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Medical Out-of-Pocket Expenses, Poverty, and the Uninsured

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Working Paper Number SEHSD-WP2010-17


The National Academy of Sciences (NAS) Panel on Poverty and Family Assistance argued that the current official U.S. poverty measure should be updated to capture changes in the population’s healthcare costs and needs; families with sufficiently high medical out-of-pocket (MOOP) expenditures may be ‘poor’ even though they are not counted as such. This research offers three distinct advances toward achieving the NAS recommendations as they concern MOOP spending. Firstly, this paper uses the newly collected MOOP expenditure data from the CPS ASEC, and analyzes its quality vis-a-vis alternative sources. Secondly, poverty estimates that incorporate the MOOP spending data from the CPS ASEC are produced in such a way as to be consistent with the NAS recommendations. These direct estimates are an improvement over previous estimates, conditional on obtaining high-quality data, because modeling MOOP expenditures from other surveys is not needed. Third, this paper investigates how the distribution of MOOP expenditures, and the poverty estimates, change when it is assumed that the uninsured have the spending patterns of the insured. The main results are: 1) the new MOOP expenditure data is high quality; 2) incorporating observed MOOP expenditures increases the incidence of poverty across the population by approximately two percentage points over the official measure; 3) counterfactual estimates of non-premium MOOP expenditures for the uninsured does not significantly affect poverty estimates; and 4) counterfactual estimates of premium MOOP expenditures for the uninsured exert significant upward pressure on the poverty rate.


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