first approach is that it allows the share of assets that would be added to resources to grow with age (declining life expectancy). More importantly, the methodology is well grounded in theory and well established in practice.
Pros and Cons
Defining the asset contribution to resources as a fixed percentage of asset value, rather than amount earned on assets during the most recent year, would prevent a large decline in the value of assets from producing negative family income. Likewise, calculating an annuitized value from the balance of liquid assets would also avoid generating a negative contribution during a year in which the value of asset holdings declined broadly. Furthermore, the actuarial approach is consistent with established methods of converting asset balances into income streams, which is exactly the need that we are addressing, and the assumptions that it requires could be obtained from those that are published each year by the Social Security and Medicare trustees. The drawback of the second approach is its complexity, given the limitations of the asset data to which it would be applied.
CONCLUSIONS AND RECOMMENDATIONS
The official poverty measure uses a concept of Census money income in conjunction with a set of thresholds, originally developed as the cost of a minimum diet times three for all other needs. A new supplemental poverty measure uses a different concept of income that includes tax credits, expenditures, and certain cash-equivalent benefits in conjunction with different thresholds. We have recommended (see Chapter 2) continuing the Census approach for purposes of defining income and resources for the SPM poverty measure, including recommended additional analysis related to medical care economic burden.
A fundamental question for the panel is whether the resources used to assess prospective MCER should be equated with either of these two income concepts or whether a different concept would be more appropriate.
We find, first, that there is a growing deficiency in both income concepts with respect to the treatment of retirement income, which is critical to the measurement of resources for the elderly, which is the age group with the greatest medical care needs. If resources are to be equated with income, then at a minimum this deficiency must be addressed—down the road if not in the near term. A deficiency with respect to the measurement of self-employment income is also notable, and this affects the nonelderly population.
We find, second, that for those who have access to them, assets are a potentially important resource for meeting unexpected medical needs—