Health economics.

• Author: Grossman, Michael
• Position: Program Report

The NBER's Program in Health Economics focuses on the determinants of health. Two areas of particular interest are the economics of obesity and the economics of substance use. The program members' research has been widely supported by federal research grants and by private foundations.

The Economics of Obesity

Genetic factors cannot account for the rapid increase in obesity since 1980--these factors change slowly over long periods of time. Therefore, economists have a role to play in examining the determinants and consequences of this trend, even though the factors at work are complex, and the policy prescriptions are by no means straightforward. Childhood obesity is especially detrimental, because its effects carry over into adulthood. Shin Yi-Chou, Inas Rashad, and I estimate the effects of fast-food restaurant advertising on television on obesity among children and adolescents. (1) Our results suggest that a ban on these advertisements would reduce the number of obese children ages 3-11 in a fixed population by 18 percent and would reduce the number of obese adolescents ages 12-18 by 14 percent. Eliminating the tax deductibility of this type of advertising would produce smaller declines of between 5 and 7 percent in these outcomes, but would impose lower costs on children and adults who consume fast food in moderation because positive information about restaurants that supply this type of food would not be completely banned from television.

Robert Kaesmer and Xin Xu examine the association between girls' participation in high school sports and the physical activity, weight, and body mass and body composition of adolescent females during the 1970s when girls' sports participation was dramatically increasing as a result of Title IX of the Educational Amendments of 1972. (2) Title IX requires that programs and activities that receive funds from the Department of Education must operate in a non-discriminatory manner. Kaestner and Xu find that increases in girls' participation in high school sports, a proxy for expanded athletic opportunities for adolescent females, are associated with an increase in physical activity and an improvement in weight and body mass among girls. In contrast, adolescent boys experienced a decline in physical activity and an increase in weight and body mass during the period when girls' athletic opportunities were expanding. Taken together, these results strongly suggest that Title IX and the increase in athletic opportunities among adolescent females it engendered had a beneficial effect on the health of adolescent girls.

Rusty Tchernis, Daniel Millimet, and Muna Husain provide conflicting evidence with regard to the effectiveness of school nutrition programs in combating childhood obesity. (3) They find that the School Breakfast Program is a valuable tool in the current battle against obesity. On the other hand, the National School Lunch Program exacerbates the current epidemic.

Turning to one consequence of obesity in adulthood, Erdal Tekin and Roy Wada consider whether the obese pay a penalty in terms of lower wage rates. (4) They point out that previous research in this area relied on body weight or body mass index (BMI, defined as weight in kilograms divided by height in meters squared (5)) for measuring obesity despite the growing agreement in the medical literature that they represent misleading measures of obesity because of their inability to distinguish between body fat and fat-free body mass. Using these two variables, they find that increased body fat is unambiguously associated with decreased wages for both males and females. This result is in contrast to the mixed and sometimes inconsistent results from the previous research using BMI. They also find new evidence indicating that a higher level of fat-free body mass is consistently associated with increased hourly wages. The body composition measures they employ represent significant improvements over the previously used measures because they allow for the effects of fat and fat free components of body composition to be separately identified.

Clearly, obesity carries a high personal cost. But does it carry a high enough social cost to make it a concern of public policy? The case for government intervention in the food choices of its citizens is weakened if fully informed consumers are taking account of all the costs of their food choices, and strengthened if the obese do not pay for their higher medical expenditures through differential payments for health care and health insurance, and if body weight decisions are responsive to the incidence of the medical care costs associated with obesity.

Several program members have examined the effects of weight on medical care costs and the impacts of insurance on weight. Focusing on adolescents, Alan C. Monheit, Jessica P. Vistnes, and Jeannette A. Rogowski report that in private group health plans, obese girls have expected health plan payouts that are approximately $1,000 greater than females of normal weight. (6) They find no differences for obese boys in these plans or for obese girls or boys with public (Medicaid or the State Child Insurance Program) coverage.

Jay Bhattacharya and colleagues consider in detail the health care cost externality associated with adult obesity. (7) They estimate that the obese impose an external cost of approximately $150 on the non-obese. (8) Bhattacharya and M. Kate Bundorf find, however, that the incremental healthcare costs associated with obesity are passed on to obese workers with employer-sponsored health insurance in the form of lower cash wages. (9) Obese workers in firms without employer-sponsored insurance do not have a wage offset relative to their non-obese counterparts. Their estimate of the wage offset exceeds estimates of the expected incremental health care costs of these individuals for obese women, but not for men. (10)

None of the studies just summarized contains an empirical estimate of the effect of health insurance on weight outcomes. Bhattacharya, Bundorf, Noemi Pace, and Sood provide this missing piece by showing that both privately insured individuals and those with Medicaid coverage have a larger body mass index and a higher probability of being obese than persons with no health insurance. (11) Rashad and Sara Markowitz report similar results for BMI but not for the probability of being obese. (12) Both studies take account of the potential endogeneity of health insurance.

The Economics of Substance Use

Program members have been studying the determinants and consequences of cigarette smoking, excessive alcohol use, and consumption of such illegal drugs as marijuana, cocaine, and heroin for nearly three decades. Much of this research has focused on their responsiveness to price. My time-series study of trends in cigarette smoking, binge alcohol drinking (consumption of five or more drinks in a row on at least one day in the past two weeks), and marijuana use by high school seniors sets the stage for the studies to be discussed. (13) I show that changes in price can explain a good deal of the observed changes in these behaviors for the period from 1975 through 2003. For example, the 70 percent increase in the real price of cigarettes since 1997 attributable to the Medicaid Master Settlement Agreement explains almost all of the 12 percentage point reduction in the cigarette smoking participation rate since that year. The 7 percent increase in the real price of beer between 1990 and 1992 due to the Federal excise tax hike on that beverage in 1991 accounts for almost 90 percent of the 4 percentage point decline in binge drinking in the period at issue. The wide swings in the real price of marijuana explain 70 percent of the reduction in participation from 1975 to 1992, 60 percent of the subsequent growth to 1997, and almost 60 percent of the decline since that year.

Cigarettes

In two related studies, Donald Kenkel, Philip DeCicca, Alan Mathios, and colleagues...