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Health Insurance and the Obesity Externality

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Old 12-09-2005, 09:40 PM   #1
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Default Health Insurance and the Obesity Externality

Hi there, I was doing some research on the National Bureau of Economic Research website for work today and came across this paper on obesity and health insurance. I do not have a subscription to NBER, so I was not able to access the full paper. However, here is the abstract:

Health Insurance and the Obesity Externality: If rational individuals pay the full costs of their decisions about food intake and exercise, economists, policy makers, and public health officials should treat the obesity epidemic as a matter of indifference. In this paper, we show that, as long as insurance premiums are not risk rated for obesity, health insurance coverage systematically shields those covered from the full costs of physical inactivity and overeating. Since the obese consume significantly more medical resources than the non-obese, but pay the same health insurance premiums, they impose a negative externality on normal weight individuals in their insurance pool. To estimate the size of this externality, we develop a model of weight loss and health insurance under two regimes——(1) underwriting on weight is allowed, and (2) underwriting on weight is not allowed. We show that under regime (1), there is no obesity externality. Under regime (2), where there is an obesity externality, all plan participants face inefficient incentives to undertake unpleasant dieting and exercise. These reduced incentives lead to inefficient increases in body weight, and reduced social welfare. Using data on medical expenditures and body weight from the National Health and Interview Survey and the Medical Expenditure Panel Survey, we estimate that, in a health plan with a coinsurance rate of 17.5%, the obesity externality imposes a welfare cost of about $150 per capita. Our results also indicate that the welfare loss can be reduced by technological change that lowers the pecuniary and non-pecuniary costs of losing weight, and also by increasing the coinsurance rate.

For those of you who may frequent NBER, I thought you might find this paper of interest.
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Old 12-10-2005, 02:49 AM   #2
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Quote:
Originally Posted by Genesis
Hi there, I was doing some research on the National Bureau of Economic Research website for work today and came across this paper on obesity and health insurance. I do not have a subscription to NBER, so I was not able to access the full paper. However, here is the abstract:

Health Insurance and the Obesity Externality: If rational individuals pay the full costs of their decisions about food intake and exercise, economists, policy makers, and public health officials should treat the obesity epidemic as a matter of indifference. In this paper, we show that, as long as insurance premiums are not risk rated for obesity, health insurance coverage systematically shields those covered from the full costs of physical inactivity and overeating. Since the obese consume significantly more medical resources than the non-obese, but pay the same health insurance premiums, they impose a negative externality on normal weight individuals in their insurance pool. To estimate the size of this externality, we develop a model of weight loss and health insurance under two regimes——(1) underwriting on weight is allowed, and (2) underwriting on weight is not allowed. We show that under regime (1), there is no obesity externality. Under regime (2), where there is an obesity externality, all plan participants face inefficient incentives to undertake unpleasant dieting and exercise. These reduced incentives lead to inefficient increases in body weight, and reduced social welfare. Using data on medical expenditures and body weight from the National Health and Interview Survey and the Medical Expenditure Panel Survey, we estimate that, in a health plan with a coinsurance rate of 17.5%, the obesity externality imposes a welfare cost of about $150 per capita. Our results also indicate that the welfare loss can be reduced by technological change that lowers the pecuniary and non-pecuniary costs of losing weight, and also by increasing the coinsurance rate.

For those of you who may frequent NBER, I thought you might find this paper of interest.
Though this is great, I find the information presented not presicely reflecting the current situation.
Perhaps my problem is somewhat different, but yet related.
I am overweight. I am employed as a contractor, and since my firm is so small, I do not get insurance coverage through them. They've offered to pay the monthly dues if I got HMO insurance from the Health Net carrier or Kaiser...
When I applied, I was rejected due to my height to weight ratio...After searching for alternatives, the only one I was provided is 600 something dollars a month with an addional 1000 insurance installation fee. Mind you: I have no problems, of any types, I've been at a doctor's office once outside of routine checkups or cold once a year every couple of years. When I was there, I broke an ankle skiing. I am left w/o a choice to have any kind of coverage at a reasonable cost.
I just happened to be lucky that my previous temp service offered Cobra, because I was on their insurance and it is not as expensive, but once it runs out early next year, I am ultlimately forced to find a permanent job at any rate, just to get ability to go and get cobra later on.....
I think wheels have been turning and it is changing, but not for the better. Raising the cost is not what's going to solve the problem, requiring certain participation in activly changing bad habits does. But for now, this next raise will simply make me NOT get the attention I need, that otherwise could have helped me fix the problem.....
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Old 12-10-2005, 08:25 PM   #3
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CBETA, I sympathize with your situation. I have several friends who cannot afford individual medical insurance. Consequently, they are walking around uninsured and risking their financial well-being (and health) by being uninsured. I am a contract worker as well, but fortunately my husband works for a firm with quality benefits and I am able to get coverage through him.

My brother was diagnosed with cancer at age 25 and he did not have medical coverage at the time. His outcome was not good (he’s dead), and I’ve always wondered if he would have received better care if he had had decent health insurance versus Medicaid. I am torn on the issue of healthcare in the US, as I can understand the positions of the both the hospitals/doctors and the patients. With our litigious society these days, malpractice insurance in some states w/o tort reform has skyrocketed so high that good doctors are being driven out of the state. The insurance companies, however, may need a firm talking to!

Good luck to you!
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Old 09-05-2007, 08:56 AM   #4
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Re: Insurance. I'm a self-employed business owner, and I carry my own plan through Blue Cross Blue Shield. I pay higher premiums because of my "build," which is what they call people who are obese according to their charts. I'm currently documenting my weight loss so that I can have my insurance premiums re-evaluated, but I have to keep the weight off for a year.

I think the main issue in the article has to do with group plans, where some companies might not be differentiating between normal weight, overweight, and obese.

I was incensed at first when I was told I would pay a higher premium because of my "build," but considering the higher health risks for obese people, it makes sense.

Jay
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Old 09-05-2007, 09:25 AM   #5
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Wow, I honestly didn't know how scarily high insurance rates could be just for being obese, even if you're perfectly healthy... WHAT A CROCK!

I DO know, however, that insurance costs are insanely high in general. Infact, I've found that the amount of money per month insurance companies want from me is more than the initial cost of prescription and supplies. My job has a minimal benefits package, and I go with that, though when I was self-employed, I just didn't bother! However, I can also say that medical professionals are A LOT more friendly towards you if you DO have some sort of insurance because there's no wondering in their minds whether they're going to get their money
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Old 09-05-2007, 09:46 AM   #6
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Here's the other thing I didn't know about insurance: If you have insurance, you get charged less for medical services. A LOT less! That's because the insurance company and providers negotiate rates that the insurer's clients will pay.

I had an outpatient procedure that would have cost something like $15,000 if I had not had insurance coverage! With insurance, the cost was $6,000, and I had to pay the deductible--which was considerable, but a big difference from $15K!

Jay
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Old 09-05-2007, 09:56 AM   #7
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Since smokers have to pay more because of the increased medical costs, it's only fair the obese pay more too. We may not have problems now, but it will catch up to us as we get older. Lets face it, we have the means at our disposal to keep the cost down - eat less and exercise more. I'm trying to!
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Old 09-05-2007, 09:58 AM   #8
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Here's the other thing I didn't know about insurance: If you have insurance, you get charged less for medical services. A LOT less! That's because the insurance company and providers negotiate rates that the insurer's clients will pay.

I had an outpatient procedure that would have cost something like $15,000 if I had not had insurance coverage! With insurance, the cost was $6,000, and I had to pay the deductible--which was considerable, but a big difference from $15K!

Jay
I think that is only true if you have health insurance where they have a "network" and the doctor you see is in the "network". If you went to someone outside the "network", I don't think they negotiate prices like that.
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Old 09-06-2007, 11:12 AM   #9
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Since smokers have to pay more because of the increased medical costs, it's only fair the obese pay more too. We may not have problems now, but it will catch up to us as we get older. Lets face it, we have the means at our disposal to keep the cost down - eat less and exercise more. I'm trying to!
Alcoholics and drug addicts should also have to pay higher, in my opinion. Why just target the obese and smokers? Oh, and should athletes pay higher, too, because of the risk of injury while participating in sports? Where will this end?
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Old 09-06-2007, 12:27 PM   #10
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I wonder if the cost of treating the obese, the smokers, drug addicts and others will increase if we keep refusing to insure them at all?

I think there should be incentives to losing weight (gym membership/eating plan reimbursements, premium breaks upon weight loss and maintenance and, as a maintainer, skin removal surgery). I don't think leaving people out in the cold is much of an incentive, though.
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Old 09-06-2007, 12:59 PM   #11
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I understand that insurance companies are not looking out for my best interest, they want to make money. I can accept that, but I suspect that if employers and insurance companies paid for preventive care, weight loss, and healthy lifestyle benefits, that they would actually spend less and profit more.

Some companies are recognizing that healthy lifestyle benefits do decrease sick time and increase the productivity of employees, increasing their profits. I think there is evidence that preventive care often is less expensive than treatment, so maybe insurance companies will eventually catch on.
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Old 09-06-2007, 03:00 PM   #12
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Originally Posted by Steelslady View Post
Alcoholics and drug addicts should also have to pay higher, in my opinion. Why just target the obese and smokers? Oh, and should athletes pay higher, too, because of the risk of injury while participating in sports? Where will this end?
Not likely unless you play sports for professional leagues. The reason being is that they simply need to limt their coverage for those who are more likely to require care. Athletes that participate in sports as a part of their daily career do pay higher rates and in fact, get better care because their private insurance companies know they pay more for a reason. I do believe that some health insurance companies require physical examinations and questions before they offer a premium, and if I'm not mistaken, your doctors have records of any alcohol abuse, substance abuse or even mental disabilities. Even though some of these may be confidential, a lot of insurance companies would prefer to insure healthier individuals. How they assess healthy is their own issue.
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Old 09-06-2007, 03:24 PM   #13
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veggielover: yeah. it's true. the healthier the better, with insurance. What blows my mind is... it's the UNhealthy/chronically ill people who actually NEED the insurance. I'm under the firm belief that insurance companies need to follow their intended purposes and offer less outlandish insurance towards people who are actually going to use it

Of course, in reality, I know it's all about the profit. They profit so much from perfectly healthy people who just want to be safe, though bad as it sounds, I don't know why a perfectly healthy person in this economy would bother spending the money on an extra bill for something that is not legally required (unlike car insurance) that they may never use.
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Old 09-06-2007, 04:22 PM   #14
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Actually, some policies do have exclusions if the policyholder engages in a dangerous sport such as bungee jumping, hang gliding, parachuting, whitewater rafting, etc.

Jay
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Old 09-06-2007, 06:55 PM   #15
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Of course, in reality, I know it's all about the profit. They profit so much from perfectly healthy people who just want to be safe, though bad as it sounds, I don't know why a perfectly healthy person in this economy would bother spending the money on an extra bill for something that is not legally required (unlike car insurance) that they may never use.
Yup, i can totally see it as soley a business as opposed to providing care... insurance, that is


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Actually, some policies do have exclusions if the policyholder engages in a dangerous sport such as bungee jumping, hang gliding, parachuting, whitewater rafting, etc.

Jay
Yeah, because to them these guys are probably very likely to need extra care
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