Does Having Health Insurance Reduce Poverty? A Health Inclusive Poverty Measure under the Massachusetts Reform

Census’ new Supplemental Poverty Measure (SPM) subtracts medical out-of-pocket expenditures (MOOP) from income in calculating the resources families have available to meet basic needs. Using this measure, Sommers and Oellerich (2013) estimate that the Medicaid program reduces poverty in the US by 0.7 percentage points. However, we argue that the SPM misses an important way in which Medicaid—or the Affordable Care Act or employer-provided insurancimprovement overe—reduces poverty, because the SPM does not measure the role of health insurance in meeting the basic needs of the poor.

Specifically, the SPM does not measure the “access effect” of insurance: the insured get more or better medical care than the uninsured. The reason is that the SPM does not include health as a “basic need” in defining poverty. Since there are no health care needs in the SPM poverty definition, by definition poverty is not reduced when those needs are met through public or private insurance. Moreover, because according to the SPM, having insurance is worthless unless it reduces MOOP, the risk reducing role of insurance has no value. For that reason, relatively healthy uninsured people who are mandated to purchase even highly subsidized insurance will be measured by the SPM as poorer.

The SPM is based on the recommendations of a 1995 National Academy of Science panel on poverty measurement, including the recommendtion to exclude health from needs and the MOOP deduction. The panel made those recommendations only after trying many ways to incorporate health needs into the poverty measure and finding each to be invalid and/or impractical. The difficulty stemmed from the complex and capricious US health care system. Specifically, how much one has to pay for health insurance and/or medical out-of-pocket (MOOP) payments for care varied widely with health status, employment status, type of employment and other factors. Although the SPM improves poverty measurement in many respects, the SPM treatment of MOOP is controversial.

In this paper, we describe a health care system that enables a health inclusive poverty measure (HIPM) and show that making health insurance, rather than health care, the primary health need is critical for making a HIPM practical. We argue that, together, the ACA and Medicare Advantage plans provide most features necessary for a HIPM, especially universal availability of non-risk-rated plans that cap MOOP. We propose several HIPM variants and analyze their strengths and weaknesses. A HIPM could show the full effect of not expanding Medicaid in those states who have chosen not to do so.  We also implement two HIPM variants using data from the Massachusetts health reform, similar to the ACA. While we cannot determine the causal effect of the Massachusetts health reform on poverty, we show how both the SPM and our proposed HIPM affect measured poverty.