In the remainder of the chapter, the panel

  • sets out a more developed concept of MCER;
  • reviews the merits of a refined and information-rich prospective measure as compared with a simpler retrospective measure;
  • presents a retrospective measure of MCER based on the Current Population Survey Annual Social and Economic Supplement (CPS ASEC);
  • sketches a prospective measure based on the 2-year Medical Expenditure Panel Survey (MEPS) longitudinal file;
  • considers how best to use information about individuals to ultimately construct a family-based measure of MCER; and
  • notes the issues that are not addressed by the panel’s recommended strategy.


A core goal of health insurance is to pool risks of potentially high medical care costs across the population and over people’s lifetimes. Through health insurance, families lower their financial risk and have a more predictable expense in the form of an insurance premium that, in theory, can be budgeted for as a share of income and resources. For the insured, MCER thus has two components—premiums and out-of-pocket expenses for medical care not covered by insurance. For the uninsured, MCER has only the out-of-pocket component, although the uninsured may well experience other adverse effects, such as delaying needed care and experiencing anxiety from the lack of insurance coverage. The discussion below discusses ways to assess the financial risk.

A measure of MCER is needed to answer the following questions: What kinds of health events will push families or individuals into poverty or otherwise substantially compromise their financial well-being? What is the chance of those events occurring to different kinds of families? How do such events differ for different kinds of people? Because spending on out-of-pocket expenses for medical care services is not normally distributed, other measures besides the mean and variance are needed to adequately reflect the distribution of medical care out-of-pocket spending for families with different characteristics. We have identified two different situations to use for expressing the prospective risk that a family or unrelated individual faces.

1. One uncovered hospital stay away from poverty: What would happen if a family had a major out-of-pocket expense, such as that for an average-sized hospitalization? Might that be sufficient to push the family

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