below the SPM threshold? (The answer depends on insurance coverage, out-of-pocket payments for premiums, and cost-sharing for services received.) What is the probability of such an event, given the characteristics of that family and its members, including income and type of insurance?
With employment-based coverage or either Medicaid or Medicare, the risk that out-of-pocket spending for medical care services impoverishes a family is probably smaller than otherwise. Likewise, in a relatively young population, the probability may also be small because of lower health risks. In contrast, low-income working families who do not qualify for Medicaid or employer-sponsored group insurance could be expected to pay more out-of-pocket for medical care, with a risk of falling below the SPM threshold that will vary according to family members’ health. If such families bought insurance on their own, the full cost of premiums would contribute substantially to their out-of-pocket medical care spending.
2. If family income is low enough, even a small health shock with moderate out-of-pocket spending might push an individual or family into poverty. For those closer to the poverty threshold, it might not take much of a medical event or episode of illness to push the family to or below the threshold. Even in good health, families with incomes less than the poverty threshold are poor. What happens to people who become sick in those families?
We propose to quantify the concept of risk for a family as the estimated probability that next year’s medical spending is greater than the difference between the family’s SPM poverty threshold and its resources as defined for the SPM, with two differences—first, actual out-of-pocket medical care expenses would not be subtracted from resources (in contrast, the retrospective SPM poverty measure does subtract such expenses from resources); and, second, a small percentage of liquid financial assets would be added to SPM resources (as recommended in Chapter 3) as soon as there are data to make that possible.1 For families whose resources defined as above fall below the SPM poverty threshold, the estimated probability is 1 (100 percent), whereas for millionaires with insurance with a maximum out-of-pocket spending limit, the estimated probability is 0. Many Americans will have some estimated probability between 0 and 1, which means that they will not be in poverty when healthy but that some possible level of medical care spending will push them into poverty.
1 Because the proposed quantification of risk is rooted in the SPM, projected medical spending needs to calculated at the family level, using the SPM definition of family (see Chapter 2). Later in this chapter, we discuss the relative merits of family versus individual-based approaches for predicting family out-of-pocket medical care expenditures.