Rethinking Elderly Poverty: Time for a Health Inclusive Poverty Measure?

Abstract

Census's Supplemental Poverty Measure (SPM) nearly doubles the elderly poverty rate compared to the "Official" Poverty Measure (OPM), a result of the SPM subtraction of medical out-of-pocket (MOOP) expenditures from income. Neither the SPM nor OPM counts health benefits or assets as resources. Validation studies suggest that subtracting MOOP from resources worsens a poverty measure's predictive validity and excluding assets exacerbates this bias, since assets fund MOOP.The SPM is based on a 1995 NAS report that recommended a health-exclusive poverty measure, despite considering it, conceptually, a "second best" to a Health-Inclusive Poverty Measure (HIPM). We analyze the reasons for the NAS recommendation and argue that constructing a HIPM is now feasible if we conceptualize health needs as a need for health insurance, and if plans with non-risk-rated premiums and caps on MOOP are universally available, a condition largely met by the Affordable Care Act and Medicare Advantage Plans.We describe four HIPM variants and present analyses that suggest the SPM treatment of MOOP results in a less valid measure of elderly poverty and an overstatement of the elderly poverty rate (by up to 5.5 percentage points or 50 percent). Many elderly classified as poor by the SPM's unlimited MOOP deduction are not poorly insured persons with incomes near the poverty line, but well-insured persons with incomes well above the poverty line.

Waging War on Poverty: Poverty Trends Using a Historical Supplemental Poverty Measure

“…In line with the SPM methodology, we subtract medical and other nondiscretionary expenses from income. But this treatment of MOOP expenditures remains controversial (see, e.g., Korenman & Remler, ; Meyer & Sullivan, ), and future research should explore alternative treatments of such expenses in the context of poverty measurement. We did find that our core results related to overall trends in poverty and the role of government policies and programs were not sensitive to the exclusion of these expenses from available income, though they, of course, affect levels in any given year.…”

“…The SPM also adjusts family resources by subtracting certain “non‐discretionary” expenses such as medical costs, work expenses, and child care expenses from available income. While these adjustments have been more controversial (see Korenman & Remler, for a lengthier discussion on this point), they are an attempt to reflect the fact that certain critical expenses reduce some families’ ability to meet their routine needs.…”

Waging War on Poverty: Historical Trends in Poverty Using the Supplemental Poverty Measure

“…In line with the SPM methodology, we subtract medical and other nondiscretionary expenses from income. But this treatment of MOOP expenditures remains controversial (see, e.g., Korenman & Remler, 2012;Meyer & Sullivan, 2012a), and future research should explore alternative treatments of such expenses in the context of poverty measurement. We did find that our core results related to overall trends in poverty and the role of government policies and programs were not sensitive to the exclusion of these expenses from available income, though they, of course, affect levels in any given year.…”

“…The SPM also adjusts family resources by subtracting certain "non-discretionary" expenses such as medical costs, work expenses, and child care expenses from available income. While these adjustments have been more controversial (see Korenman & Remler, 2012 for a lengthier discussion on this point), they are an attempt to reflect the fact that certain critical expenses reduce some families' ability to meet their routine needs.…”

“…The SPM has been widely but not universally endorsed. Many analysts question its inclusion of MOOP expenditures (an item the NAS panel failed to reach agreement on; see, e.g., Korenman & Remler, 2012). Meyer and Sullivan (2003, 2012c note several ways in which the SPM is an improvement over the OPM, but argue that a consumption-based measure would be superior to both the SPM and OPM.…”