Working Paper: NBER ID: w18900
Authors: Sanders Korenman; Dahlia Remler
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. \n\nThe 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. \n\nWe 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.
Keywords: elderly poverty; health insurance; poverty measure; medical expenditures
JEL Codes: I13; I32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SPM's subtraction of MOOP from income (E19) | overstatement of elderly poverty rates (I32) |
| SPM's treatment of MOOP exacerbates biases in poverty measurement (I32) | higher reported poverty rate among the elderly (I32) |
| exclusion of health benefits and treatment of MOOP expenditures (I13) | distortion of poverty measurement (I32) |
| high out-of-pocket health care spending does not generally force older Americans to reduce their living standards (I14) | SPM does not accurately reflect material hardship experienced by the elderly (I32) |
| SPM raises elderly poverty rate both in absolute terms and relative to other age groups (I32) | misclassification of poverty status (I32) |
| construction of a health-inclusive poverty measure (HIPM) is feasible (I32) | more accurate representation of poverty among the elderly (I32) |