National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)


Suggested Citation:"MEASURING FAMILY RESOURCES: THE ISSUE OF MEDICAL CARE." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 388
Suggested Citation:"MEASURING FAMILY RESOURCES: THE ISSUE OF MEDICAL CARE." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 389

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APPENDIX A 388 from any set of scientific principles, facts, or arguments. Any updating method, be it one to ensure an absolute poverty threshold, a relative threshold, or one that falls somewhere in between, is a policy choice, not a scientific one. But unlike the previously discussed recommendation, this one would have a substantial impact on the level of poverty over time. At various points, the report forthrightly states that many of its recommendations are not made on the basis of scientific evidence alone, that they also involve the value judgements of panel members. But this recommendation is all judgement and no science. The choice of how rapidly the poverty line should rise over time derives from society's values. Judgements about these values are more properly made by elected officials charged with translating societal values into law rather than in reports issued by scientific bodies. CHOOSING A RANGE FOR THE POVERTY LINE The report's introduction argues correctly that the choice of a poverty threshold is not a scientific one. The panel then concludes that the appropriate range for the poverty line is between $13,700 and $15,900 for a family of four.1 This range is between 14 and 33 percent higher than the comparable current poverty line. In terms of consumption of the three basic needs—food, clothing, and shelter—40 to 55 percent of four-person families consume less than this amount. The report attempts to create an impression that this range lies within the scientific community's consensus about where the poverty line should be drawn. The policy-making community should be aware that there is no consensus within the scientific community. Furthermore, even if there were, it should carry no more weight among policy makers than a consensus among theoretical physicists that they prefer tofu to beef burgers. Choosing a poverty line or a range for that line is a policy maker's job, not the job of a scientific panel. Scientific expertise can inform policy makers' choices. For example, this expertise can be brought to bear on measuring and assessing living conditions at or near alternative poverty lines. Unfortunately, the report provides no information on the level of economic deprivation among persons at any of the poverty levels discussed. MEASURING FAMILY RESOURCES: THE ISSUE OF MEDICAL CARE For measuring family resources, the report recommends that out-of-pocket expenditures for medical care be subtracted from a family's income. This recommendation is troubling. It assumes that all medical care expenditures are 1 The report is vague about why the panel chose to label its range a conclusion instead of a recommendation. However, the distinction is immaterial since there is no scientific basis for recommending or concluding that a particular range is appropriate.

APPENDIX A 389 nondiscretionary. Within the field of economic science, the assumption that all medical care expenses are nondiscretionary runs contrary to three decades of economic research. From the early work of Pauly (1968) and Grossman (1972) to later work by Newhouse (1993) and others, economists have viewed health as an economic good, responsive to both income and price changes. This consumer choice approach has dominated economic analysis of health care and a greatly enhanced analysis of health care expenditures. Although this research does not offer any firm conclusions about how health care should be treated in the context of poverty measurement, its basic premise is at odds with the panel's rationale. The panel's recommendation is based on an approach suggested in a 1985 conference paper by David Ellwood and Larry Summers. In the decade since that paper was presented, there has not been, to my knowledge, a single critical evaluation or discussion of it in any major peer reviewed scientific economics journal. The paper's merits aside, its approach has not undergone the kind of assessment that science requires before a scientific consensus is reached. The report argues that deducting out-of-pocket expenses removes medical care entirely from the calculation of poverty. The argument is not correct, as the following example illustrates. Consider two healthy families—the Smith family and the Jones family. Suppose the Smith family has an income that is $2,000 higher than the Jones's. The Smith family purchases a $3,000 health insurance plan while the Jones family purchases no health insurance. Both families are fortunate enough to have no additional out-of-pocket health expenditures during the year. According to the report's recommended treatment, the Smith family would be poorer than the Jones family. And it would be so only because it chose to spend its higher income on health insurance. The panel also argues that, by excluding medical care from its list of basic goods, its treatment is consistent. However, for two reasons, this argument is less than satisfactory. First, the 15 to 25 percent add-on to the poverty threshold "for other needed expenditures" can be construed as building in an amount for medical care. In fact, the dollar value of this percentage—$1,800 to $3,200—is more than one-half the actuarial value of Medicaid for the noninstitutionalized population and close to the cost of a typical private insurance plan. Second, the panel could have obtained the same range for the poverty threshold by including medical care as a fourth basic commodity and basing the threshold on the 20th instead of the 30th percentile of the consumption distribution. One final point about the panel's treatment of in-kind benefits is in order. Much of the impetus for changing the way in which resources are counted comes from the fact that the current method ignores the value of billions of dollars in noncash benefits for food, housing, and medical care that are spent on low-income families. The reader will be surprised to see that the panel,

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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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