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June 2006, Vol. 129, No. 6
Misclassification in an experimental poverty measure
Among the recommendations and proposals set forth in a 1995 National Research Council (NRC) panel report on measuring poverty,1 perhaps the most controversial was the treatment of medical needs. The panel proposed poverty thresholds that reflected needs for food, clothing, shelter, and "a little more." However, the panel concluded that medical needs vary too much to be included in poverty thresholds. Instead, each individual family’s medical out-of-pocket spending is to be subtracted from the family’s actual income and the remainder compared against a poverty threshold that includes nothing for medical needs.2 The panel also proposed the development of a companion "medical care risk index" to "monitor people’s risks of incurring medical care costs that exceed their ability to pay."3
According to the NRC panel, if medical needs were included in the new thresholds it proposed, "it would be very easy to make an erroneous poverty classification."4 The distribution of medical expenditures is more skewed than the distribution of expenditures for food, shelter, and clothing.5 The panel believed that including typical amounts for medical needs in new poverty thresholds, as it recommends for other needs, would lead some researchers to misclassify as not poor some families that need very expensive medical care and to misclassify as poor other families that happen to need no medical care during the year.
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1 Constance P. Citro and Robert T. Michael, eds., Measuring Poverty: A New Approach (Washington, DC, National Academy Press, 1995).
2 Ibid., pp. 223–37.
3 Ibid., p. 237.
4 Ibid., p. 224.
5 Table 4-1 in the panel’s report includes a distribution of medical out-of-pocket spending. Table 1500, "Composition of consumer unit: annual means, standard errors and coefficient of variation, Consumer Expenditure Survey, 2003," produced by the Bureau of Labor Statistics and on the Internet at www.bls.gov/cex/2003/stnderror/cucomp.pdf, illustrates the greater relative variation in medical spending than in spending for food or shelter.
Related BLS programs
Consumer Expenditure Survey
poverty measures: accounting for medical expenditures—Aug.
Experimental poverty measurement for the 1990s.—Mar. 1998.
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