NASEM Releases New Report on Measuring Poverty in the U.S.
A new report from the National Academies of Sciences, Engineering, and Medicine recommends updating the methodology used by the Census Bureau to calculate the Supplemental Poverty Measure (SPM) — a more comprehensive measure than the Official Poverty Measure — to reflect households’ basic needs and resources available to meet those needs more accurately. Read the full report here.
Poverty statistics are essential for determining the size and composition of the population whose basic needs are going unmet; helping target resources to alleviate hardship; and assessing the effectiveness of programs designed to improve well-being. The committee that wrote the report was tasked with providing recommendations for updating the SPM, which requires periodic reexamination to account for changes in the U.S. economy and in standards of basic living conditions.
To calculate the SPM, the Census Bureau adds up private cash incomes plus cash and noncash benefits (such as those received from social safety net programs) and subtracts some nondiscretionary expenses to estimate households’ resources. Independently, poverty “thresholds” are calculated based on costs of food, shelter (regionally adjusted), clothing, utilities, telephone, and internet, with 20 percent added for additional needs. If a family’s resources fall below the basic needs threshold, it is considered poor under the SPM. Currently, the SPM treats health care and child care as nondiscretionary expenses that factor into resource estimates, but not as elements of the bundle of basic needs in the threshold.
The report calls for expanding the threshold categories to explicitly recognize that minimum basic needs for American families include health care and child care. It also recommends that the shelter need be based on the regional cost of renting basic housing.
“As our society and economy change, the way we measure the financial reality that families face must adapt as well,” said committee chair James P. Ziliak, Carol Martin Gatton Endowed Chair in Microeconomics and founding director of the Center for Poverty Research at the University of Kentucky. “Our recommendations are focused on adjusting the Supplemental Poverty Measure so that it more effectively captures the resources and needs that disadvantaged families are balancing.”
The report recommends renaming the SPM which, as currently conceived, fails to convey that it often serves as the primary measure of poverty because, among other things, it allows researchers and policymakers to evaluate the effectiveness of programs designed to reduce poverty. The report proposes Principal Poverty Measure (PPM) as a more apt name. The report also recommends that the PPM replace the Official Poverty Measure as the primary statistical measure of poverty.
Medical Care
Most people consider medical care a basic need. However, because medical care is accounted for based on expenditures reported by households, the SPM does not capture unmet needs for people who are uninsured or underinsured. The estimate implicitly assumes that a family’s basic need is equal to whatever the family spends out of pocket on insurance and medical care, which is often not the case.
The report recommends that:
- The proposed PPM should include the need for a basic health insurance plan in estimates of the measure’s threshold and include health insurance benefits provided by employers or the government in estimates of resources. The report notes that the Census Bureau has already begun considering the practical implications of moving toward a health inclusive poverty measure.
- For those under 65, the PPM should adopt an Affordable Care Act benchmark health insurance plan to represent the basic health care need for a typical American household.
- For those aged 65 and older, and for those under 65 covered by Medicare (e.g., some individuals with disabilities), the basic need level should be set based on the full cost of a Medicare Advantage plan.
Child Care
Among families that pay for it, child care accounts for around 16 percent of direct expenditures, which makes it the third-largest budget component after housing and transportation. Comprehensive accounting of child care needs is essential to understanding families’ economic well-being. The committee proposed that, ideally, child care should become an element of the basic needs threshold in the PPM, similar to medical care. The committee acknowledged additional research is required to implement this approach, as there is currently little consensus on how to value child care provided by parents, family, or friends.
The report recommends that:
- In households with children under the age of 13 (or up to age 18 if a child is disabled), the poverty measure should treat parents pursuing education the same as parents who are employed.
- Ideally, child care should be included in the PPM threshold, with estimated costs allowed to vary by age and number of children and geographic location (costs could be derived based on federal child care subsidy programs).
- For a balanced accounting, financial assistance received for child care should be added to estimates of a household’s resources. Since unpaid child care also has value, it could also be accounted for in the resource estimation.
Housing
Housing is often the largest component of a household’s spending, with about a third of U.S. households paying more than 30 percent of their income on it in 2020. The budget share is even higher for renters and households with lower incomes. Rental housing is typically a more attainable goal than purchasing a home. In this sense, the report says, renting represents the baseline housing need.
The report recommends that:
- The PPM housing threshold should be set based on costs for renters only, and rental levels should be estimated using the U.S. Department of Housing and Urban Development’s annual Fair Market Rent estimates.
- The proposed PPM should discontinue the current practice of maintaining three separate thresholds based on housing tenure status (homeowners with a mortgage, homeowners without a mortgage, and renters). While owners without mortgages have lower monthly housing costs, these differences can be accounted for in the estimate of households’ resources.
- PPM thresholds should continue to reflect geographic differences in housing costs as captured in official Fair Market Rent calculations.
Given the report’s recommendations to re-specify components of the SPM threshold, the current 20 percent adjustment to capture additional basic needs would also need to be updated by the Census Bureau and the Bureau of Labor Statistics to align with these changes.
The study — undertaken by the Committee on Evaluation and Improvements to the Supplemental Poverty Measure — was sponsored by the U.S. Department of Commerce.