Debating Real Value of Health Benefits in Poverty Calculations

The following is an excerpt from an article in:


The New York Times
Wednesday, October 03, 2012

Debating Real Value of Health Benefits in Poverty Calculations

By EDUARDO PORTER

As a nation, we devote almost one-sixth of our spending to health care, twice the share of 30 years ago. Medical bills for the elderly are climbing, threatening to blow up the budget in a few decades. Politicians from both parties are consumed by how to pay for it all. Yet we cannot quite agree on how valuable government health care benefits are to Americans.

In July, the Congressional Budget Office — the nonpartisan arbiter of the costs and consequences of government spending — decided that we had not been valuing these benefits enough. In a report on how income and taxes are distributed across the population, it decided, for the first time, to value health benefits provided by the government at every penny they cost.

The decision stoked a long-simmering debate about how much health care is really worth to poor families who may not have enough to eat. The reclassification of health benefits added $4,600 a year to households in the bottom fifth of income. It shrank the nation’s yawning income gap and muted the increase of inequality over the last three decades. And it changed the picture of what the government does for Americans.

The reasoning behind the budget office’s action seems to make lots of sense: the government spends almost $8,000 on the average Medicaid beneficiary and more than $12,000 for each person on Medicare. Why shouldn’t that count as income? Without it, the recipients could not afford an essential, lifesaving service. Moreover, the budget office considers Social Security benefits as income. And that’s the way it treats the health insurance provided by employers to their workers.

But not everyone thinks health care is worth that much. In particular, the Census Bureau does not include health care and other noncash benefits when computing the official poverty rate. Even its Supplemental Poverty Measure — which was created to capture noncash sources of income, as well as all the costs faced by the poor — sets the value of Medicare and Medicaid at zero.

That approach is not unreasonable, either. To paraphrase Timothy Smeeding, the director of the Institute for Research on Poverty at the University of Wisconsin-Madison: you can’t eat health care. Medicaid benefits are enough to lift many people out of poverty statistically even if they don’t have enough money to afford housing, utilities and food.

And the addition of those benefits could alter how we view our progress. From 2000 to 2010, government spending for each Medicare recipient rose by two-thirds after inflation. But those increases probably didn’t make seniors feel wealthier, especially since their out-of-pocket expenses for medical care rose, too.

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