Issue Feature: Calculating Poverty in the United States
February 27, 2020By Zachary Tashman
In early February, the House Committee on Oversight and Reform held a hearing entitled, “A Threat to America’s Children: The Trump Administration’s Proposed Changes to the Poverty Line Calculation” in reaction to a May 2019 Office of Management and Budget (OMB) public notice widely seen as raising the possibility of changing the inflation index for poverty measurement to a Chained Consumer Price Index (C-CPI-U) model. Such an alteration would redefine and limit who is considered poor, disqualifying thousands of individuals and families from eligibility for public benefits including Medicaid and the Supplemental Nutrition Assistance Program (SNAP).
Poverty In the United States
The United States’ Official Poverty Measure (OPM) is currently calculated using the so-called “Orshansky Threshold,” which sets the poverty line at three times the cost of a minimum food diet in 1963, adjusted for family size. This base number has been indexed each year to account for inflation using the Consumer Price Index for All Urban Consumers (CPI-U), which measures the change in the average weighted cost of goods and services nationally. In 2018 almost no family spent one-third of their income on food, and as the relative costs of transportation and healthcare have outpaced the cost of food in past decades, this shift in consumer spending has been partially reflected in how poverty is indexed each year. There is broad agreement among poverty scholars that the official poverty line has failed to account for the full costs of low-income families’ economic necessities in recent decades.
Based on the formula described above, the Department of Health and Human Services issues updated poverty guidelines for the OPM each year. In 2020, the poverty threshold is $12,760 for a one-person household, an increase of $270 from the previous year. The below chart shows the 2020 federal poverty level (FPL) by household size. Approximately 38.1 million people, or 11.8 percent of the population, in 2018 were living at or below the official poverty threshold.
These benchmarks represent more than a statistical calculation to inform the public because many federal benefits, such as health care and school meals, are directly tied to the FPL. A family of four that falls below 138% FPL ($36,156) is eligible for free healthcare through Medicaid expansion. A family of four that falls below 185% FPL ($48,470) is eligible for reduced-price school meals through the National School Lunch and Breakfast Programs. Healthcare subsidies offered through the Affordable Care Act are also tied to where household income falls relative to the FPL. This means that any change in how the federal government calculates poverty will have a dramatic impact on the health and well-being of families across America.
Impact of Proposed Changes
Chained CPI analyzes the substitution costs that consumers make across component item categories. For example, under chained CPI if the cost of beef increases but the cost of chicken decreases, this model would forecast how household consumption would shift to reflect the relative change in the cost of the two comparable items. Using Chained CPI instead of the current CPI-U to adjust the poverty threshold would slow inflation growth by about 0.2 percent annually.
One major problem with using Chained CPI to determine public benefits eligibility is that it would result in less accurate measurements than even the current CPI for low-income families. Families who live paycheck to paycheck spend a larger portion of their income on goods and services that experience higher rates of inflation. According to the Center on Budget and Policy Priorities, even the current CPI is insufficient: “the poorest fifth of households devote twice as large a share of spending to rent as the typical household, and the cost of rent rose 31 percent from 2008 to 2018, compared to 17 percent for the overall CPI-U.” A Chained CPI index would further exacerbate the problem of the misrepresentation of low-income families’ consumption patterns.
If Chained CPI is implemented, the qualifying poverty threshold would be $691 lower for an individual, and $1,418 lower for a family of four, by 2030 than under CPI-U. Though this may not sound like a profound shift, its impact would be devastating for numerous families. The Center on Budget and Policy Priorities estimates that one decade after implementation Chained CPI would lead to:
- More than 250,000 seniors and people with disabilities losing or receiving less help from Medicare’s Part D Low-Income Subsidy Program.
- More than 300,000 children losing comprehensive coverage through Medicaid or the Children’s Health Insurance Program (CHIP), as would some pregnant women.
- More than 200,000 school-age children losing eligibility for free or reduced-price school meals.
- More than 250,000 adults losing coverage through the Affordable Care Act’s Medicaid expansion.
It is unclear the extent of OMB’s authority to change the way CPI is calculated for the OPM, since no administration has attempted to take this type of unilateral action through OMB in the last forty years. Though no proposed rule has yet been issued, there would likely be lawsuits to determine if a CPI adjustment would need Congressional authorization.
Congressional Action
Congresswoman Alexandria Ocasio-Cortez (D-NY) has proposed legislation, The Recognizing Poverty Act (H.R. 5069), to eliminate the “Orshansky Threshold ” and develop a new measurement to recognize poverty in the 21st century. The bill would direct the Department of Health and Human Services (HHS), in collaboration with the Census Bureau and the Bureau of Labor Statistics, to “adjust the Federal poverty line to account for geographic cost variation, costs related to health insurance, work expenses for the family, childcare needs, and new necessities, like internet access.” Updating our federal poverty guidelines to better reflect the economic realities families are facing could increase eligibility for public benefits such as Medicaid, SNAP, and CHIP for millions of Americans.
National Assembly’s Position
The human service sector plays a critical role in addressing poverty in the United States. It is essential that poverty is calculated accurately and equitably so that individuals and families are eligible for the tools they need to fulfill their human potential across the lifespan. The National Assembly opposes the Administration’s efforts to redefine poverty that would deny Americans essential resources. We urge the Trump Administration to reduce poverty directly by working with the human service sector and other stakeholders to find ways to most effectively deliver basic needs such as food and health care to families rather than defining our way out of poverty. The National Assembly supports efforts such as Rep. Ocasio-Cortez’s bill to explore how the nature of poverty has changed in the past 60 years and what model would best assist families in building well-being.
The National Assembly will continue to closely track this issue. For more information on federal legislation impacting the human service sector, check out PolicySource. You can also contact us at policy@nassembly.org.