paid for out of pocket; for consistency, the proposed resource definition does not add the value of health insurance. Also for consistency, the proposed definition subtracts out-of-pocket medical care expenses from income: even with insurance, many people must pay out of pocket to obtain that insurance or to receive care, and such expenses reduce disposable income.

Although the proposed poverty measure excludes medical care from both the thresholds and resources, it will reflect changes in health care policy that affect disposable income. For example, if changes in health care financing reduce out-of-pocket medical expenditures and thereby free up resources for food, housing, and other consumption, the proposed measure will show a lower poverty rate; the current measure would not show this effect. We also recommend that appropriate agencies develop direct indicators of the extent to which families lack or have inadequate health insurance that puts them at risk of not being able to afford needed treatment. These "medical care risk" measures should be cross-tabulated with but kept separate from the economic poverty measure.

RECOMMENDATION 4.1. In developing poverty statistics, any significant change in the definition of family resources should be accompanied by a consistent adjustment of the poverty thresholds.

RECOMMENDATION 4.2. The definition of family resources for comparison with the appropriate poverty threshold should be disposable money and near-money income. Specifically, resources should be calculated as follows:

  • estimate gross money income from all public and private sources for a family or unrelated individual (which is income as defined in the current measure);

  • add the value of near-money nonmedical in-kind benefits, such as food stamps, subsidized housing, school lunches, and home energy assistance;

  • deduct out-of-pocket medical care expenditures, including health insurance premiums;

  • deduct income taxes and Social Security payroll taxes;

  • for families in which there is no nonworking parent, deduct actual child care costs, per week worked, not to exceed the earnings of the parent with the lower earnings or a cap that is adjusted annually for inflation;

  • for each working adult, deduct a flat amount per week worked (adjusted annually for inflation and not to exceed earnings) to account for work-related transportation and miscellaneous expenses; and

  • deduct child support payments from the income of the payer.

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