beneficiaries because it did not value their medical insurance benefits. Yet after almost two decades of experimentation, there is still no agreement on the best approach to use. (See Moon, 1993, for a review of past approaches and suggested alternatives.)
Two problems make it very difficult to arrive at a solution that both achieves the necessary consistency between the threshold concept and the resource definition and is feasible to implement. The first problem is that medical care benefits are not very fungible—they may free up resources to some extent, but they by no means have the fungibility of, say, food stamps. There are two reasons that food stamps are essentially interchangeable with money: (1) virtually all households spend at least some money for food, so the receipt of food stamps frees up money income for consumption of other goods and services; (2) the maximum food stamp allowance is low enough that it is unlikely households would receive more benefits than the amount they would otherwise choose to spend on food. Neither of these conditions holds for medical care benefits: not all families have medical care needs during a year, and, although medical care benefits for low-cost services (e.g., a prescription drug or a doctor visit) may free up money income for other consumption, the "extra" benefits received from insurance (or free care) to cover expensive services (e.g., surgery) are not likely to free up money income to the same degree. Hence, approaches that add the value of medical insurance benefits to income without also increasing the thresholds have the perverse effect that sick people look better off than healthy people even though their extra "income" cannot be used to support consumption. In the more common practice of assigning average benefits for groups (i.e., valuing medical benefits at the assumed insurance premium amount), the result is similar—to make sicker groups, such as the elderly or disabled, look better off than healthier groups.
However, any attempt to develop thresholds that appropriately recognize needs for medical care runs into the second problem: that such needs are highly variable across the population, much more variable than needs for such items as food and housing. Everyone has a need to eat and be sheltered throughout the year, but some people may need no medical care at all while others may need very expensive treatments. One would have to develop a large number of thresholds to reflect different levels of medical care need, thereby complicating the poverty measure. Moreover, the predictor variables used to develop the thresholds (e.g., age, or self-reported health status) may not properly reflect an individual's medical care needs during any one year: some people in a generally sicker group may not be sick that year and vice versa for people in a generally healthier group. The result would be that it would be very easy to make an erroneous poverty classification.
A related issue is that, until very recently, hardly any research on this topic considered the question of out-of-pocket medical care costs. Even groups with good medical insurance coverage, such as the elderly, pay some of their