Financial Implications of Obesity

The increase in the prevalence of obesity in the U.S. has given way to various studies investigating the cost of obesity and related diseases on the general population of individuals, the labor market, and both private and public healthcare costs. Many of these studies focus on using BMI as the index of measurement. Generally speaking a healthy or desirable BMI has a range from 18.9-24.9, an overweight BMI is from 25.0-29.9, and a BMI above 30.0 is considered obese. It has been shown that there is an increased risk for morbidity and mortality with many acute and chronic co-morbid medical conditions such as hypertension, heart disease, diabetes mellitus, respiratory disease, several types of cancer, and arthritis being some of the most common (Burton et. al, 2005; Quesenberry et. al, 1998). These diseases affect an individual who suffers from them on a personal level, but they also have consequences on the labor market and employers who see decreased productivity, as well as financial implications with the cost of health care. The monetary costs of obesity and related disease were estimated to be in between $92.6-$117 billion. These amounts correspond to around 5.7 to 9.1 percent of the total costs of U.S. health care expenditures (Wyatt et. al, 2006). Other studies have indicated that the U.S. has higher costs attributable to excess weight over similarly developed countries. Studies in the Netherlands and France estimated the same costs to be 4% and 2% in these countries respectively (Heithoff et. al, 1997).

The effect of obesity on individuals varies between patients with and without health insurance from a financial standpoint. For people without employer sponsored or government health insurance obesity results in more of a financial challenge, since they bear a larger burden on their premiums or health care costs. In figures collected from different studies by the Centers for Disease Control and Prevention (CDC), it was seen between that between the 1998 Medical Panel Expenditure Survey and National Health Interview Surveys of 1996 and 1997, that out of pocket expenses ranged from $7.1-$12.8 billion (CDC, 2006). Individuals who forgo health insurance or pay for it on their own, also have varying degrees of benefits which may affect their earning potential compared to employer covered workers. Worker absenteeism is often higher for people who are overweight or obese. First Chicago NBD implemented an integrated health data management computer system to study their employee’s health patterns. In analyzing its data, it was found that there was a correlation between higher BMI and absenteeism (Burton et. al, 1998). When these absences happen the employer may or may not garnish wages to the employee depending on the employment contract. In examining the effects of obesity on individuals it can be seen that obesity is not just a disease where biochemical and physiological elements need to be treated for a person to function, but there are psychological and sociological aspects as well. It has been reported by the National Institute of Diabetes and Digestive Kidney Diseases that $33 billion is spent annually on weight reduction products and services (Anderson et. al, 2003). However in using some of these weight reduction products, individuals may further increase the cost of obesity since some of these products have serious health risks associated with them (Chou et. al, 2002).

Closely linked to the effect of obesity on individuals, is the effect of obesity on employers. Absenteeism not only affects the earning potential of an individual, but it also affects the efficiency and productivity of employers and the market. Examining the costs of sick days versus BMI for the First Chicago NBD data, it was revealed that for those with at risk BMI averaged $1,546 in sick days cost per person. This was in contrast to only $683 for individuals with a BMI that was not at risk for obesity (Burton et. al, 1998). In the U.S. where many employers pay for some part of an employee’s health insurance, this results in increased rates for insurance. Thus the employer not only gets hit with a cost in the loss of efficiency, but also a further increase in cost of insurance. It has been theorized that in order to balance out these costs, the employer raises the prices that are charged for its products or services to consumers. The result of this is that there is a general decline in disposable income for all sectors of the economy. In turn this further decreases demand across different sectors in a ripple-like action (Anderson et. al, 2003).

The area where most of the literature has focused on concerning obesity and economics is the general trends in the cost of health care and obesity and its related diseases. The CDC calculates that aggregate medical spending attributable to overweight and obesity is around $29.3-$44.5 billion for private insurance and $38.1-$62.1 for Medicaid