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 Source: Anderson, Butcher, and Levine, 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 employer- sponsored 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). Employee incidence, no pooling Employee incidence, pooling

Estimation Strategy 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 in –Survey years –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 -$1.69-$0.43 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 MaleFemale All Adults (Unadjusted) $297$1,432 *** All Adults (Age Adjusted) $174$1,268 *** Privately Insured Adults (Age Adjusted) $4$713 ***

Can lower wages of the obese be attributed to higher medical care costs? MenWomen (1)(2)(3)(1)(2)(3) Obese ** ** *** *** Current Employer Coverage *** *** *** *** Obese*Current Employer Coverage **

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 zeroPooling and no discrimination < incremental expected medical expenditures associated with obesity Partial pooling or no pooling and discrimination > Incremental expected medical expenditures associated with obesity No pooling and discrimination or partial pooling and lots of discrimination

Data Sources - National Longitudinal Survey of Youth (NLSY) Nationally representative sample of people in Survey years 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 employer- sponsored 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

Adjusted Estimate and Specification Checks (Table 5) (1)(2)(3)(4) Obese Employer-sponsored (ES)2.490 ***2.315 ***2.238***2.688*** Obese*ES-1.043* ** Overweight*ES Obese*Other Employer Obese*Individual Insurance Obese*Medicaid Observations29,01636,80916,43729,016 *** 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

Effects of Other Fringe Benefits on Wages (Table 6)

Difference in Difference Estimates of the Wage Offset for Health Insurance by Year ** * * * * *

Adjusted Estimates by Sex MenWomen Obese Current Employer Coverage *** *** Obese*Current Employer Coverage **