Who pays for obesity?

• Author: Bhattacharya, Jay
• Position: Research Summaries

The rapid increase in the prevalence of obesity over the past few decades has attracted much interest by economists about its cause, but far less interest in its economic consequences. Of particular importance is the question: who pays for obesity? In this report, I review the contribution that my colleagues and I have made toward answering that question.

Many people have argued that the rising prevalence of obesity over the past decades is socially expensive because the obese consume more medical resources than thinner people. While it is certainly true that obesity is the cause of, and is associated with, many conditions that are expensive to treat, it does not logically follow that obesity is socially expensive. The true social costs of obesity depend upon the extent to which obese individuals impose costs on others, costs that they do not take into account when they do things that affect their body weight. Yet despite the vast literature on the medical costs of obesity, there is nothing available to answer the question of who pays these costs--the obese themselves, or someone else?

One important mechanism by which the obese might impose costs on others is through pooled health insurance. In pooled insurance, high medical expenditures for one member of the pool are paid in part by every member of the pool. Thus, the high costs of treating an obese individual are shared by members of the pool--that is, the costs of obesity are paid for, in part, by other people. In a recent paper, Neeraj Sood and I consider this possiblity. (1)

Two key necessary conditions must be met for obesity to cause social loss in a pooled health insurance setting: 1) being obese must increase health expenditures over being thinner; and 2) being in a health insurance pool must cause individuals to change their eating and exercising. The latter condition is not obvious, but is nevertheless crucial for obesity to cause loss through the health insurance mechanism; without it, the implicit transfer of funds from the thin to the obese that pooled health insurance induces is socially costless. Obese individuals in the pool are made better off by exactly the amount that thin individuals are made worse off. While pooled insurance induces redistribution from thin individuals to overweight ones, there is no net cost to society.

In addition to developing a formal model, Sood and I use nationally representative data to estimate the social costs of obesity through the health insurance mechanism. Because we account for the second necessary condition in our empirical work, our estimate...