Lawmakers evaluating today’s slate of health-care proposals underestimate their impact because of a deeply flawed and obsolete way of measuring poverty.
This fall the U.S. Census Bureau brought good news when it informed us that the nation’s poverty rate had fallen from 13.2 to 12.7 percent.
But now more than ever, we should be suspicious of this news.
The reason is that the messenger — the official poverty rate — is deeply flawed. A close look into it reveals that it is unmoored from its purpose of measuring the share of Americans struggling to make ends meet. And it’s drifting farther from that principle. As underscored by recent events in the other Washington, it is time to reattach our poverty indicator to the reality of people’s lives today.
To calculate a poverty rate requires first setting the threshold income below which someone is poor. The U.S.’s threshold, three times the cost of a minimum food diet, is more than 60-years-old and was set when food was families’ most costly expense. No wonder a family of four today with $25,000 in income is not officially poor: Our threshold doesn’t match the reality facing low-income households.
Next comes the challenge of defining income. As conservatives point out, we underestimate income by omitting the value of many cash and noncash government benefits. This practice dates to a time long past when government expenditures on tax credits, food stamps and housing subsidies weren’t that significant.
Liberals, on the other hand, point out that poverty income does not deduct families’ non-discretionary expenses such as taxes, child care and health care. Such omissions are particularly outdated when it comes to health care: In 1960, when the current poverty formula was adopted, a typical worker spent a week’s wages on health expenses. Today it takes two months.
Such inadequacies have been at the heart of longstanding debate over our poverty measure and explain why in 2010 the Census Bureau adopted an additional poverty indicator called the Supplementary Poverty Measure (SPM). The SPM addresses the above shortcomings (and others) by adjusting both the poverty threshold and the definition of income.
The Census Bureau now publishes the SPM alongside the official poverty rate. Currently the SPM counts another 4 million Americans as poor, which leads to a poverty rate of 13.9 percent — or 1.2 percentage points above the official one. This difference is the largest gap ever between these two poverty measures.
In Washington state, the bureau estimates that over the period 2014-2016, the SPM rate was 11.7 percent, or slightly higher than the official rate of 11.5 percent.
Because it uses a more reasonable threshold and deducts non-discretionary expenses from income, the SPM gives us a better estimate of the share of Americans who are poor. Meanwhile, the shortcomings of our official indicator of poverty just grow by the day.
Consider, for instance, this year’s slate of health-care proposals. Nearly every one entailed a dramatic rollback of Medicaid. One consequence would have been that millions of low-income citizens would have faced higher health-care bills. If poverty were properly measured by subtracting medically necessary expenses from income (as the SPM does), any of these proposed changes would have encouraged lawmakers to confront the immiserating consequences of each proposal.
But our official measure takes no account of the burden of health care on low-income families’ budgets. Lawmakers are thus not held accountable for any change in health policy that leaves additional households unable to make ends meet.
And for the poor, the burden of paying for health care is already excessive. One-third of poor Americans spend at least 5 percent of their earnings on out-of-pocket health expenses; one-in-five spends 10 percent. Indeed, one-fourth of those in poverty by the SPM’s standard are there because of medical expenses. Reduce enrollments in Medicaid, and millions more join them in that plight.
Our outdated way of measuring poverty dates to a period more than a half century ago when health care was a minor expense. That era is long gone. These times call for a new measure of poverty that reflects the challenges of the 21st century — challenges that include figuring out how to finance our health-care system in a way that doesn’t impoverish our fellow citizens.