insurance) led to a concern that the official measure was overstating the extent of poverty among beneficiaries because it did not value their medical insurance benefits. Yet after almost two decades of experimentation, there is still no agreement on the best approach to use.
As noted by the panel (see National Research Council, 1995:224), two problems make it very difficult to arrive at a single solution that both achieves the necessary consistency between the threshold concept and the resource definition of a poverty measure and is feasible to implement. The first problem is that medical care benefits are not very fungible; they may free up resources to some extent, but by no means do they have the fungibility of, say, SNAP benefits. SNAP benefits are essentially interchangeable with money, both because virtually all households spend at least some money for food, so the receipt of SNAP benefits frees up money income for consumption of other goods and services, and because the maximum SNAP allowance is low enough that it is unlikely that households would receive more benefits than the amount they would otherwise choose to spend on food. Neither of these conditions holds for medical care benefits; not all families have medical care needs during a year, and, although medical care benefits for low-cost services (e.g., a prescription drug or a doctor visit) may free up money income for other consumption, the “extra” benefits received from insurance (or free care) to cover expensive services (e.g., surgery) are not likely to free up money income to the same degree. Moreover, individual and small group insurance premiums tend to increase with age and illness because older or disabled populations on average have higher levels of health care spending due to poor health.6 At the same time, with any cost-sharing, older and sicker people will have higher out-of-pocket spending for medical care even if they have exactly the same insurance policy as younger, healthier people. This means that simply adding the insurance value of health care services to families’ resources would make the sicker and the older population look “rich” when, in fact, they might have inadequate resources for food, clothing, and shelter.
The panel further noted (National Research Council, 1995:224-225) that any attempt to develop thresholds that appropriately recognize needs for medical care runs into the second problem: such needs are highly variable across the population, much more variable than needs for such items as food and housing. Everyone has a need to eat and be sheltered throughout the year, but some people may need no medical care at all, and others may need very expensive treatments. One would have to develop a large
6 Beginning in 2014, the Affordable Care Act will eliminate a number of techniques for adjusting or “rating” insurance premiums on the basis of such characteristics as preexisting medical conditions or health status (see http://101.communitycatalyst.org/aca_provisions/setting_premiums).