Obesity Health Care Costs and the Reallocation to the Food Sector

Rachel Johnson Eliana OwensLinda Givens Brian Wiggs

Obesity‘s Contribution to Rising Health Care Expenditures

Healthcare Expenditures

1998

2008

2018

Source:http://abcnews.go.com/video/playerIndex?id=9121538

IN 2007, 74.1% of individuals 15 years or older were categorized as overweight or obese

The current annual cost associated with obesity is $168 billion or 16.5% of health care expenditures• Including Direct and Indirect Costs

If current obesity levels continue to increase the United States is expected to reach $344 billion in healthcare expenditures by 2018

Key Figures

Obesity’s Contribution to Health Care Expenditures

Research indicates that in order to compensate for an unhealthy food environment, foods high in calories, fat, or sugar, namely “snack foods,” be subjected to special taxes

How Can the Health Care Costs be Reallocated to the Food Sector?

CARBONATED SOFT DRINKS

• Possible largest source of tax revenue

• In 1999, US residents on average consumed 49.7 gallons

• A national tax of 1 cent per once would raise $14.9 billion in one year

• Over the course of a year an estimated 91.3% of households purchase potato chips

• A national 1% tax on potato chips can generate $27 million

POTATO CHIPS

Targeted Food Products for Taxation

How Can Tax Revenue be Utilized?

• Examples of current states’ tax revenue utilization

Imperfect Information

Time-Inconsistent Preferences

Presence of Financial Externalities

Market Failures in the Food Industry

Health Promotion Programs

Through taxation of soft drinks and potato chips an estimated $15 billion would be available to fund health promotion programs to address the market failures of the industry

Clarksburg, WV Low Fat Milk Campaign

Involved paid television & radio

Cost was 22 cent per taxpayer

After 7 weeks the market share of low-fat milk increased from 18% to 41%

Health Promotion Examples

Virginia Adult Expanded Food and Nutrition Program

Examined dollar benefits of avoiding/delaying the health-care costs/losses of productivity associated with ten nutrition-related diseases/conditions

evidence found that the dietary changes attributed to education would persist indefinitely

$15 billion that could be generated by taxing soft-drinks and potato chips, would result in a $16.5 billion reduction in health care costs associated with obesity

Health Promotion Program Examples

National Cancer Institute’s 5-A-Day campaign

encourage greater consumption of fruits and vegetables

media component of this campaign totals $1 million annually

At a similar cost, the resources available through taxation could fund 15,000 such programs

Health Promotion Program Examples

• Similar to the 5-A-Day and Weight Watcher campaigns educate people:

Caloric needs for adults/children and men / women using height ranges

Tracking calorie consumption on a daily basis Portion size Low calorie foods Expectations for weight loss

• Utilize television, radio, newspaper media• Partner with public schools and health insurance

companies

Rome Braves Health Promotion Program Recommendation

• Offer financial incentives to States whose obesity rates reach the established obesity reduction goals over a 5 year period

Recommendation continued..

THANK YOU