Roosevelt Institute | Cornell University

Challenges Estimating the Effects of Medicaid with Existing Poverty Measures

By Harkirat SanghaPublished January 30, 2023

Cornell Roosevelt Institute
There is a universal goal to "eliminate poverty", yet there are many challenges to defining poverty in order to measure it. Without sufficient measures of poverty, the effects of various welfare programs and policies are difficult to observe, such as Medicaid. In order to better estimate the effects of Medicaid, policymakers must move to using a health-inclusive poverty measure to better inform their decisions.

On January 20, 1961, John F. Kennedy started his presidency by saying, “For man holds in his mortal hands the power to abolish all forms of human poverty in all forms of human life.” The United Nations had established the goal of ending poverty in all its forms by 2030 back in 2015. Everyone says they want to “end poverty'' and “help the needy,” but what is “poverty”? 

Poverty is a multidimensional concept and should reflect the many different aspects of personal well-being. Personal well-being consists of more than just food and housing; it also includes healthcare. Currently, the most widely used measures of poverty in the United States are the official poverty measure (OPM) and the supplemental poverty measure (SPM). The OPM only includes cash income before taxes with the consideration of essential cost of food. Is healthcare not a necessary expense? Does health not matter for personal well-being? 

You’d think the SPM would fix this issue, right? Well, it doesn’t. The SPM captures the indirect effect of Medicaid on poverty by reducing the maximum out-of-pocket (MOOP) spending on healthcare and insurance, since Medicaid benefits free up financial resources that can be spent on other necessities. The SPM falls short when it comes to recognizing a need for healthcare or insurance. The current measures in use do not capture the effects of healthcare costs and coverage on poverty.
Currently, the SPM method is inherently flawed, as it defines the health need of a family as whatever a family spends on health in a year. The SPM does not determine whether or not healthcare or insurance needs are met, meaning that the deprivation of healthcare (or underinsurance) is not measured when uninsured people forgo needed medical care. Also, the SPM poverty rate will increase when people spend more on health insurance or medical care, meaning that the poverty rate will increase even though that insurance or care may be heavily subsidized. Wealthier people who buy more care or insurance will be deemed poorer by the MOOP subtraction, despite their investing in more/better care. Additionally, this formula makes it seem as though those going without or spending less on healthcare/insurance need less of it instead of highlighting an unmet need for uninsured populations. The SPM also does not count the value of subsidized insurance as a resource, but it does subtract premium payments; this formula means that health insurance subsidies, such as those provided by the Affordable Care Act, could actually make someone appear poorer. 

These limitations result in the SPM only being able to show how health insurance benefits reduce poverty by reducing out-of-pocket healthcare costs. This methodology limits the estimation of the effect of healthcare benefits on poverty as it does for other cash benefits. 

A health-inclusive poverty measure (HIPM) would be a more insightful measure to utilize. By using a HIPM that includes a need for health insurance in the threshold and for health insurance benefits in the resources, the antipoverty impact of Medicaid and other health benefits is more easily captured. In a 2021 study investigating the estimation of Medicaid’s effect on poverty, researchers found a 2.5 percentage point reduction in the HIPM among those younger than 65. To put it in comparison, the estimated Medicaid impact on SPM poverty is 1.0 percentage points, which is less than half of the estimated impact on HIPM poverty. The SPM is underestimating the impact of Medicaid, which has the political implications of limiting future expansion of Medicaid and similar programs supporting health initiatives for low-income individuals. 

Poverty measures are used to inform policy and the rationing of social benefits and services. By using a poverty measure that fails to incorporate health needs and benefits of healthcare, policymakers will continue to underestimate the effects of social programs, such as Medicaid. Policymakers and administrators nationwide should be using the HIPM when considering future contractions or expansions of social programs. To understand (and appreciate) the true impact of social programs on poverty, how we measure poverty needs to be changed. It is important to note that the HIPM is one way to do that, but the definition of poverty is ever-changing and requires continuous refinement as different effects of social programs are captured.