Obesity and Health Costs


The world is experiencing an obesity epidemic. Even the UN has conceded there are more obese than hungry people, even in developing countries! 15% of the world’s population is overweight; 5% is obese. Among developed nations, the US has more obese people than any other by far: two easy stats to remember: two thirds of adult Americans are overweight; one third is obese.

We know health care costs are growing. How will obesity affect these costs? This article addresses this question with data just analyzed by the Congressional Budget Office (CBO). But first, a short primer on obesity.

Obesity Primer

What do we mean by overweight and obese people? A generally accepted measure for these categories is the body mass index (BMI). The BMI defines being overweight and obese by two body dimensions: weight and height. There is general agreement on the following:

  • a BMI between 25 and 30 is considered overweight;
  • a BMI between 30 and 40 is considered obese, and
  • a BMI over 40 is considered morbidly obese.

Table 1 illustrates what these standards mean in terms of weight and height.

Table 1. – BMI Overweight/Obesity Measures

  Overweight Obese Gross Obesity:
Height BMI=25-30 BMI=30-40 BMI > 40
(feet) (lbs.) (lbs.) (lbs.)
4′ 82 98 131
4′ 6″ 104 124 166
5′ 128 154 205
5′ 6″ 155 186 248
6′ 184 221 295
6′ 6″ 216 260 346
7′ 251 301 401

Many US children look up to NFL football players. Most NFL football players are overweight and half are obese by Table 1 standards. If you look only at inner linemen (guards, tackles and centers), 36 are morbidly obese and there is only one player out of 295 that is not obese. If symbols are important, the image of obese men running around football fields for large sums of money on Sunday is not good. In the rest of the world, soccer is the dominant sport. Most soccer players are not overweight.

A recent National Health and Nutrition Examination Survey (NHANES) found that US obesity rates for adults and children are on the rise. 15% of adults were obese in 1980; that has more than doubled to 34% today. For children, it is even worse: 16.9% children 2-19 are today obese, and that number has more than tripled since 1980.

The 2010 Trust for America’s Health Report finds “Adult obesity rates increased in 28 states in the past year…. The number of states where adult obesity rates exceed 30 percent doubled  from four to eight –Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, Tennessee and West Virginia.” 

In a recent article on dangerous addictions, I ranked the overeating addiction as second only to smoking as a killer worldwide.

US Medical Costs

The US spends far more per capita ($4,550) and as a percent of GDP (10%) than any other developed country. Current projections by CBO have US per capita health costs increasing by 65% to $7,500 in 2020.

The Medical Costs of Obesity

There are a growing number of excellent studies on the risks and costs of obesity. Most of the points summarized below were taken from The Trust for America’s Health 2009 report: F as in Fat: How Obesity Policies Are Failing in America. In essence, they document that being overweight makes most health problems worse:

  • Heart disease is the leading cause of death in the US and strokes are the third leading cause. Being overweight increases the risk of both;
  • Cancer is the second leading cause of death in the US. 20% of cancer in women and 15% of cancer in men is attributable to obesity;
  • Diabetes kills almost 4 million people annually and accounts for 11% of US health care costs. There is a direct link between diabetes and being overweight: 80% of people with the primary type of diabetes are overweight;
  • Obese people are 83% more likely to develop kidney disease than those not overweight.

The CBO Study

The CBO first examined health care spending by adults of different weights using data from the 2007 Medical Expenditure Panel Survey. The results are presented in Table 2.

Table 2. – US Health Expenditures Per Capita, 2007, (in 2009 US$)

Weight Per Capita
Underweight 4,970
Normal 4,030
Overweight 4,260
Obese 5,330
Morbidly Obese 7,010
All Categories 4,550

Source: CBO

The Table indicates that in 2007, annual health expenditures of a morbidly obese person would be $7,010, or 74% more than a Normal person.

The CBO took their analysis one step further. They looked at spending on obesity-related diseases (coronary heart disease, type II diabetes, certain cancers, hypertension, dyslipidemia, stroke, liver and gallbladder disease, osteoarthritis, certain gynecological problems, and some depressive disorders). Spending on these diseases is presented in Table 2.

Table 3. – Health Spending on Obesity-Related Diseases, (2009 US$)

  Expenditures % Total
Weight Per Capita Health Expenditures
Underweight 1,740 35
Normal 1,090 27
Overweight 1,390 33
Obese 1,910 36
Morbidly Obese 2,770 40
All Categories 1,470 32

Source: CBO

As the Table 3 shows, people in all the weight categories get these diseases, but they are highest for obese people. Looking only at these diseases, it appears that the per capita health expenses of Morbidly Obese people exceed Normal by $1,680 (154%).

It should be noted that looking only at obesity-related diseases omits a significant amount of overweight/obesity-related costs. In informal discussions, doctors have told me that the vast majority of patients they treat have overweight/obesity-related problems requiring medicines and outpatient treatments. There are also other costs: sick days, lower productivity, etc.

What Policies?

Given the well documented problems, what should government policies be to reduce obesity? As I have written elsewhere, outright bans on products (alcohol and drugs) have not worked: the markets remain, and are filled by a criminal element. And when it comes to obesity, what would you ban

US policies to curb cigarette smoking are probably the best model for obesity reduction. No bans on foods: just taxes on undesirable foods, warning labels on packages, and education. Will this make obese people feel bad like the smokers who huddle outside offices to smoke? It probably will. But remember: overeating and not exercising (the reasons most people are overweight) are hardly addictive, certainly not as addictive as nicotine.

A backlash from non-overweight people can also be expected as they come to realize how much of their health insurance fees are going to treat the overweight and obese.

Obesity/Smoking Linkages

Efforts to curtail smoking work against efforts to curb obesity:

Quitting smoking does increase the risk for weight gain, and may actually cause more weight gain than previously thought. One study found that the average weight gain among former smokers was about 21 pounds, rather than the 5 – 15 pounds commonly cited.[1]

The greater prevalence of smoking outside the US contributes significantly to lower obesity rates overseas.

Smoking deaths (globally – more than 5 million, US – more than 400,000) significantly reduce long-term health care costs. But medical services for living smokers offset these savings somewhat.

Investment Implications

1. Tobacco Companies

The New York Times reported that “cause” funds are switching from anti-smoking to obesity prevention campaigns. This means it should be pretty smooth sailing for tobacco companies in future years. With cigarette taxes contributing significantly to governments at every level, there is little chance the tobacco companies will encounter serious problems from governments in the foreseeable future. For tobacco company investments, check the tobacco portfolio of the Vice Fund (VICEX). Its top 3 tobacco positions are Philip Morris, Lorillard, and Altria.

2. Fitness Centers

Fitness centers have had their financial ups and downs. The survivors by now should be pretty savvy. Health insurance companies are increasingly approving fitness center memberships as reimbursable health expenses. These reimbursements, coupled with fitness centers hooking up with hospitals to provide rehab services should make them a pretty good investment in coming years.

Armand Janjigdian is the CEO of The Kingsbury Club, a good sized fitness/sports center. His perspective:

Up until this recession, the feeling was that our industry was recession proof…but that was not case in this recession.  Quite a few operations have gone under, mostly smaller, lower-priced operations. I believe you are correct in saying this industry has great investment potential, but probably in larger operations that are able to integrate physical therapy, rehab, etc. with local hospitals.

I am not an investment adviser and nothing I say should be taken as a recommendation to buy or sell an asset.

[1] http://health.nytimes.com/health/guides/specialtopic/smoking-and-smokeless-tobacco/symptoms-of-withdrawal.html

The content above was saved on the old Morss Global Finance website, just in case anyone was looking for it (with the help of archive.org):
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