However, families that are uninsured are at risk for serious deprivation without lots of income to cover the cost of an expensive illness.
If the purpose of the index is to grapple with identifying people who are underinsured and, conversely, to ask the question, “How much insurance is enough?” then the correct way of conceptualizing the question is in terms of the amount of insurance needed to avoid deprivation in the face of a random catastrophic illness or accident. Thinking in those terms, the medical risk component does intertwine with the nonmedical component of the SPM, if one is going to be internally consistent in the measuring systems. People who are adequately insured should have enough insurance to guarantee a minimum level of nonmedical consumption in any state of health—as established by the nonmedical poverty index, the SPM.
The nonmedical consumption threshold, therefore, should include the premiums needed to buy adequate insurance. After 2014, those premiums will vary by age but not by health status. In addition, to be totally consistent, nonmedical resources should not include actual spending under Medicaid and Medicare, but the actuarial value of those programs on average (comparable to a premium).
Short explained that the SPM currently reduces resources by out-of-pocket premiums and out-of-pocket medical expenses. But a possible modification would reduce resources by the out-of-pocket premiums needed to buy an adequate amount of insurance. The right amount of insurance would probably vary by people’s income and circumstances (e.g., household size and age composition). Then, at least conceptually, if people had enough insurance as measured against nonmedical consumption needs, their out-of-pocket medical expenses could be ignored. By construction, they should be able to handle any expenses not covered by the minimally adequate insurance plan.
Thus, one gets to a kind of two-part index or two-part measurement of poverty, she observed. This two-part approach decomposes family medical expenses into predictable family spending on insurance and a random out-of-pocket component, but with a need standard for the first component that reduces and limits the second component. The nonmedical poverty index, the new SPM, would incorporate enough income to buy enough insurance. The second index—on which this workshop is focusing today— would quantify the risk of being poor, as defined by the first index, because of inadequate insurance for the out-of-pocket component. As Meier and Wolfe suggest, Short concluded, that could be the probability of falling into poverty—the probability that high out-of-pocket medical expenses would put a family below the poverty threshold.
Gary Burtless (Brookings Institution), the second session discussant, began by stating that the perspective he brings to this discussion is that of