cally higher levels of assets than other groups with similar income, then the current approach measures poverty or health care burdens consistently across policy-relevant subgroups. It is worth examining these assumptions, however, with respect to the elderly, who, simply by virtue of age, have had more time to accumulate assets than younger families with the same income.3 If the elderly do have systematically higher levels of assets, all other things equal, then income-based measures of financial deprivation may be misleading. This issue may be particularly relevant to the measurement of medical care burdens, because health care expenses due to illness and disability are widely recognized as one of the major financial risks of old age for which to save. The question then becomes one of how to incorporate assets into an income-based measure.

A growing literature has examined out-of-pocket expenditures for medical care as a function of income. The literature typically defines one or more thresholds, such as 10 and 20 percent of family income, so that the distribution of the population according to the thresholds can be reported. As explained elsewhere, this approach reduces bias due to reporting error in income and provides an intuitive measure of the risk of incurring high medical burdens (Banthin and Bernard, 2006). This threshold approach mirrors the method used in measuring poverty, which is also based on thresholds.

As far as we are aware, however, the literature has always analyzed medical care financial burdens and risks separately for the elderly and nonelderly subpopulations. There are two main reasons for this distinction. First, the two groups differ in their primary sources of insurance coverage. Thus, the reasons for and the policy implications of high out-of-pocket medical care burdens also differ by subpopulation. Because almost all persons ages 65 and over are covered by Medicare, the policy implications of high burdens among the elderly center on the Medicare program. Individuals under age 65, in contrast, are covered primarily by employment-sponsored insurance, individually purchased policies, and Medicaid. Many are uninsured. The policy implications of high burdens among the nonelderly are related to the functioning of private insurance markets. A second and equally important reason for analyzing the two groups separately is methodological. Because elderly and nonelderly individuals and families spend very different proportions of their income on health care, it is difficult to define a single threshold for both age groups.

The elderly and nonelderly devote different proportions of their family income to health care because both parts of the equation—their expected health care needs and their resources to meet those needs—are very different. What is an appropriate threshold for a nonelderly individual or family

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3 The self-employed population is another group that may have systematically higher levels of assets. It is treated in the annex.



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