the financial burden of medical care, states the charge to the panel and describes the scope and limitations of the study, and outlines the organization of the report.


The U.S. poverty measure is an important indicator of economic well-being that influences public opinion and public policies. The official poverty thresholds are used to determine eligibility for many government assistance programs, and the measure plays a role in planning and evaluating government programs for low-income people and assessing the effectiveness of public policies in alleviating economic deprivation.1

The current official poverty measure was developed in the early 1960s by Mollie Orshansky, staff economist in the Social Security Administration (SSA). It was first used by the Office of Economic Opportunity and then adopted as an official statistic by the U.S. Bureau of the Budget (now the Office of Management and Budget, OMB) in 1969. SSA published the poverty measure until 1967, when the Census Bureau assumed the responsibility of publishing the measure on an annual basis using data from the Current Population Survey (CPS). Over the years, social and economic conditions changed, along with changes in public policies and an overall increase in the standard of living, making the measure less adequate for its intended uses.

The official poverty measure has weaknesses in both the definition of family resources and the specification of the thresholds. These thresholds are set at the same level across the country, without regard to geographic variations in the cost of living, and they have not been updated for real growth in the standard of living, but only to account for inflation. The definition of family resources does not include near-cash in-kind support from such sources as the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program), the school meals programs, and other programs for low-income populations. It also fails to deduct federal, state, and payroll taxes paid by families, expenses for work (child care and other work-related expenses), and child support payments to another household.

Most important for this report, the official poverty measure does not take account of the dramatic increases in medical care costs and spending since the measure was first adopted. At that time, national health care spending accounted for only 5 to 6 percent of gross domestic product compared with nearly 18 percent today.2 The rapid growth in medical care costs relative to income, particularly for middle- and low-income families,


1 This, and the next section, draws heavily on National Research Council (1995:Chapter 1).

2 See

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