National Academies Press: OpenBook

Measuring Poverty: A New Approach (1995)

Chapter: Medical Care Costs

« Previous: In-Kind Benefits - Nonmedical
Suggested Citation:"Medical Care Costs." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 67
Suggested Citation:"Medical Care Costs." National Research Council. 1995. Measuring Poverty: A New Approach. Washington, DC: The National Academies Press. doi: 10.17226/4759.
Page 68

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INTRODUCTION AND OVERVIEW 67 concept of a budget for consumption needs. Hence, it is clear that the definition of family resources should add to money income the value of near-money in- kind benefits that are intended to support consumption. Thirty years ago, assistance programs that provided in-kind benefits rather than money were small in number and scope. Subsequently, such programs—which include food stamps, subsidized housing, school lunches, meal programs for the elderly, and home energy assistance—have expanded greatly, and the poverty measure should take account of their effects. Some in-kind benefits are harder to value than others because they are less fungible (i.e., less interchangeable with other resources) and of less value to the recipient than the same amount of money income: public housing raises the most problems in this regard. Also, for some types of benefits (e.g., employer- provided housing or meals), there is little information or experience with how to value them. However, we believe that the Census Bureau has sufficient experience with valuing the major types of in-kind benefits so that reasonable estimates can be added to money income without waiting for further research. Of course, research should continue on improved methods for valuing in-kind benefits, and changes in methodology should be made as appropriate. (Employer-provided benefits that are necessary for work, such as subsidized child care, parking, or free uniforms or tools, should not be valued as part of income because the proposed definition of disposable income subtracts out-of- pocket costs for child care and other work-related expenses, net of any employer subsidy.) Medical Care Costs Perhaps the most striking omission from the list of in-kind benefit programs that we propose to count as family resources for purposes of measuring poverty is medical care benefits. Certainly, Medicare, Medicaid, and employer-provided health insurance have helped many millions of Americans over the past three decades. It seems odd that the proposed poverty measure does not explicitly reflect this achievement of public policy and also does not explicitly reflect the gaps in health insurance coverage of the population that still exist. In fact, the proposed measure does take account of health insurance benefits, but indirectly—in terms of the extent to which they reduce out-of- pocket medical care expenses and thereby increase disposable income for other consumption. Also, we recommend that separate measures be developed of the economic risk from inadequate or no health insurance coverage to accompany the measure of economic poverty. Researchers have wrestled with the valuation of health care benefits for purposes of poverty measurement for over a decade, without providing satisfactory solutions. One reason is that, in contrast to such benefits as food stamps, health care benefits are not very fungible. Food stamps are fungible for

INTRODUCTION AND OVERVIEW 68 two reasons: essentially all households spend at least some money for food, so the receipt of food stamps frees up money income for consumption of other goods; also, 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. First, not all households have medical care needs during the year. Second, although medical care benefits for, say, a low-cost prescription or for a doctor's visit may free up money income for other consumption, the "extra" benefits received from insurance (or free care) to cover, say, expensive surgery are not likely to free up money income commensurately. Hence, it is misleading to add medical care benefits to resources without also acknowledging the costs of medical care in the poverty budget. But the development of appropriate adjustments to the thresholds is a difficult task because of the great variation in health care needs across the population. One proposal is to have a "two-index" poverty measure, in which people must satisfy two tests to be considered not poor: they must have adequate resources to obtain nonmedical necessities (e.g., food), and they must have adequate medical insurance coverage or sufficient resources with which to buy such coverage. Such an approach is appealing, but it poses considerable operational difficulties, for example, determining what is "adequate" health insurance coverage, in general, and for different groups. Also, the two components of the measure are not consistent, in that the medical component measures a risk (e.g., an expensive illness) that may or may not have materialized for a family or individual over the time span for which poverty is determined, while the nonmedical component measures the actual ability of the family or individual to obtain such universally required items as food. Further complicating the whole issue is that, despite widespread medical care coverage, many people still face high out-of-pocket costs, such as the employee share of health insurance premiums, payments for deductibles, copayments, and payments for noncovered services. Very little consideration has been given to the appropriate treatment of such costs in a poverty measure. The original thresholds implicitly allowed for some out-of-pocket medical care expenditures in the multiplier, but not for the fact that such costs differ substantially by people's health status and other characteristics. Because the official thresholds do not reflect such differences, the poverty rate for some groups is underestimated, and for other groups it is overestimated. We argue for an approach that separates the measurement of economic poverty from the measurement of medical care needs and the adequacy of resources to meet those needs. Hence, the proposed threshold concept includes such goods and services as food and housing but not medical care. For consistency, we do not propose to add the value of medical care benefits to income, and, further, we propose to subtract out-of-pocket medical care

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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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