What Should Government Do to Reduce Obesity?

Published March 1, 2007

Over the past few years, obesity has become a prominent issue, prompting increasing numbers of organizations, interest groups, and government officials to propose ways of dealing with the “epidemic.”

Whenever governments plan changes to public policy, it is vital that (a) sound evidence showing government can actually improve the state of affairs relative to the private-market outcome supports the introduction of that policy; (b) the new policy will likely achieve its intended consequence at minimum direct and indirect costs; and (c) it is the best known policy choice available.

In this regard, research published in the past few years can help guide policymakers regarding the various costs and benefits of the most commonly proposed interventions. Equally important, there is also a better solution to the problem than those often being discussed and proposed by governments today.

Food Taxes

There’s been much discussion about the price of less-healthy food options (particularly fast food and so-called “junk food”). Several studies have revealed that diets of less-healthy food options are less expensive than diets of healthier food options. This has led some people to propose increasing the price of less-healthy foods through a “sin” tax similar to those already levied on alcohol, lottery tickets, and cigarettes.

Tobacco taxes, however, have been found to have a smaller impact than typically thought.

For example, a 2006 study examined why only 19 percent of adult Americans smoke compared to 34 percent in Germany, 27 percent in France, and 32 percent in the Netherlands. The researchers found higher prices (including taxes) could not explain the difference–cigarettes actually cost 37 percent less in America than in Europe.

Instead, almost half of the difference in smoking rates between Americans and Europeans is due to the fact that Americans have comparatively strong beliefs about smoking’s damaging effects.

Public Education Programs

Research on nutrition labeling supports this line of thought. A 2006 study on nutrition labels and obesity examined the effect of the change from voluntary to mandatory nutrition labeling in the United States–one that was expected to improve access to credible information.

They found the policy change did not affect the number of people using labels, but “the BMI [body mass index] and probability of obesity among white female label users were significantly lower than they would have been in the absence of the new labels.”

Also, their review of the admittedly limited literature on the effect of mandatory nutrition labeling in America on dietary and health outcomes found beneficial effects on dietary intake and quality, and that “consumer attention to negative nutritional attributes” was changed.

Therefore, the evidence supports education initiatives as a way to reduce the prevalence of excessive weight or obesity in the population. Of course, the question of whether governments are the best providers of such education, or if this is better left to the private sector, remains.

Mandatory PE

The idea of encouraging physical activity also has received a significant amount of attention. Higher levels of activity have been related to a decreased likelihood of being overweight or obese, and vice versa. One common policy proposal for tackling children’s inactivity in particular is to require physical education (PE) and activity in schools.

There is some evidence to support this idea. A 2004 study of elementary school physical education, published in the American Journal of Public Health, found that one additional hour of PE in the first grade (relative to that in kindergarten) reduced body mass indexes among heavier girls. However, there was no significant benefit found for lighter girls or for boys.

A 2005 study by the National Bureau of Economic Research looked at PE time among high school students (using variations in PE time between U.S. states) and found it had “no detectable impact on youth BMI or the probability that a student is overweight.”

Specifically, they found increased PE time raised the amount of time students were exercising or “engaged in strength-building activities” but lowered the amount of time spent in light physical activity. They concluded, “there is not yet a scientific base for the many recent calls to increase PE in order to prevent or reduce childhood overweight.”

The researchers also noted their “inability to detect an impact of PE on weight or the probability of overweight is consistent with previous studies.” Put simply, increasing PE time in school may provide limited or no benefits in reducing obesity.

A Better Way?

All of this suggests current proposals for tackling the obesity problem may have limited benefits.

More importantly, all three recommendations discussed above, along with almost all others being discussed in the debate today–restrictions on advertising, building more public infrastructure for outdoor activity, and subsidizing healthier food options–suffer from a greater problem: They impose costs on everyone–either through higher prices or taxes or reduced choice–regardless of their lifestyle decisions.

Notably, an estimated 23.1 percent of Canadians aged 18 or older were obese in 2004, while another 36.1 percent were above the normal BMI range but not obese. The figures were 8 and 18 percent respectively for Canadians aged 2 to 17. Put another way, more than 40 percent of Canada’s population is neither overweight nor obese by BMI standards.

There is, of course, little debate about the fact that obesity causes negative health consequences, reduced life expectancies, negative effects on mental and emotional well-being, lost productivity, restricted activity, and poorer educational performance.

However, what is important in public policy terms is who actually bears the burden of these costs. Upon closer examination, it seems the majority of the negative consequences listed above are borne directly by obese individuals in terms of lower income, reduced life quality, and potentially shorter lives.

Subsidized Obesity

The only area where the costs are not borne almost entirely and directly by the individual is the increased burden on the tax-financed aspects of the health system. These costs occur because the obese are more likely to have diabetes, heart disease, strokes, etc.

Notably, many policy discussions about obesity begin with the health costs imposed on society through Medicare and Medicaid, which many advocates then use to justify government intervention.

Thus, if there is an area of the obesity epidemic where governments have a legitimate role to intervene, it is to resolve the costs imposed by the obese on all taxpayers by reducing the cross-subsidization from the healthy to the obese.

Scaled Premiums

The best way to account for these costs is to deal with them directly–by requiring overweight and obese individuals to bear the costs their lifestyle choices impose on others through health care premiums scaled by that cost (including the cost of imposing the premium).

Importantly, such a scaled premium not only solves the problem of the increased taxpayer burden but also provides a direct incentive for those who are overweight or obese to lose their extra weight.

Equally importantly, it allows people to choose for themselves whether they wish to lose weight through a better diet or more exercise, or not at all–a choice they should be free to make as long as they are not imposing costs on others.

Finally, unlike the most prominent policy proposals, the premium would abate entirely when controllable obesity is eliminated.

Serious Costs

These scaled premiums would likely cost individuals hundreds of dollars per year.

A U.S. study found the average increases in annual medical spending associated with being overweight were $247 for the overweight and $732 for the obese, including out-of-pocket spending.

Some might be concerned about the potential impact such a scaled premium might have on low-income persons. However, since excessive weight and obesity are generally controllable through lifestyle choices, including diet (and the tradeoffs between a costlier but healthier diet and other goods and services) and exercise, there seems to be little reason to exempt low-income groups from the premium.

There might, however, be some merit to limiting the maximum scaled premium to some significant share of income, depending on the actual cost involved.

Further Cost Reductions

It is important to recognize that the tax-funded costs of obesity over an individual’s lifetime may actually be lower than the data on current health care expenditures suggests, because of potential savings realized from shorter life spans (in terms of costly old age care and pensions) that will offset the increased costs of health care.

Research in the United States has found that smokers, despite costing more health care dollars per year, are actually net contributors over their lifetimes because of cost savings that arise from their lower average life expectancies. In addition, the net benefit did not include the additional revenue that results from cigarette taxes, increasing the positive net benefit to society.

A 1992 Canadian study came to a similar conclusion, finding, “for 1986 in Canada, non-smokers enjoyed a standard of living $4.3 billion higher than it would have been if there had been no smokers at all.” This suggests that considering the lifetime costs of obesity and examining different funding models for public programs would be valuable.

However, since the savings from lower pension payments and lower lifetime health expenditures that result from shorter life spans will not be realized immediately, there is still a place for a scaled health premium today.

Implementing a scaled health care premium provides a clear solution to public concern about obesity. As a 2005 study on “Health Insurance and the Obesity Externality” noted, “If rational individuals pay the full costs of their decisions about food intake and exercise, economists, policymakers, and public health officials should treat the obesity epidemic as a matter of indifference.”

Nadeem Esmail ([email protected]) is director of Health System Performance Studies at The Fraser Institute. This article originally appeared in the November 2006 issue of The Fraser Forum and is reprinted with permission.

For more information …

“Nutrition Labels and Obesity,” NBER Working Paper Series No 11956, by Jayachandran Variyam and John Cawley, 2006, http://www.nber.org

“Physical Education in Elementary School and Body Mass Index: Evidence from the Early Childhood Longitudinal Study,” by Ashlesha Datar and Roland Sturm, American Journal of Public Health, 94(9): 1501-6, 2004, http://www.ajph.org/cgi/content/abstract/94/9/1501

“The Impact of State Physical Education Requirements on Youth Physical Activity and Overweight,” NBER Working Paper Series No. 11411, by John Cawley, Chad Meyerhoefer, and David Newhouse, 2005, http://www.nber.org

“Smokers’ Burden on Society: Myth and Reality in Canada,” by André Raynauld and Jean-Pierre Vidal, Canadian Public Policy, 18(3): 300-17, 1992, http://ideas.repec.org/a/cpp/issued/v18y1992i3p300-317.html

“Health Insurance and the Obesity Externality,” by Jay Bhattacharya and Neeraj Sood, NBER Working Paper Series No. 11529, 2005, http://www.nber.org