The biggest problem besetting the Administration's program of health reform is how to pay for it. The heart of the program is extending insurance coverage to tens of millions of people who at present are not insured. This will cost more than $100 billion a year just in subsidies, but the total cost will be higher because demand for medical services will rise. At present, people who are not insured are billed directly for medical services. Often they cannot pay, but then their credit takes a hit, or they are forced into bankruptcy. And emergency rooms use queuing to increase the cost of their services to the indigent. When the uninsured become insured, the marginal cost of medical services to them falls to the copayment or deductible that they are charged; the total price (pecuniary plus nonpecuniary) is now much lower, so more service is demanded, and prices to all consumers of medical services rise because supply is inelastic.
Some advocates of extending coverage argue that it will reduce aggregate medical costs. They point out that people may defer preventive care that might ward off an illness, or a worsening condition, that might cost more to treat than preventive care would have cost. The other side of this coin is that preventive care may keep alive people who would have died, thus ending their demand for medical care. But everyone dies eventually, and a very high fraction of total medical costs are incurred in the last few months of life. Moreover, because of technological progress and the high value that people place on extending their life, medical expenses are growing far more rapidly than per capita income, and, as a result, postponing death imposes disproportionately greater costs on the next generation. A partial offset, however, may be that greater and therefore more costly efforts may be undertaken to postpone death the younger the dying person is.
Preventive care can also be very costly, especially when it takes the form of expensive screening: screening costs are incurred by the healthy as well as the sick.
The most attractive form of preventive care, at least from a government budgetary standpoint (disregarding for a moment nonpecuniary benefits and costs, to which I'll return), is behavioral change: for example, safe sex as an AIDS preventive--or losing weight, or, more realistically, not gaining excessive weight in the first place, to prevent obesity.
Obesity has increased rapidly in the United States, to the point where, at present, more than half the adult population is overweight and 25 percent is obese. A recent study estimates that the average obese person incurs annual medical expenses that exceed by 42 percent the average annual medical expenses of the non-obese; the aggregate excess cost is almost $150 billion a year. Average expense is potentially misleading because of the shorter lifespan of unhealthy people. However, I believe that except in cases of extreme obesity, the effect on lifespan is less than the effect in creating medically treatable conditions such as diabetes, joint problems, complications from surgery, and cardiovascular disease.
The economist Tomas Philipson and I have written about the economics of obesity. We have pointed out that the decline in the price of fatty foods, along with the rise in the opportunity cost of physical activity (work is more sedentary than it used to be, so one has to invest extra time to get exercise, and television and video games have increased the utility that people derive from sedentary leisure pursuits), explains the dramatic long-term increase in the percentage of Americans who are seriously overweight.
It might seem that if people derive greater utility from consuming fatty foods in large quantity than the costs in illness and medical care, the increase in obesity actually is optimal from an economic standpoint. But there are three reasons to doubt this. The first is that the obese externalize part and probably most of the excess medical costs that their condition imposes, because health insurers (including Medicare) generally do not discriminate on the basis of weight. The second reason to doubt that we have the optimal amount of obesity is that high and rising aggregate health costs, because financed to a large extent by government, are contributing to the serious fiscal problems of the United States: the United States has a soaring national debt that may have very grave long-term consequences for America's prosperity. Obesity thus has potential macroeconomic significance.
Third, there is reason to doubt that the obese actually gain more utility from the behaviors that contribute to their obesity than the costs of obesity, which are not limited to medical costs but include discomfort, loss of mobility, discrimination by employers, and social ostracism by people who consider obesity repulsive or believe it signals lack of self-control, gluttony, or low IQ (or all three characteristics).
Obesity is highly correlated with education. Highly educated people are much more likely to be thin than people who are not highly educated. This is partly but not only because highly educated people have on average higher incomes than other people. They can afford more expensive foods, which are low in calories, and the cost of exercise, which can be considerable, as it may require joining a gym or having a personal trainer.
But income is not a complete explanation, because highly educated people in low-paying jobs, as many teaching (including college teaching) jobs are, tend to be thin. But is this because one needs education to realize that eating fatty foods makes one fat and that fat people have medical and other problems that thin people do not? Surely not. It is rather that educated people have better impulse control, or, in economic terms, a lower discount rate (the rate at which a future cost or benefit is equated to a present cost or benefit), than uneducated people do, on average at any rate. To get an education means incurring present costs for future benefits, and that is less attractive the higher one's discount rate. Moreover, intelligent people derive greater benefits from education in terms of present enjoyment and future income than unintelligent people do, and intelligence implies lower costs of foreseeing consequences of one's actions: it is easier for an intelligent person to realize the consequences of indulging one's tastes for fatty foods than an unintelligent person, given that obesity is not an immediate consequence of eating such foods. Low-IQ people (and many high-IQ ones as well) may also fail to realize how much more difficult it is to lose weight than to avoid gaining weight in the first place.
A further problem with people of low intelligence and (what goes with it) low income is poor parenting, as a result of which children grow up with bad eating habits, including excessive consumption of fatty goods; these habits may be difficult to break in adulthood.
If the unintelligent experience greater costs of imagining the consequences of eating fatty foods, that is an argument for providing them with greater information about those consequences, to offset their deficit in understanding. Maybe with full knowledge the unintelligent would be willing to incur the costs, in somewhat more expensive food and in fewer sedentary leisure pursuits, of avoiding becoming obese. So aggregate utility might actually be increased, as well as aggregate medical costs reduced, by an effective campaign of warning people about the consequences of eating fatty foods. I do not think that government should regulate behavior on the premise that it knows better what makes people happy than people themselves do; but controlling external costs is or should be an uncontroversial governmental function.
Such an educational campaign as I have suggested would be a cheap form of preventive care, but would it be effective? The evidence is mixed, but a 2008 review article by Lisa Harnack and Simone French in the International Journal of Behavioral Nutrition and Physical Activity finds that labeling restaurant menus with calorie information does reduce consumption of high-calorie foods. Conjoined with reduced calories in school lunches, elementary- and high-school courses in nutrition, and warnings in food advertising and labeling similar to the warnings in cigarette advertising and labeling, the prevalence of obesity might be reduced at slight cost--possibly to the benefit of almost everyone except the sellers of fatty foods.
One of the health-care-reform bills pending in the Senate would relax legal limitations on "discrimination" by private group-health insurers; that is a step in the right direction, as are growing efforts by employers to encourage their workers to control weight (the motive is to reduce the cost of health insurance to the employer). Medicare could be modified to reduce fees to thin people. In addition, a calorie-based food tax (which would, for example, fall heavily on sugar-flavored soft drinks), would reduce obesity at negative cost to the public fisc. Such a tax may seem "unfair" to people who consume such foods but are thin, but this is just to say that the tax would be at once a regulatory and a revenue tax, and in the latter aspect would be subject to criticism only if it were an inefficient tax relative to alternative methods of taxation.