Labor Day

Quick Start for:

Weighing The Costs

Introduction

Businesses are seeing the adverse effects of the obesity epidemic on their bottom lines. The costs of employee obesity and obesity-related illnesses, including higher insurance costs and lost productivity, are growing and are avoidable.1 Businesses feel a disproportionate effect from these increases because most Texas adults with private insurance (88.5 percent) receive coverage from their employers.2

Furthermore, Texas businesses are likely hit harder than those in other states due to the higher prevalence of obesity in the state. The share of Texas adults who were obese in 2005, 27.0 percent, was higher than the U.S. average of 24.4 percent.3

The Comptroller estimates the total costs to Texas businesses attributable to adult obesity and obesity-related illnesses totaled more than $3.3 billion in 2005. Health care expenditures and decreased productivity at work (referred to as “presenteeism”) accounted for the majority of these costs (Exhibit 11). The Comptroller did not calculate costs associated with overweight adults, who accounted for another 37.1 percent of the Texas adult population in 2005.

Health Care Costs

Total U.S. spending on health care reached nearly $2 trillion in 2005, or $6,697 per person (Exhibit 12). Total health care expenditures rose by 35.3 percent from 2001 to 2005. During the same period, spending by private insurers and consumers’ out-of-pocket expenses rose by 39.2 percent and 24.7 percent respectively.

Exhibit 12
Growth in U.S. Health Care Spending 2001-2005 (in billions)

  2001 2002 2003 2004 2005
Total Health Care Expenditures $1,469.6 $1,602.8 $1,733.4 $1,858.9 $1,987.7
Private Insurance* 498.7 551.0 603.8 651.5 694.4
Out-of-Pocket Payments** 200.0 211.3 224.5 235.8 249.4

Annual Percent Growth from Previous Year

  2001 2002 2003 2004 2005
Total Health Care Expenditures - 9.1% 8.1% 7.2% 6.9%
Private Insurance - 10.5% 9.6% 7.9% 6.6%
Out-of-Pocket Payments - 5.7% 6.3% 5.0% 5.8%

* Private health insurance premiums.
** Direct spending by consumers. Includes copays and deductibles.
Note: Amounts may not total due to rounding.Source: U.S. Centers for Medicare and Medicaid Services.

Increases in Health Insurance Premiums, Earnings and Inflation 2001-2006: Exhibit 13

In 2005, health care expenditures accounted for 16 percent of the U.S. gross domestic product and 6 percent of household personal income.4

As health care spending increases, so does the cost to businesses and their employees, in the form of higher health insurance premiums and out-of-pocket expenses. In 2005, employers carried 74.4 percent of the cost of private health insurance in the U.S., with the remainder being paid by employees.5

The cost of health insurance is rising faster than both inflation and wages (Exhibit 13).6 From 2001 to 2004, average health insurance premiums (based on a family of four) increased at double-digit rates. Premiums rose by 7.7 percent in the U.S. in 2006.

Again, businesses and their employees have been forced to absorb these increases.

About 59.2 percent of all U.S. adults had employment-based health insurance in 2005, compared to 53.4 percent of adult Texans.7 The share of the population with employment-based health insurance, however, is falling, both in Texas and the U.S (Exhibit 14).

This pattern is likely due to rising costs. A 2006 survey of employer health benefits by the Kaiser Foundation reported that, among firms not offering health benefits, 86 percent cited high premiums as an important reason for not doing so.8

In 2006, the average annual premium for covered workers in the U.S. was $4,242 for single coverage and $11,480 for family coverage.9

Texas employment-based insurance premiums rose by 29.3 percent from 2001 to 2004 (Exhibit 15).10

Exhibit 15
Average Employment-based Health Insurance Premiums, Texas

Calendar Year Average Premium Annual Change Cumulative Change
2001 $2,924.55 - -
2002 $3,268.00 11.7% 11.7%
2003 $3,400.00 4.0% 16.3%
2004 $3,781.00 11.2% 29.3%

Note: Amounts may not total due to rounding.
Source: U.S. Department of Health and Human Services.

One 2005 study used uniform applicant and policy criteria to compare average health insurance premiums in the 50 largest American cities. Texas cities were among the most expensive. The average premium in Dallas for an individual policy was 171.1 percent higher than a comparable plan in Long Beach, California. Texas accounted for six of the most expensive 15 cities in the study.11

Obesity Costs

Obesity and obesity-related illnesses are major contributors to the rise in insurance prices.

A 2002 study of U.S. adults aged 18 to 65 found that obesity increased health care spending by 36 percent and spending on medications by 77 percent. Obesity had a greater effect on costs than smoking or problem drinking.12 And a 2003 study concluded that adult obesity accounted for 5.3 percent of total medical spending and 4.7 percent of medical spending by private insurers.13

Based on national health expenditure data, the Comptroller estimates that Texas’ health care expenditures totaled $114.2 billion in 2005, with private insurance for adults accounting for 25.7 percent of that amount, or $29.3 billion. Applying the 4.7 percent figure noted above to this estimate results in adult obesity costing Texas businesses nearly $1.4 billion in 2005 (Exhibit 16).14

Exhibit 16
Health Care Expenditures Attributed to Adult Obesity in Texas 2005 (in millions)

Estimate Elements Estimated Expenditures
Total Health Care Expenditures $114,172.3
Percent Adult Private Insurance 25.7%
Adult Expenditures-Private Insurance $29,324.4
Share Attributed to Obesity 4.7%
Obesity Costs $1,378.2

Note: Amounts may not total due to rounding.
Sources: Texas Comptroller of Public Accounts, U.S. Centers for Medicaid and Medicare Services and 2003 study by Eric A. Finkelstein, et al.

Yet health care costs associated with obesity are only one element of expense. Again, obesity also results in indirect costs such as absenteeism, reduced performance at work (“presenteeism”) and disability insurance costs (Exhibit 17). Workers’ compensation may be a cost factor as well, although research indicates it is negligible.

Exhibit 17
Direct and Indirect Costs Attributed to Obesity

Cost Drivers Definition
Health Care Health care insurance premiums
Absenteeism Time absent from work
Presenteeism Reduced productivity while at work
Disability Insurance to cover cost of injuries and disabling diseases

Source: Texas Comptroller of Public Accounts.

Absenteeism

Absenteeism, or missed workdays, varies by BMI and gender.

Research found no significant differences in the number of workdays missed among men who are normal weight, overweight and those with a BMI of 30 to 34.9 (Exhibit 18). Men whose BMI is 35 or greater, however, miss two more workdays each year. Women with a BMI of 30 to 34.9 miss 1.8 more days per year than do normal-weight women. Women with a BMI of 35 to 39.9 and 40 or more miss 3 days more and nearly a week more than normal-weight workers, respectively.15

A 2005 study of the U.S. full-time employed population estimated that 30 percent of total costs attributed to obesity are due to absenteeism and 70 percent to health care.16 This distribution of costs was applied to the Comptroller’s estimate of health care costs of nearly $1.4 billion. Therefore, the Comptroller estimates absenteeism due to obesity and obesity-related conditions cost Texas businesses $590.7 million in 2005.

Presenteeism

Presenteeism, or decreased productivity from employees at work, is another cost to business. Obesity and obesity-related illnesses have a negative effect on work functions such as performing certain tasks more slowly, repeating tasks or making mistakes. Many tasks that require physical activity cannot be accomplished because of illness or pain. Research varies on what proportion of the total costs comes from reduced productivity. Estimating such costs is difficult because there are no standard measures for productivity.17

A 2004 Harvard Business Review report found that decreased productivity at the financial services corporation Bank One accounted for 63 percent of its total illness-related costs, while medical costs and absenteeism represented 24 percent and 6 percent, respectively.18 This study examined the distribution of all health care costs, not just those attributed to obesity.

Another study estimated 2003 national costs due to absenteeism and reduced productivity at $42.3 billion or $1,627 per obese worker, compared to $1,201 per normal-weight worker. About two-thirds of the costs ($28.7 billion) were associated with reduced productivity while at work, while the remaining 32.2 percent were attributed to absenteeism.19

This distribution of costs was applied to the Comptroller’s estimate of absenteeism costs of $590.7 million. Therefore, the Comptroller estimates lower work productivity due to obesity cost Texas businesses $1.2 billion in 2005.

Disability

While only limited research is available on the cost of disabilities attributed to obesity, the Bank One study cited above found that short- and long-term disability accounted for 7 percent of all costs due to employee illness. Again, this study examined all health care costs, not simply those due to obesity.

A 2003 study of six large U.S. employers estimated the share of their total health care costs attributable to short-term disabilities caused by a variety of physical and mental conditions.20 Exhibit 19 details disability costs attributable to diseases commonly associated with obesity.

In Exhibit 19, 7.7 percent of the costs are attributable to short-term disability.

This distribution of costs was applied to the Comptroller’s estimate of health care costs of nearly $1.4 billion. Therefore, the Comptroller estimates that short-term disabilities due to obesity cost Texas businesses $115.6 million in 2005.

Exhibit 19
Six Large U.S. Employers Costs for Health Care and Short-Term Disability for Selected Illnesses, per Employee 1999

  Total Costs Health Care Costs Percent of Total Costs Short Term Disability Costs Percent of Total Costs
Angina Pectoris $213.09 $205.39 96.4% $7.70 3.6%
Essential Hypertension $99.71 $91.44 91.7% $8.27 8.3%
Diabetes $79.39 $74.76 94.2% $4.63 5.8%
Acute Myocardial Infarction $66.94 $60.32 90.1% $6.62 9.9%
Severe Osteoarthitis $40.05 $28.02 70.0% $12.03 30.0%
Osteoarthritis Maintenance $20.79 $18.18 87.4% $2.61 12.6%
Colon and Rectum Cancer $31.31 $30.50 97.4% $0.81 2.6%
Total $551.28 $508.61 92.3% $42.67 7.7%

Note: Amounts may not total due to rounding.
Source: Goetzel, R., et al.

In all, then, the Comptroller estimates that adult obesity and related illnesses cost Texas’ businesses and private insurers more than $3.3 billion in 2005 (Exhibit 20). This figure includes direct and indirect costs for health care, absenteeism, presenteeism and disability.

Exhibit 20
Costs to Business Attributable to Adult Obesity in Texas 2005 (in millions)

Areas of Costs Estimated Costs Percent
Health Care $1,378.2 41.4%
Absenteeism $590.7 17.7%
Presenteeism $1,246.5 37.4%
Disability $115.6 3.5%
Total Costs $3,331.1 100.0%

Note: Amounts may not total due to rounding.
Source: Texas Comptroller of Public Accounts.

This $3.3 billion represents the costs to businesses and not to all adult Texans. The Texas Department of State Health Services June 2004 report, “The Burden of Overweight and Obesity in Texas, 2000-2040” estimates the costs attributed to both overweight and obesity for all adults in Texas not just those covered by private insurance by their employers.

Appendix 1 contains more detail on the assumptions and calculations used to estimate these costs.

Endnotes

  1. Eric Finkelstein, Ian C. Fiebelkorn, and Guijing Wang, “The Costs of Obesity Among Full-time Employees,” American Journal of Health Promotion (September/October 2005), p. 50; Judith Ricci and Elsbeth Chee, “Lost Productive Time Associated with Excess Weight in the U.S. Workforce,” Journal of Occupational and Environmental Medicine (December 2005), pp. 1,227-1,234; and Vincent C. Arena, Krishna R. Padiyar, Wayne N. Burton, Joseph J. Schwerha, “The Impact of Body Mass Index on Short-Term Disability in the Workplace,” Journal of Occupational and Environmental Medicine (November 2006), pp. 1118-1119.
  2. U.S. Census Bureau, Current Population Survey, “2006 Annual Social and Economic Supplement, Table HI05, Health Insurance Coverage Status and Type of Coverage by State and Age for All People: 2005,” http://pubdb3.census.gov/macro/032006/health/h05_000.htm (Last visited March 5, 2007.)
  3. Texas Department of State Health Services, “Behavioral Risk Factor Surveillance System: Data Table Lookup,” http://www.dshs.state.tx.us/chs/brfss/query/brfss_form.shtm (Last visited March 5, 2007.)
  4. U.S. Centers for Medicare and Medicaid Services, “National Health Expenditure Data Web Tables,” http://www.cms.hhs.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#TopOfPage. (Last visited March 5, 2007.)
  5. U.S. Centers for Medicare and Medicaid Services, “National Health Expenditure Data Web Tables,” (Last visited March 5, 2007); and National Institutes of Health, U.S. National Library of Medicine, “Growth in U.S. Health Care Spending Slows,” http://www.nlm.nih.gov/medlineplus/news/fullstory_43636.html (Last visited March 5, 2007.)
  6. Kaiser Family Foundation, Employer Health Benefits 2006 Annual Survey (Menlo Park, California, 2006), p. 19.
  7. U.S. Census Bureau, Current Population Survey, “2006 Annual Social and Economic Supplement, Table HI05, Health Insurance Coverage Status and Type of Coverage by State and Age for All People: 2005.”
  8. Kaiser Family Foundation, Employer Health Benefits 2006 Annual Survey, p. 37.
  9. Kaiser Family Foundation, Employer Health Benefits 2006 Annual Survey, p. 26.
  10. U.S. Department of Health and Human Services, “Medical Expenditure Panel Survey, Table II.C.1(2004): Average Total Single Premium (in Dollars) per Enrolled Employee at Private-Sector Establishments that Offer Health Insurance, by Firm Size and State: United States, 2004,” http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/state/series_2/2004/tiic1.htm (Last visited March 5, 2007); U.S. Department of Health and Human Services, “Medical Expenditure Panel Survey, Table II.C.1(2003),” http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/state/series_2/2003/tiic1.htm (Last visited March 5, 2007); U.S. Department of Health and Human Services, “Medical Expenditure Panel Survey, Table II.C.1(2002),” http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/state/series_2/2002/tiic1.htm (Last visited March 5, 2007.; and U.S. Department of Health and Human Services, “Medical Expenditure Panel Survey, Table II.C.1(2001),” http://www.meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/state/series_2/2001/tiic1.htm (Last visited March 5, 2007.)
  11. eHealthInsurance, The Most Affordable Cities for Individuals to Buy Health Insurance, (Mountain View, California, June 28, 2005), p. 7.
  12. Roland Sturm, “The Effects of Obesity, Smoking, and Drinking on Medical Problems and Costs,” Health Affairs (March/April 2002).
  13. Eric Finkelstein, Ian C. Fiebelkorn, and Guijing Wang, “National Medical Spending Attributable to Overweight and Obesity: How Much, and Who’s Paying?” Health Affairs-Web Exclusive (May 14, 2003), p. 248.
  14. Both the obesity-related fraction (4.7 percent) and the health care expenditures used in the calculation for costs are based on private insurance costs, not specifically business costs. As stated earlier in the chapter, 88.5 percent of adults with private insurance in Texas are covered through their employer. This does not mean, however, that 88.5 percent of the costs of private insurance is paid through employer-based plans. That figure is unknown. The Comptroller did take into account that a smaller percentage of adult Texans have employment-based insurance (when compared to all payers of insurance) than the U.S. average.
  15. Finkelstein, “The Costs of Obesity Among Full-time Employees,” p. 48.
  16. Finkelstein, “The Costs of Obesity Among Full-time Employees,” pp. 45-51.
  17. National Institute for Health Care Management Foundation, Accelerating the Adoption of Preventive Health Services: Proceedings from a Conference (Washington D.C., 2003), p. 17.
  18. Paul Hemp, “Presenteeism: At Work – But Out of It,” Harvard Business Review (October 2004), p. 51.
  19. Judith Ricci and Elsbeth Chee, “Lost Productive Time Associated with Excess Weight in the U.S. Workforce,” Journal of Occupational and Environmental Medicine (December 2005), pp. 1227-1234.
  20. Ron Z. Goetzel, Kevin Hawkins, Ronald J. Ozminkowski, Shaohung Wang, “The Health and Productivity Cost Burden of the ‘Top 10’ Physical and Mental Health Conditions Affecting Six Large U.S. Employers in 1999,” Journal of Occupational and Environmental Medicine (January 2003), p. 5.
  21. Eric A. Finkelstein, Ian C. Fiebelkorn, and Guijing Wang, “State-Level Estimates of Annual Medical Expenditures Attributable to Obesity,” Obesity Research (January 2004), pp. 22-24.
  22. Finkelstein, “State-Level Estimates of Annual Medical Expenditures Attributable to Obesity,” pp. 18-24.
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