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Obesity: Healthcare, Gov’t and the Private Sector

Posted Feb 26 2010 12:38pm

I have been absent from writing for the past few weeks, primarily for two reasons: (i) we have been extremely busy between ironing out the kinks at the new restaurant on 52nd St and trying to get the 17th St deal closed, and (ii) I have been feeling less inspired and a bit reticent to simply report the news in soundbites. There are times however when I observe some thing or activity or action in every day life that compels me to write, but I often abstain for fear that the topic is a bit too sensitive and I do not want to come across as insensitive or misunderstood. At this point I am growing a bit too frustrated and believe its worth getting the topic out there to start a discussion. I am hopeful that others are focused and concerned about the issues referenced in the title of this post and will speak up and engage in productive discourse. Its also snowing outside, business is slow and its as good a day as any to spend some time hammering away at the keyboard.

So as to the title of this posting – this is a vast and complicated basket of related topics. The first word, Obesity, is the broad based problem to which I refer. We, as a country, are wildly overweight. We are fat. No shocker here, nor is this the first time I have written on the topic (this is where i get a bit nervous about my commentary…) When is the last time you walked down the street or sat in the subway and counted more ‘healthy’ looking folks than overweight or obese individuals. Nowadays its a virtual impossibility. It simply does not happen. And its getting worse every day. To be clear, I am not being judgmental. This is not about vanity or optics or whether its more pleasant to look across the subway at someone who is considered ‘thin’. Its about a culturally sensitive subject that nobody seems to want to take on for fear of a litany of reasons – public outcry and socio-economic justifications, selfishly motivated economic implications (I wonder how many politicians stand to gain economically from the prosperity of companies like Coke, Pepsi, Kraft, General Mills…admittedly i haven’t done the research to prove this theory, just a hunch) and the satisfaction of various political constituencies (related to the second item) – despite the magnitude of implications for this country if nothing changes in the coming decades.

There has been unending news coverage and countless articles over the past 12 months – lots of ideas and opinions, not so much action, although understandably with any significant issue it takes  a long time to effect change.

New York has however taken a leading role in the fight to increase public awareness regarding diet and health, first with  calorie posting requirements in restaurant chains (>15 units), then the Anti-soda campaign and most recently the well published intentions regarding a long term plan to reduce sodium consumption. Hats off to Bloomberg, Patterson and Co.

A point of major debate is the concept of a tax on sugary beverages – 1 cent / ounce. The times covered the topic with an article a few Sundays ago. The article refers to a piece written in the New England Journal of Medicine from April of 2009. I pulled the article (a link to this article can be found below) and enjoyed the read – it succeeded in articulating a number of basic economic principles relating to this matter that are often overlooked by the folks who continue to say ‘wahhhhh…it isn’t fair to single out soda.’ Fair? Really? Is it fair that we continue to subsidize the $80 billion tax bill related to obesity and overweight cases – 50% of this bill is covered by Medicaid and Medicaire.

Now I am not trying to be insensitive to the socio-economic challenges that many overweight and obese people face – it is a major part of the issue and one that we need to address immediately. That said, socio-economics aside, we must consider the fact that we as a country are being economically punished/taxed in large part because a % of the population chooses to consume in a way that is completely detrimental to their health, our healthcare system and ultimately the economic health of the country. So how do we fix this issue? I believe that a multi-faceted approach that requires the cooperation and participation of both the public and private sector is at a minimum a step towards a real solution. Set forth below is a brief plan that incorporates many of my own thoughts along with input/corroboration from the NEJM article.

First, some facts and soundbites from the article:

* “In the past decade, per capita intake of calories from sugar-sweetened beverages has increased by nearly 30%; beverages now account for 10 to 15% of the calories consumed by children and adolescents.”

* “Even if one quarter of the calories consumed from sugared beverages are replaced by other food, the decrease in consumption would lead to an estimated reduction of 8000 calories per person per  year – slightly more than 2 lbs each year for the average person.”

* “Americans consume about 250 to 300 more calories daily today than they did several decades ago, and nearly half this increase is accounted for by consumption of sugared beverages;”

Now on to the plan. It represents a starting point more than anything else but i believe it has merit.

1. First, we need money. So we need to implement a tax. Let’s use New York’s proposed Soda Tax as an example. Although there are likely other candidates that contribute to our growing obesity problem, the stats show that soda is certainly near the top, if not at the top of the list. Skeptics say that Gov’t shouldn’t interfere and to let consumer preferences and the basic principles of supply and demand dictate which goods are bought and sold. I understand the argument and can appreciate the intent – I embrace capitalism just as much as the next guy or gal. Unfortunately, in this particular instance, capitalism and the private sector have led us to a place where we don’t have much of a choice but to allow the government to step in and intervene. Without intervention, nothing will change. In fact, things will only get worse. Pretty soon, 35% obesity will grow to 40, then 50% and so forth. The economic burden alone will be unmanageable. Part of our Gov’t’s responsibility is to manage the finances of our country and deploy capital in ways that will ultimately allow the country to grow and see the benefits of this growth accrue to the population. I do not believe that many folks consider spending $40 billion a year (today) on obesity related illnesses through Medicaire and Medicaid to be a good use of our capital. $40 billion. Just imagine what we could do with that kind of loot. Education. Innovation. Endless possibilities.

So, per the article, the tax plan would look like this and makes sense for these reasons:

* 1 penny per ounce excise tax on sugary beverages; fixed cost per ounce provide an incentive to buy less and are more effective in reducing consumption than a % tax (like sales tax) which simply encourage the trading down of brands or larger volume containers.

* Precedent for effectiveness in reducing demand: Taxes on tobacco have been highly effective. Price increases on soda have shown the industry to be highly elastic (for those that were not econ majors, this means that as you increase prices, the reduction in volume is greater than the increase in prices). Beverage Digest reported in November 2008 the following: as prices of soft drinks increased by 6.8%, sales dropped by 7.8%, and as Coca-Cola prices increased by 12%, sales dropped by 14.6%

* Framework for Consideration/ Why I think its “fair” : (i) Consider the cost, as mentioned above, to those parties not involved in a particular transaction – the purchase of soda for example. The concept is called externality. In layman’s terms, its the $40 billion tax bill that we are footing as a result of other folks decisions’. In addition to the economic cost, there is also the qualitative cost to society in things such as decreased productivity, absenteeism, poor school performance, etc; (ii)  Food marketers, as they are employed to do, often play games of trickery and deception that exploit people – ’sugary beverages that are packed with vitamins’! OR ‘100% black angus beef!’*** – particularly young children. Its called information asymmetry; (iii) Generating revenue to allocate in ways to will favor society. In this example, a penny per ounce excise tax would raise ~$1.2 billion in New York alone.

Now, if and when we raise cash, what do we do with it? Tough questions and I have no answers, but a few ideas perhaps.

* Don’t waste the money with shock and awe marketing campaigns. I although I enjoyed the Soda/Lard campaign and appreciate the message, I am not convinced that it was or will be particularly effective. Admittedly I don’t have any stats that would tell me whether there was a reduction in sugary beverage consumption, an increase in water consumption or any other measurable effects from the campaign. But I do believe there are other ways to deploy money that might prove to be more effective. Folks can be told that soda is bad for you until they are blue in the face, but if a 12 pack costs $4 and a 12 pack of water $8, the discussion is over for many. See next point.

* Start to level the economic playing field. From where i stand, a major part of the issue is the affordability of ‘healthful food’ – fresh vegetables, lean proteins, etc. At this point we all know that its a lot cheaper to produce a calorie of sugar than it is fresh produce or high quality protein. There is no getting around this. So why can’t we take this cash and subsidize healthful foods in ways that will make it far more accessible for the population at large. Why can’t the government issue merit based grants for ideas/ideas in incubation/businesses that are looking to (i) help solve this problem and (ii) need to make a few dollars doing so in order to keep the dream alive. Who specifically do we subsidize? Growers? Distributors? Retailers? Not sure, but somewhere along the value chain, we need to see these dollars put to work in a way that drastically reduces the spread between the cost of a cheeseburger and fries and the cost of celery sticks and hummus or fresh fruit. I understand that the Treasury department has earmarked $250 million for New Markets Tax Credits – a powerful incentive for private investors to take chances on projects – like a healthier grocery store – in ‘distressed communities’ that have potential. We need a lot more where that came from.

* With a level playing field comes the ability to introduce accountability. Back to my earlier point, most folks make active decisions about what to buy and consume. Many are economically constrained. To the extent we can mitigate the economic constraint, we can at a minimum start to entertain the concept of accountability as it relates to consumption, health and health-care costs. Sounds a little tricky I know. But think about it. If what we have remains in place, we are never going to get anywhere. For instance: last week I was at a Dunkin Donuts, standing in line behind an obese individual. It was rather sad frankly. When the individual got up to the register, she ordered a large Frappacino and a donut. Probably 1,000 calories. Zero nutritive value. And i believe the ticket was over $7. The reality is that for 7 bucks she could have gone across the street and picked up a nice salad with grilled chicken. But what is her incentive to do so? She has grown to love the taste and experience of a large Frappacino and donut (engineered by really big, smart companies that know a think or two about addictive qualities and how are taste buds speak to our brains) and at the end of the day, if she gets ill she is covered (to a degree) by either her companies’ insurance or medicaire. What if this persons’ healthcare cost was somehow tied to what she consumed, her body fat level or any other number of metrics. Clearly this is a tough one – what about the folks who struggle with chronic illnesses, psychological disorders or perhaps a thyroid problem that makes it very difficult to maintain the right body weight. I appreciate that its not cut and dry. But we should at least entertain this relationship. It won’t change otherwise.  Perhaps corporations will start to consider self-insuring as their insurance costs skyrocket. What if a company decided to self-insure, and was able to provide all of the resources and tools required to live and eat well. Could they then charge their employees varying prices for coverage depending on certain statistics? Why is this any different than smokers having to pay a premium? What am i missing here?

* Focus on education and the dissemination of good, fact based information. Information is as powerful as it has always been. In speaking with friends, family members and customers I  am amazed at how surprised folks are when I share tidbits of information as it relates to food, health and wellness. It is easy to lose sight of this because it is my livelihood and i am mired in it/passionate about it on a daily basis, but i have to remember that most folks haven’t been given the knowledge and tools to really understand what they eat and how it effects their body – both how it looks today and how well it works in 5, 10 and 20 years.  Part B – focus on the kids and schools. Although I would love to see everyone embrace a tectonic shift in what and how we eat, the reality is likely that many old dogs arent interested in new tricks. The most bang for our buck is to focus on the children. To teach them and have them come home from school and ask their parents for the right foods. Its a bit chicken and egg i realize (the parents are doing the ordering/shopping/getting home late from work,etc) but this is a complicated issue and we have to start somewhere. That somewhere should make at least a bit of sense. Have a look at let’s move. It says there is $400mm earmarked. Not sure what the right figure is.

* Allow capitalism and efficient markets to come full circle. Taxing soda (in this example) and using the money to subsidize more healthful options tips the scales a bit. If subsidies prevail and small businesses that try to make this change begin to see success, the Coca-Cola’s and McDonald’s of the world are going to come in a buy them anyways. Then, in the long run, we have effectively shifted their revenue source from one product to another and realized significant social benefit/change in the meantime. Clearly more complicated but you get the picture. Doesn’t seem so outlandish to me.

So that’s all i have for the moment. It’s a big, messy contentious issue that we need to address. I personally have a lot of learn on the topic – for all i know, my suggestions could be about as practical as a Segway.

But lets get the conversation started before we go bankrupt and explode. It’s important to the future of our country and the future of our children.

*** this is an interesting one. Folks see this and think wow – high quality beef. Interesting little tidbit – McDonald’s is the larger domestic importer of grass fed beef. Surprising right? International grass fed is supposed to be high quality, yes? Right. Because McDonald’s only uses beef trimmings to make their patties (gross), and because domestic beef is so high in fat, they have to import grass fed trimmings to mix with the domestic trimmings to get to 78% fat content. Where does all the rest of the grass fed cow go? Asia and Europe. We get the shaft.

New England Journal of Medicine Article:

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