I Might Have Been Wrong About Obesity…

I frequently make a big deal about obesity – how it’s probably one of the primary reasons Americans have comparatively low life expectancies, and how it contributes largely (no-pun intended) to our skyrocketing health care costs.  My generalizations are imprecise at best…just plain wrong at worst. 

Check out this Q and A with health economist Eric Finkelstein, author of The Fattening of America, on my favorite blog – the Freakonomics blog.  The Freakonomics “movement,” led by Steven Levitt and Stephen Dubner, is great at finding the unintended economic consequences of certain endeavors.  Some of the major points from the interview:

• Yes, obesity does cost us money – about $93 billion per year…not a drop in the bucket.  But obesity is “cheaper” than it has ever been, and it continues to become less costly.  Compare this number to the $350 billion cited by McKinsey (previous blog posting) for collection and billing costs in health care, and you start to see that the creative thinking needs to be focused on health care markets and administration, rather than keeping people thin.  
• Obesity is not a sign of market failure, but a sign of market success.  We are incentivised to be fat.  Food is relatively cheap and getting more so.  Innovations as benign as power windows in automobiles are too numerous to account for, and incrimentally reduce the number of calories Americans must burn to produce the same economic output.  30 years ago, power windows were an expensive optional extra.  Today, even the cheapest cars have them.  Same with microwaves –faster food preparation means more time for work with less energy (calories) exerted.  Additionally, we have such fantastic pharmaceuticals and medical procedures that obesity (to an extent – BMI lower than 35) doesn’t lower life expectancy significantly.   Why? Today’s obese people have better lipid profiles and lower blood pressure than skinny people 40 years ago. 
• Perhaps the most interesting point made by Finkelstein was this:  it isn’t economically viable to spend money to prevent obesity.   As discussed above, obesity is partially an outcome of market success – meaning the best way to fight obesity is to make life harder.  We could all live like Amish people but it would cost trillions in lost productivity…we would be skinnier, but have similar or shorter life expectancies.  Plus it presents interesting philosophical issues.  What is our purpose?  It seems to be to survive, reproduce and make life easier and more rewarding for ourselves.  Maslow’s pyramid.  We would never back-out all the efficiencies American’s have integrated into their lives – it wouldn’t be worth it.  Obesity is a sign of economic success – this is why it correlates very closely with an industrialized country’s wealth.  So why institute expensive, paternalistic government programs to prevent obesity if everything else we are doing as a society, consistent with generalized notions of “progress,” is contributing to it?  
• Comparing obese people with smokers is not fair economically.  Obesity does exhibit a cost on America – the $93 billion mentioned above accounts the extra food, pills, medical procedures an obese person will consume while having the same length of life as a skinny person.  The most interesting fact here is that smokers only exhibit a cost on society because of the collateral damage of second hand smoke. But they may pay for it themselves.  Smokers pay billions in cigarette taxes and die before they collect much of their social security.  This is one of the few cases I can think of where a tax has been implimented efficiently…that is, it ends up costing the country less overall – it saves money.  Finkelstein mentions that if the government were truly dedicated to reducing health care costs – the easiest way would be to hand out free cigarettes.  People would die long before they would have to be treated for the chronic diseases associated with old age – the most expensive segment of health care. 
• Obese people who work extremely hard, create a lot of value, and don’t have time to exercise are an interesting bunch given these statistics.  Reducing their labor productivity by 1.5 hours per day (they start going to the gym) would have a dramatic negative effect on their overall lifetime productivity – but yield little positive benefit: they pay for their own health insurance, and they live nearly as long.  

Yes, obesity does exert a cost on society…but it’s an incrementally shrinking cost.  The key to reducing health care costs lies in the efficiencies in the system itself.  And let’s not forget – America is one of wealthiest nations in the world.  This is why we have the highest health care cost per person, we are willing to pay for it…never mind that many of the expensive bells and whistles don’t necessarily help us.

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Wal-Mart and Health Care

There’s an interesting article in the NY Times about some of the changes Wal-Mart employees will be seeing in health benefits.  The purpose of my post isn’t to praise or trash Wal-Mart or its employment practices. The fact of the matter is, Wal-Mart is the largest retailer in the world, and with over 1.4mm employees, its by far the largest private employer in the United States. From a business perspective, love them or hate them, they’ve done something right.

And because they have become the standard in the realm of low-wage employment, the spotlight is on them to manage a staggering health care burden. In the past, the company, which is famous for industry-leading, almost surgical expense management, got away with encouraging managers to hire more part-time workers who wouldn’t be eligible for health benefits for two years…or offering very bare-bones health packages that only covered basic necessities (many in favor of Socialized medicine want these types of health packages for everyone).

Finally a change in thinking. Being top dog doesn’t mean you get to rest on your laurels…it means even more is expected out of you as a company…at least in a free country. You could make compelling mathematical arguements that the incredibly cheap wares one may purchase at a Wal-Mart probably make up for slightly more expensive or less comprehensive health coverage. In fact, the near extinction of mom-and-pop stores that were charging a 200% markup on a power drill, possibly harmed the low-wage consumer as much if not more (no offense to mom and pop – any business owner wants a monopoly). Although, possibly not.  However, I’ll let the non-partisan economist fiddle with such ideas (Steven Levitt – Co-Author of Freakonomics, one of my favorite books, would be perfect man to examine whether the good outweighs the bad at Wal-Mart).

Ok, so what is the change in thinking? Michael J. Critelli, executive chairman of Pittney Bowes, a leader in employee health care, convinced Wal-Mart to think of its employees as an investment rather than an expense. A happy, healthy employee is more productive and more dependable…and more enthusiastic.

How do they plan to implement the change in thinking? Vertical Integration. Wal-Mart has gotten the price of over 2,400 generic drugs down to $4 a prescription for its employees…they can purchase the drugs in a Wal-Mart pharmacy. Wal-Mart has set up a 24 hot-line with the Mayo Clinic for its employees. It’s toying with the idea of in-store fitness centers, and quick clinics are already present in many locations. And I’m willing to bet a company so good at squeezing the dollar will get the efficiencies in place to make these employee benefits net positive to shareholders and keep prices down for customers.

One final comment. Wal-Mart is now offering a variety of health plans to employees ranging from bare-bones to comprehensive. And in response to embarrassing comparisons to competitors like Costco and Target, it has lowered the amount of time a part-time employee must work in order to be eligible for coverage. But in the spirit of competition, Wal-Mart is playing around with the idea of forming its own insurance company. Think of what such an entity would do to the over-glutted, inefficient HMOs we deal with every day!!

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