Pamela Short (Pennsylvania State University), session discussant, highlighted her thoughts on key concepts for measuring MCER. In her opinion, adhering to these concepts could make the job of measuring that risk easier, rather than harder.
She observed that there are basically two key reasons for measuring MCER separately from the general measure of poverty. First, the purpose of most medical care spending is to get people back to where they were in terms of well-being before a health loss. In keeping with this view, the SPM views medical care strictly as getting in the way of basic consumption. The implicit presumption is that medical care spending does not benefit consumers. The second reason for measuring MCER separately is the large random component involved in medical care spending. There is also a predictable component, which is reflected in adjustments in the SPM. One of the distinguishing characteristics of medical care is that the random component is very large and, for people who actually do get sick, it leaves them in a deprived state compared with other consumption needs.
The stated goal is to measure MCER. Risk is unpredictable, random variation in expenses. In their presentation, Meier and Wolfe have certainly defined risk in these terms, she said. Risk is not to be confused with predictable differences in average expenses. For example, older and sicker people will spend more on average than younger, healthier people. That is an issue in terms of well-being that can be realized with any given amount of resources, but it is not the risk the workshop is concerned with today. Also, risk should not be confused with actual expenditures. Conceptually, risk is an unknown that cannot be measured retrospectively. For example, two uninsured people are both equally at risk, even if only one of them gets sick. So risk has to be measured prospectively.
Another point is that premiums should not be confused with out-of-pocket medical expenses. The key here is that insurance turns random, variable medical expenses into regular, predictable insurance expenses. Insurance premiums are actually a lot more like spending on food, shelter, clothing, and utilities (the basic needs in the SPM) than out-of-pocket medical care spending. So, when one thinks about medical expenses in these terms, perhaps the ACA is a game changer for incorporating medical expenses into poverty measurement. If all are required to buy insurance, then the key question is how much insurance is enough to protect consumption related to basic needs other than medical care.
Where one goes with this depends a little on the planned use of the MCER index. If the index is to be used as a measure of needed income or how well needs are met by a family’s income, then a family with insurance does not need lots of income to cover uninsured, out-of-pocket expenses.