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May 23, 2019

The White House wants to recalculate the poverty line—with big consequences for health care

Daily Briefing

    The Trump administration has released a proposal to change how the federal poverty level (FPL) is calculated, which could lead to millions of U.S. residents losing their eligibility for public health benefits, according to an analysis from the Center on Budget and Policy Priorities (CBPP) released Wednesday.

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    How OMB wants to change the FPL calculation

    The Office of Management and Budget (OMB) in a notice published earlier this month in the Federal Register proposed changing the way the FPL is calculated each year.

    Currently, the federal government uses a poverty measure developed in 1963 defined as three times the "subsistence food budget" for a family of a certain size, Vox reports. Former acting Commerce Secretary Rebecca Blank during congressional testimony in 2008 explained that the measure is "described as the amount needed for 'temporary or emergency use when funds are low.'" In other words, she said, "If the average family spent one-third of its income on food, then three times the subsistence food budget provided an estimated poverty threshold." The initial FPL calculation is done for a family of four, and "equivalence scales" are applied for smaller or larger families, she said.

    The FPL also takes yearly inflation into account using the consumer price index (CPI). However, economists have argued that the CPI overestimates inflation, which they argue has caused the FPL to rise too quickly over time, Vox reports.

    To address that issue, OMB this month proposed using a so-called "chained CPI" to calculate FPL. According to CNN, a chained CPI rises more slowly because it makes the assumption that consumers will buy less-expensive items as prices increase. According to the Congressional Budget Office (CBO), chained CPI grows at a rate that is about a quarter of a percentage point less than the current CPI inflation measure.

    Douglas Holtz-Eakin, who served as CBO director under former president George W. Bush and currently is president of the American Action Forum, said the FPL in 2018 would have been $12,113 for a single person, rather than the actual FPL of $12,140, if a chained CPI had been used to calculate the FPL over the past five years.

    Proposal could affect eligibility for public health programs

    Some experts have raised concerns that OMB's proposal could result in millions of U.S. residents losing their eligibility for public health coverage and other assistance programs, NPR reports.

    CBPP estimated that, if the federal government started using chained CPI to calculate the FPL, after 10 years:

    • More than 300,000 children would lose Medicaid and CHIP coverage;
    • More than 250,000 seniors or people with disabilities would lose eligibility for Medicare Part D's low-income subsidy program or would receive lower subsidies;
    • More than 250,000 people would lose coverage gained through Medicaid expansions under the Affordable Care Act (ACA);
    • More than 150,000 seniors or people with disabilities would lose Medicare premium assistance;
    • More than 150,000 people would lose some or all of their cost-sharing assistance for exchange plans under the ACA; and
    • Tens of thousands of people would lose premium subsidies under the ACA, with millions receiving smaller subsidies.

    Arloc Sherman, a senior director and senior fellow at CBPP, said the proposal is intended "to cut people of low or moderate income off of government assistance."

    Similarly, Melissa Boteach—VP for income security, child care, and early learning at the National Women's Law Center—said, "The Trump administration is floating a proposal that would unilaterally strip working class people of Medicaid, nutrition assistance, and other basic support by pretending that our definition of poverty is too generous."

    But some experts have expressed support for OMB's proposal, saying a chained CPI is more accurate than the current CPI. According to NPR, the Bush administration and former President Barack Obama's administration also had proposed shifting to a chained CPI, though the proposals never were finalized.

    The federal government also now uses chained CPI to adjust income tax brackets, Holtz-Eakin noted. He said, "If we're going to have federal programs indexed to inflation, and we have many … then it's important to measure inflation as correctly as possible."

    Still, Holtz-Eakin said OMB's proposal might not be finalized because of opposition to the change (Owens, "Vitals," Axios, 5/22; Luhby, CNN, 5/7; Fessler, NPR, 5/9; Matthews, Vox, 5/11).

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