National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Implications of Updating for Costs and Caseloads

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Suggested Citation:"Implications of Updating for Costs and Caseloads." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 377
Suggested Citation:"Implications of Updating for Costs and Caseloads." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 378
Suggested Citation:"Implications of Updating for Costs and Caseloads." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
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Page 379

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THE POVERTY MEASURE AND AFDC 377 a reduction in the AFDC need standard; how much less than that amount might be appropriate is open to question. Clearly, the issue of program interactions is a very difficult one. It may make most sense for the states to think of the AFDC need standard as a global standard, and then address program interaction questions in determining AFDC benefit levels. Implications of Updating for Costs and Caseloads Another important issue with the possible use of the proposed poverty measure to determine AFDC need standards concerns the proposed procedure for updating the thresholds. As we have stressed, thresholds developed under that procedure will reflect real increases in basic consumption, not just price changes. The use of thresholds updated in this manner offers the advantage that states would not have to periodically evaluate their need standard for real changes in living standards. Although few states have historically sought to revise their standard on any regular basis, there are some exceptions, and the Family Support Act now requires states to evaluate their need standard at least once every 3 years and to report the results to HHS. However, with the proposed procedure, the states would face concerns about possibly larger caseloads and higher costs compared with the use of the current poverty guidelines (see Chapter 7). One way in which the need standard is linked to eligibility for AFDC—and, hence, potentially to caseloads and the costs associated with changes in caseloads—is through federal law. The effects of this link may be relatively minor because the tie, strictly speaking, is only to gross income. Families with gross incomes that do not exceed 185 percent of the need standard may be eligible, but only if their net income does not exceed the payment standard. Hence, in states that do not raise their payment standard, increases in the need standard that result from the use of the proposed procedure will not necessarily add to caseloads or costs.24 More important effects on costs and caseloads may stem from the links that state laws provide between the need standards and the determination of net income eligibility and benefits. These links are more or less direct, depending on which of several methods a state uses to calculate eligibility and benefits; for some examples of how changes in need standards can affect families' eligibility status and benefits depending on the method used by the state, see Figure 8-1. 24 The adoption of higher need standards could cause some families with very high deductions from gross income to become eligible, but the number is likely to be small. There is evidence that states do not necessarily worry about increased costs from raising their need standard, from their reactions to federal legislation in the early 1980s that limited eligibility to families with gross income below 150 percent of the need standard (subsequently increased to 185%). Many states, including those with low-benefits, raised their need standards but not their benefit levels. This response allowed previously eligible families with high deductions to continue to be eligible but limited any increase in their benefits.

THE POVERTY MEASURE AND AFDC 378 EXAMPLE A: STATEPAYS 100 PERCENT OF DIFFERENCE BETWEEN NEED STANDARD AND COUNTABLE INCOME An increase in the need standard affects the number of eligible families and translates dollar for dollar into an increase in benefits. FAMILY 1: Countable income of $450 per month If need standard is $400 per month, family will be ineligible. If need standard is increased by $100 per month, family will be eligible for $50 benefit ($500 - $450). FAMILY 2: Countable income of $350 per month If need standard is $400 per month, family will be eligible for $50 benefit ($400 - $350). If need standard is increased by $100 per month, family will be eligible for a benefit increase of $100 per month ($500 - $350 = $150). EXAMPLE B: STATE PAYS FRACTION (50%) OF DIFFERENCE BETWEEN NEED STANDARD AND COUNTABLE INCOME An increase in the need standard affects the number of eligible families but increases benefits only fractionally. FAMILY 1: Countable income of $450 per month If need standard is $400 per month, family will be ineligible. If need standard is increased by $100 per month, family will be eligible for $25 benefit (($500 - $450) × 0.50). FAMILY 2: Countable income of $350 per month If need standard is $400 per month, family will be eligible for $25 benefit (($400 - $350) × 0.50). If need standard is increased by $100 per month, family will be eligible for a benefit increase of $50 per month (($500 - $350) × 0.50 = $75). FIGURE 8-1 AFDC eligibility and benefits of hypothetical families in states with different eligibility and benefit determination methods. • Example A: A state pays the full difference between the need standard and countable income. In this case, the need standard (which determines gross income eligibility) is the same as the payment standard (which determines net or countable income eligibility), and both are the same as the maximum benefit paid to families with no other income. The link of the need standard to eligibility and benefit levels and hence to caseloads and costs is most obvious in these cases: an increase in the need standard allows families with higher net (as well as gross) incomes to become eligible and, for a given level of countable income, provides a higher level of benefits. • Example B: A state pays a fraction of the difference between the need standard and countable income. In this case, the need standard and the payment standard are the same, but the maximum benefit is lower. Here, there is a direct link of the need standard to eligibility, which means a link to caseloads and the costs associated with changes in caseloads. However, the

THE POVERTY MEASURE AND AFDC 379 EXAMPLE C: STATE PAYS DIFFERENCE BETWEEN FRACTION (50%) OF NEED STANDARD AND COUNTABLE INCOME An increase in the need standard only fractionally increases the number of eligible families as well as the amount of benefits. FAMILY 1: Countable income of $450 per month If need standard is $800 per month, family will be ineligible ($800 × 0.50 = $400, which is &$450). If need standard is increased by $100 per month, family will still be ineligible ($900 × 0.50 = $450, which equals $450). FAMILY 2: Countable income of $350 per month If need standard is $800 per month, family will be eligible for $50 benefit (($800 × 0.50) - $350 = $50). If need standard is increased by $100 per month, family will be eligible for a benefit increase of $50 per month (($900 × 0.50) - $350 = $100). EXAMPLE D: STATE PAYS 100 PERCENT OF DIFFERENCE BETWEEN NEED STANDARD AND COUNTABLE INCOME SUBJECT TO A MAXIMUM BENEFIT An increase in the need standard affects neither the number of eligible families nor benefits unless the maximum benefit is also increased. FAMILY 1: Countable income of $450 per month. If need standard is $400 per month and maximum benefit is $375 per month, family will be ineligible. If need standard is increased by $100 per month but maximum benefit is unchanged, family will still be ineligible. FAMILY 2: Countable income of $350 per month If need standard is $400 per month and maximum benefit is $375 per month, family will be eligible for $25 benefit ($375 - $350). If need standard is increased by $100 per month but maximum benefit is unchanged, family will still be eligible for $25 benefit. link to benefits per case is attenuated because eligible families with a given level of countable income will receive only a fraction of an increase in the need standard. • Example C: A state pays a fraction of the need standard itself. In this case, the need standard exceeds both the payment standard and the maximum benefit. Here, the link of the need standard to both eligibility and benefits is attenuated. • Example D: A state uses one of the three methods listed above to make an initial determination of eligibility and benefits, but then imposes a maximum benefit that is lower than both its need and its payment standards. In this state, increases in the need standard have no effect, practically speaking, on either eligibility or benefit amounts unless the maximum benefit is also increased.

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Measuring Poverty: A New Approach Get This Book
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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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