economic Rationale for Government
Intervention in Markets
•
First fundamental theorem of welfare economics: perfectly
functioning free markets are Pareto efficient and government
intervention cannot increase social welfare (Mas-Colell et al.,
1995)
•
However, if there are market failures, government intervention
can increase social welfare
•
This provides easy method for judging success of intervention:
did it solve the market failure?
– NOT how much did it modify diet, physical activity,
obesity
Market Failures Relevant for Obesity
•
Imperfect information
–
–
–
–
•
Protect consumers if failures of rationality
–
–
•
e.g. require nutrition labels, menu labels
Variyam and Cawley (2006): Nutrition Facts labels resulted in 3.36
percentage-points less obesity for white females
NYC menu labels had little if any effect on calorie intake; Elbel et al.
US nationwide menu label law takes effect in 2014
e.g. regulate advertising to children, limit food options in schools, require
physical education in schools
Beware slippery slope to paternalism
External costs of obesity
– U.S.: $3,521 higher spending by Medicaid on each adult obese beneficiary
in 2005 (Cawley and Meyerhoefer, 2012)
– People don’t bear full costs of their actions
– Leads to underinvestment in obesity prevention
Strategies for Internalizing External Costs
• Carrots (rewards for healthy behavior):
– Workplace wellness programs offering financial rewards for weight loss;
Cawley and Price (2011, 2013) find high attrition and low weight loss
– Insurance companies offering rewards for healthy behaviors / preventive
care; e.g. Humana’s Vitality program (Patel et al., 2010)
• Sticks (penalties for not adopting healthy behaviors):
– ACA allows group health insurers to charge 30% higher premia to enrollees
who are overweight but won’t participate in wellness programs
– Reduce health insurance benefits for those engaged in unhealthy behaviors;
e.g. in 2007 West Virginia limited Medicaid benefits (incl Rx) for those with
unhealthy lifestyles – weight reduction a principal goal
• Nudges (alter choice architecture)
– Google cafeteria
– Replication studies needed, risks paternalism
Policies to Internalize External Costs
•
Tax body weight
–
•
Tax energy-dense foods
–
–
–
–
•
Politically unattractive
Soda pop taxes often suggested (e.g. Brownell)
Ireland had tax on “table waters” (incl. fizzy drinks) from 1916-92
Denmark dropped “fat tax” because of cross-border shopping to Germany
The small soft drink taxes implemented in the US have no detectable
effect on weight; Fletcher et al. (2010)
Subsidize physical activity
–
–
We do this with public-school sports teams, gyms, PE/recess, public parks
For many grades, no evidence PE reduces weight; Cawley et al. (2007,
2013)
Policies to Internalize External Costs
•
At a minimum, stop subsidizing bad diets
–
–
–
US agriculture policy generally lowers prices of energy-dense foods
(Cawley and Kirwan, 2011); exceptions are milk and sugar
Cease to allow food stamps (SNAP) to be used to purchase energy-dense
foods
Ensure public schools offer a healthy food environment
Cost Effectiveness Analysis (CEA)
• There are many possible ways to prevent or treat obesity – how
should policymakers choose between them?
• To make society as well off as possible, choose policies that are
most cost-effective
– Determine which policy provides the greatest benefit for a given budget
(most “bang for the buck”)
– Approach used by National Institute for Health and Clinical Excellence
(NICE)
• In CEA, benefits are standardized as Quality Adjusted Life Years
(QALYs) saved or Disability Adjusted Life Years (DALYs)
averted
– Both are scored 0 to 1, reflecting quality of life (death is QALY=0,
DALY=1)
– Allows researchers to compare cost effectiveness of different interventions
that lead to different outcomes (e.g. for babies and the elderly)
CEA for Obesity
Prevention/Treatment
• Cost-effectiveness of most anti-obesity interventions has
not been assessed
– Research still at earlier stage: does it have any benefit at all?
• There’s an old saying that “prevention is cheaper than
cure” but that’s not necessarily true
– Have to look at the cost effectiveness studies to know which
gives you the bigger bang for the buck
Source: Cawley, Health Affairs (2010) Meridia withdrawn from the market later in 2010
Take-Away Points
• Economics, as a social science, offers a valid
perspective for understanding diet and physical activity
– Historically underutilized perspective, focusing on the
tradeoffs associated with decisions
– Offers rationales for government intervention
– Differs considerably from views of public health and other
social sciences
• Offers methods for determining:
– The causes and consequences of obesity
– The effectiveness of anti-obesity interventions
– Which interventions provide the biggest bang for the buck
(cost effectiveness)
Take-Away Points (cont.)
• Individuals may rationally accept higher body weight in
exchange for other things they value.
• Fact that person is clinically “overweight” is not proof they are
making irrational decisions.
• To understand obesity, we need to understand why some people
find it optimal to engage in the health behaviors that lead to
obesity: time pressures, low income, little access, etc.
• Suggests possible explanations for recent rise in obesity circumstances (e.g. prices, income, enjoyment) changed, and
people responded to the new tradeoffs in such a way that led to
weight gain
– That said, because of noisy data and the small margin of calories
involved, may never know exact percent of rise due to specific factors
Take-Away Points (cont.)
• Telling people they “should” behave differently will have no
effect
– If you want to change people’s behavior, you need to make it in their
interest to change – alter the tradeoffs that they face, incentivize the
behavior change
• The economic rationale for government intervention is to fix
market failures. The success of such programs can be measured
by how well they fix the market failure, not by how much they
alter diet, physical activity, obesity
– Menu labels: can improve information without altering diets
– Soft drink taxes: can internalize external costs without decreasing
consumption
• To do the greatest good for society, allocate resources to
interventions based on their cost effectiveness
Contact Information
For copies of papers or more information:
• Email: JHC38@cornell.edu
• Web: www.johncawley.com