A new report released by Trust for America’s
Health and the Robert Wood Johnson Foundation finds that the number of obese
adults is expected to increase in every state in America over the next 20 years,
with some obesity rates over 60%. Doctors
predict that with this rise in obesity rates, type II diabetes, heart disease,
and arthritis rates could increase tenfold. The report finds a direct correlation between obesity rates
and health care costs. The report
states:
“By 2030, medical costs associated with treating preventable obesity-related diseases are estimated to increase by $48 billion to $66 billion per year in the United States, and the loss in economic productivity could be between $390 billion and $580 billion annually by 2030.”
This quote leads to several economic implications.
In
class, we discussed basic externality theory. Externalities occur when the actions of one party make
another party better or worse off, but the first party doesn’t bear the costs
nor receives the benefits. While
consumers may think that the obesity epidemic has no tangible effects on a
third party, this analysis shows that it could lead to a $390 billion decline
in wealth across society. In terms
of externality theory, this negative consumption externality arises from
individuals’ consumption of (unhealthy) food and leads to a decrease in the
social marginal benefit. Since
private marginal benefit ≠ social marginal benefit, we are no longer at an
allocatively efficient point. Consumers
over consume, resulting in a deadweight loss. If consumers can be enticed to internalize this externality,
like with a tax on consumption, the market can again achieve an allocatively
efficient equilibrium. Finally, the CEO of the Robert Wood Johnson Foundation
recommends that
“At every level of government, we must pursue policies that preserve health, prevent disease and reduce health care costs.”
As we also discussed in class, the field of economics avoids normative statements like this one but rather objectively
applies models based on certain assumptions, ultimately leading to positive statements,
whose interpretation may lead to somewhat subjective policy implications.
1 comment:
I would like to examine how the ‘loss of economic productivity’ due to obesity becomes an externality. In a free society, as defined by Milton Friedman in Capitalism and Freedom , the people who lose income from this loss of productivity will be obese people and thus there would be no externality. Obese people would the ones who might spend more time sick or be less efficient at doing their jobs. Since these people will be less productive, employers will have the incentive to reduce their wages, naturally internalizing any external effect their drop in productivity might have. In addition, since weight relative to height, cholesterol level, and blood pressure levels are reasonably low cost to identify, competing health insurance companies would have incentive to raise premiums for obese people and not have less obese people pay any of the obesity induced extra medical costs. Facing these costs, at work and in their insurance bills, rational consumers will choose the optimal level of obesity based on their preferences.
For obesity to cause a negative externality there would have to be some sort of government intervention, beyond what Dr. Friedman describes as legitimate, that forces some non-obese subset of society to pay for obesity related expenses. Such interventions might include keeping health care companies from charging the obese more for health insurance, having government induce everyone to pay a single price for a set bundle of health care, or barring companies from reducing the wages of or firing an individual due to obesity related reductions in quality of work supplied. If we have laws like the above mentioned, removing those laws and the infrastructure necessary to enforce them might be a less costly solution to the externality they create than establishing more governmental infrastructure to implement Mr. Peck’s proposed tax or the numerous acts, plans, and guidelines recommended at the end of this article.
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