It is not expected to replace the official poverty line. (Replacing the official poverty line raises issues of equity across groups currently eligible for federal needs-based programs as well as issues of a politically sensitive nature, such as official responsibility for an increase in measured poverty that might occur with an improvement in measurement.)
The SPM is still in a research stage, even though it was initially included in the president’s fiscal year 2011 budget, which would have allowed the measure to become operational. The resource side of this measure is to include not only money income but also in-kind benefits (e.g., SNAP; the Special Supplemental Nutrition Program for Women, Infants, and Children [WIC]; free and reduced-price school lunches; housing subsidies; home energy assistance) minus taxes (or adding tax credits), and subtracting out work expenses and out-of-pocket medical expenses. It uses the three-parameter equivalence scale proposed by the 1995 NRC panel3 and is to adjust for differences in the cost of shelter across geographical areas. The threshold is to be set at the 33rd percentile of the food, clothing, shelter, and utility needs for all families with two children.4
The medical out-of-pocket (MOOP) expenditures are to be based on questions added to the CPS Annual Social and Economic Supplement (ASEC). In these questions respondents are to report expenditures on medical care insurance premiums and fees that the family paid out-of-pocket, including prescription drugs and provider copayments. According to Short (2011:8), these expenditures are particularly large for children and the elderly: there is preliminary evidence that subtracting MOOP from income increases the SPM poverty rate for the elderly by approximately 7 percentage points. This increase is an indication of the (increasing) importance of medical expenditures in this country and their importance in a correct calculation of poverty.
INCORPORATING MEDICAL CARE NEED INTO THE MEASUREMENT OF POVERTY
Insufficient treatment of medical care need (and resulting expenditures) in the poverty measure has increasingly challenged its validity over time. Although the poverty measure arguably did not capture the full importance of the relationship between medical need and poverty in the early decades of its use, the sheer growth of medical care expenditures as a proportion of domestic spending has probably exacerbated the real effect of this pro-
3 The three-parameter scale is equal to (adults + α * children)β where α varies between 0.5 and 0.8 and β varies between 0.6 and 0.7; in the SPM, β is set equal to 0.7, and α = 0.5 for two-parent families but 0.8 for the first child in a single-parent family.
4 This description of the SPM is from Short (2011).