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
Proportion Obese - Adults 20-55
0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00 1971-74 1976-80 1988-94 1999-2000 Women Men
Source: Anderson, Butcher, and Levine, 2003. 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 employersponsored 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)
wit MRP it
• Employee incidence, no pooling
.
wit MRP pit MRP Emit it it
• Employee incidence, pooling
1 wit MRPit pt MRPit K
k
Emkt
Estimation Strategy
wit X it HIit Oit HIit Oit it
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 14-22 in 1979. – Survey years 1989-1998 – 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
16 14 12 10 Hourly 8 Wage $ 6 4 2 0
-$0.43
Insured Obese
Uninsured Non-obese
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
Male All Adults (Unadjusted) All Adults (Age Adjusted) Privately Insured Adults (Age Adjusted) $297 $174 $4 Female $1,432 *** $1,268 *** $713 ***
Can lower wages of the obese be attributed to higher medical care costs?
Men Women
(1)
Obese Current Employer Coverage Obese*Current Employer Coverage
(2)
(3)
(1)
(2)
(3)
0.716 2.386 *** -2.512 **
-0.695 -0.794 -0.726 -1.256 -1.249 ** ** *** *** 2.496 *** 2.501 *** -0.030 1.919 ***
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: zero Interpretation Pooling and no discrimination
< incremental expected medical Partial pooling expenditures associated with obesity or no pooling and discrimination > Incremental expected medical No pooling and expenditures associated with obesity discrimination or partial pooling and lots of discrimination
Data Sources - National Longitudinal Survey of Youth (NLSY)
• Nationally representative sample of people 14-22 in 1979. • Survey years 1989-1998 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 employersponsored 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
Overweight Obese Uninsured Mean age Minimum age Maximum age
1989 0.30 0.11 0.18 28.53 25 32
1990 0.32 0.13 0.16 29.52 26 33
1992 0.34 0.15 0.18 31.56 28 35
1993 0.35 0.16 0.18 32.51 29 36
1994 0.36 0.18 0.16 33.51 30 37
1996 0.38 0.20 0.15 35.54 32 39
1998 0.38 0.23 0.14 37.56 34 41
Adjusted Estimate and Specification Checks (Table 5)
(1) Obese -0.038 -1.043* (2) -0.231 -0.822 -0.055 -0.708 (3) -0.776 -0.688 (4) 0.015
Employer-sponsored (ES)
Obese*ES Overweight*ES Obese*Other Employer Obese*Individual Insurance
2.490 *** 2.315 *** 2.238***
2.688***
-1.243** -0.455
Obese*Medicaid
Observations
*** p<0.01, ** p<0.05, * p<0.1. t-stats are listed in parentheses.
-1.456
29,016 36,809 16,437 29,016
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)
Unadjusted Coefficient -1.428 -0.028 -0.483 -0.293 -0.12 -0.676 -0.47 0.763 -0.611 Adjusted Coefficient -1.335 0.072 -0.703 -0.757 -0.282 -0.702 -0.409 1.372 -0.444
Fringe health life dental maternity retirement profit sharing training/education childcare flex hours
n 35008 34614 34903 32705 34489 34615 34482 34261 34976
T-Stat 1.94* 0.06 0.99 0.51 0.23 1.16 0.98 0.54 1.24
n 27970 27649 27879 25990 27537 27649 27561 27365 27947
T-Stat 1.53 0.16 1.43 1.19 0.52 1.2 0.84 0.83 0.86
*** p<0.01, ** p<0.05, * p<0.1. t-stats are listed in parentheses. Note: Standard errors adjusted for clustering within individual. Sample: Full time workers with employer-sponsored health insurance or uninsured
Difference in Difference Estimates of the Wage Offset for Health Insurance by Year
2 1 0 -1 -2 -3 -4 All 89 90 92 93 94
* * * * * *
96
98
*
Unadjusted
Adjusted
Adjusted Estimates by Sex
Men Obese Current Employer Coverage Obese*Current Employer Coverage -0.726 2.501 *** -0.030 Women 0.716 2.386 *** -2.512 **