The Price of America’s Obesity Epidemic: Aetna Inc. (AET), Southwest Airlines Co. (LUV)

Page 1 of 2

In the year 2000, no U.S. state had an obesity rate above 30%. In 2010, 12 states did.

That’s hardly the most shocking statistic of the obesity epidemic, America’s most serious ongoing crisis. Much has been made about the health implications of being overweight: Between increased risks of diabetes to hypertension and other ailments, obesity brings a whole host of unwanted factors to sufferers. However, the worst consequence of this growing challenge isn’t the health dilemma; it’s the economic predicament sparked by rising obesity rates.

With health care costs already on the rise as America ages, the country’s growing waistlines will present one of the future’s most dire economic challenges — unless Americans get a handle on stopping the obesity outbreak today.

Aetna Inc. (NYSE:AET)How obesity will hurt average Americans
35.7% of Americans were obese as of 2010, according to the CDC. The last two decades have seen a dramatic rise in its incidence, and the costs to overweight individuals have skyrocketed.

Health care spending alone for overweight Americans averaged more than $1,400 per year above what normal citizens paid, according to a 2006 study. The impact was even greater for obese individuals, who anted up more than $2,700 above the average American’s health care spending. That amounted to obese people spending more than 5.5% more of their average household income in 2006 in health care spending as compared to normal-weight citizens.

Translate that to the waning fortunes of the average American’s wallet, and it’s easy to see how individuals are suffering financially under the weight of obesity. Rising costs of health insurance aren’t helping: The health care reform laws of 2010 allow employers to charge obese employees up to 30% or higher more for insurance if said employees opt out of wellness programs. However, the costs of health care reform won’t impact the overweight alone.

Health insurers can’t turn away customers with pre-existing conditions any more, and insurance premiums could be ready to skyrocket. The CEO of Aetna Inc. (NYSE:AET), the third-largest health insurer in the U.S., predicted that unsubsidized premiums could rise between 20% to 50% on average under Obamacare. Add up the rising health care costs of obesity onto what insurers will have to pay out, and now everyone’s hurting. Pooled insurance may actually help obese customers manage costs, while hindering healthy and normal-weight individuals who will pay more to subsidize the group.

This all comes as more and more Americans struggle to deal with stagnant wages and high unemployment. Obesity alone has contributed to those factors: Studies show  correlation between chronic obesity and unemployment.

Rising health care costs due to obesity won’t just cripple individuals’ financial flexibility in coming years; they will deliver a crushing blow to the U.S. economy and businesses in the long term.

What the crisis means to the economy
Here’s another statistic indicative of the problem the country’s facing: Obesity-related health care spending is estimated to cost up to $190 billion per year; or more than 20% of total U.S. health care costs. If nothing’s done to stop the epidemic now, chalk up an additional $50 billion or more on top of that total by 2030.

Obesity’s rising costs are not what the U.S. economy needs as the government attempts to put a lid on exploding health care expenditures. The U.S. spent more than $8,000 per person on health care in 2012, or more than 17% of GDP — more than 2.5 times the OECD average for national health care spending per person, a trend that fits as the U.S. has the highest obesity rate of any OECD nation.

Source: Organization for Economic Co-Operation and Development.

That’s money that can’t be spent on other vital areas of the economy, such as education, transportation, or even budget balancing — critical necessities the nation will have to address in coming years. If health care spending continues to grow, however, those will have to be put on the backburner. And grow it has: While the rate of health care spending growth has fallen by around 50% from 2003 to 2012, growth still outpaces overall economic growth. The fall may only be temporary, as obesity — along with the aging of the Baby Boomers — strains the health care system.

Speaking of transportation, that too will take a critical hit from obesity’s rise. Studies estimate that increased passenger weight contributed to an extra $275 million in airline fuel costs between 1990 and 2000 alone. Airlines can’t afford that in today’s perilous industry climate; Southwest Airlines Co. (NYSE:LUV), for instance, can charge obese passengers for an extra seat.

Yet that may not be enough for Southwest Airlines Co. (NYSE:LUV) and other carriers if obesity and high fuel costs continue to weigh on their bottom lines; Southwest Airlines Co. (NYSE:LUV) only manages a 2.5% profit margin, hardly allowing much breathing room.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!