National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Separate Measures of Medical Care Risk and Economic Poverty

« Previous: A Two-Index Poverty Measure
Suggested Citation:"Separate Measures of Medical Care Risk and Economic Poverty." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 235
Suggested Citation:"Separate Measures of Medical Care Risk and Economic Poverty." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 236

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DEFINING RESOURCES 235 and housing—needs that are universal and cannot be deferred. The medical component, in contrast, is measuring a risk that may not actually materialize. Thus, someone in a high-risk health category may have a good year and need only minimal medical care, but no one can have a year in which he or she does not need to eat. Therefore, including medical care needs and resources in the poverty measure, whether by a single or two-index approach, is to mix apples and oranges: goods (e.g., food), for which needs do not vary greatly within categories (e.g., family size), and medical care, for which actual needs can vary substantially from expected needs or risk. Separate Measures of Medical Care Risk and Economic Poverty Given all of the conceptual and operational difficulties with the alternatives, we believe that the proposed approach—namely, to exclude medical care needs from the poverty thresholds and to subtract out-of-pocket medical care expenditures from income—is preferable. However, this approach is not without problems, and we would be remiss not to point them out. First, there are some practical problems of implementation concerning the quality and sources of data for estimating out-of-pocket medical care expenditures. (These problems are not unique to the recommended approach— they also affect the one-index and two-index approaches described above.) Thus, recall and other errors by survey respondents can diminish data quality (e.g., respondents may report total expenditures rather than the out-of-pocket costs that remain after payments by their insurance plans). With regard to data sources, the March CPS has never asked about medical care costs. SIPP has regularly included a question on out-of-pocket expenses, but it has generally done so only once a panel and only for costs incurred in the month preceding the interview. Clearly, research and development will be needed to obtain data of reasonable quality for use in a poverty measure. It may be that initial implementation should be carried out by means of imputing out-of-pocket medical care expenses from other data sources.28 A more serious problem (which also affects other approaches) is that not all out-of-pocket expenses are necessary, and there is no easy way to separate discretionary from needed expenses. We considered capping the amount of 28 The NMES, which about once every 10 years collects very detailed information on medical care treatments and costs from households and from their health care providers and insurers, would be the obvious source for such imputations. Data from the 1987 NMES were used by Doyle, Beauregard, and Lamas (1993) and Weinberg and Lamas (1993) in analyzing the effects of a two-index measure of poverty. NMES may also provide guidance for the measurement of out-of-pocket expenses in SIPP (or the March CPS), although it would clearly not be possible to replicate its in-depth approach. The "bracketing" technique discussed above with reference to reporting of assets could perhaps be used to improve reports of out-of-pocket medical care expenditures in SIPP.

DEFINING RESOURCES 236 out-of-pocket expenses that would be deducted from income, similar to the proposal to cap the deduction of child care expenses from the earnings of working parents (see below). However, the two situations are not the same. The assumption is that additional child care expenses, above a reasonable allowance to make it possible to work, bring added benefits that the family chooses to pay for, so that, for purposes of poverty measurement, it makes sense to cap the deduction. But it does not make sense to cap the deduction for out-of-pocket medical care expenses when they are incurred to treat an illness or disability.29 A sick person with high medical care expenditures is not made better off than a healthy person with no or relatively low expenditures; at best, the added expenditures serve only to restore the sick person to a healthy state. Given that one cannot distinguish between discretionary expenditures (which, ideally, should be disregarded, i.e., not deducted at all) and expenditures that are needed to restore health, we decided not to propose a cap on the deduction for out-of-pocket medical care expenses for the poverty measure. However, this situation could change in the future. For example, if insurance plans that significantly limit families' out-of-pocket liabilities for medical treatment are widely available, then it may well be appropriate to cap the deduction. One could then assume that medical care spending above the limit was discretionary. Finally, an objection to our proposed approach, voiced by Moon (1993), is that it does not explicitly acknowledge a basic necessity, namely, medical care, that is just as important as food or housing. Similarly, the approach devalues the benefits of having health insurance, except indirectly, in that people who have medical costs that are covered by insurance will be measured as better off than people who have to pay such costs out of pocket. Moon suggests that one variant of the proposed approach that would acknowledge medical care needs is to have the poverty budget include an allowance for average out-of-pocket expenses. Under this approach, people with above-average expenses would have the difference subtracted from income, and people with below-average expenses would have the difference added to income. (Note, however, such a measure would still not acknowledge insurance benefits.) To be completely satisfactory, Moon argues that the poverty thresholds should vary in the allowance they make for out-of-pocket expenses by different family characteristics. Yet to move in the direction of a poverty measure that accounts for medical care needs and resources leads right back to the complex set of difficulties discussed above for which there appear to be no solutions. Single- index approaches, whether dealing only with out-of-pocket expenses or with 29 Some of these expenses may also be unnecessary, but the consumer (the patient) usually has little control over treatment decisions by providers.

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Each year's poverty figures are anxiously awaited by policymakers, analysts, and the media. Yet questions are increasing about the 30-year-old measure as social and economic conditions change.

In Measuring Poverty a distinguished panel provides policymakers with an up-to-date evaluation of

  • Concepts and procedures for deriving the poverty threshold, including adjustments for different family circumstances.
  • Definitions of family resources.
  • Procedures for annual updates of poverty measures.

The volume explores specific issues underlying the poverty measure, analyzes the likely effects of any changes on poverty rates, and discusses the impact on eligibility for public benefits. In supporting its recommendations the panel provides insightful recognition of the political and social dimensions of this key economic indicator.

Measuring Poverty will be important to government officials, policy analysts, statisticians, economists, researchers, and others involved in virtually all poverty and social welfare issues.

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