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Poverty Among Seniors: An Updated Analysis of National and State Level Poverty Rates Under the Official and Supplemental Poverty Measures

Background

The Census Bureau’s official poverty measure, which was created in the early 1960s, is used to provide official statistics of the share of Americans living in poverty. Under the official measure, the poverty thresholds are set at three times the subsistence food budget from 1963, adjusted annually for inflation, and vary based on the size of a family and the age of its members, but not by geography or homeownerships status. Among one- and two-person families, thresholds are lower for families with members age 65 or older. For example, in 2013, the poverty threshold was $12,119 for an individual under age 65, and $11,173 for an individual age 65 or older.1 When calculating the share of people living in poverty under the official measure, the Census Bureau compares monetary income (such as income from a job and Social Security benefits) prior to taxes to the official poverty thresholds.2

In recent years, some have expressed concern that the official poverty measure is outdated and does not accurately reflect people’s financial resources or liabilities. In response, the Census Bureau developed an alternative measure, known as the Supplemental Poverty Measure (SPM). The SPM is based on recommendations of a 1995 National Academy of Sciences Panel and differs from the official measure in several ways (see Table 1), thereby producing different estimates of poverty:

  • Measuring poverty thresholds. The SPM bases poverty thresholds on patterns of expenditures on basic necessities that are more recent than 1963, and adjusts thresholds to reflect homeownership status and regional differences in housing prices. For example, under the SPM, the poverty threshold in 2013 was about $9,600 for a single homeowner without a mortgage living in Charlotte, North Carolina (about $1,600 less than the official poverty threshold for an individual age 65 or older), and about $16,500 for a single adult with a mortgage in San Jose, California (about $5,300 higher than the official poverty threshold for an older adult). Unlike the poverty thresholds under the official measure, the SPM thresholds do not vary by age (i.e., thresholds are the same for people under age 65 as for those ages 65 and older).3
  • Measuring resources. In addition to monetary income, the SPM incorporates certain information about a household’s financial resources and liabilities. The SPM adds to monetary income the monetary value of tax credits and in-kind government benefits (such as food stamps) received. Job-related expenses, taxes paid, and out-of-pocket expenses on health care are deducted from monetary income.4 The deduction of out-of-pocket medical expenses from income is especially important for people ages 65 and older, who spend a larger share of their household budgets on health care costs than younger households do (14% for Medicare households versus 5% for non-Medicare households in 2012).5

According to the Census Bureau, the 2013 poverty rate among older adults (people ages 65 and older) was higher under the SPM (15%) than under the official measure (10%), in large part due to the fact that the SPM deducts out-of-pocket medical expenses from income when estimating the share of people living in poverty.6

The following examples illustrate how the different approaches reflected under the official poverty measure and the SPM produce different rates of poverty:

  • John, age 70, lives alone and owns a home with a mortgage in Louisville, Kentucky. In 2013, John’s sole source of income was $17,500 in Social Security benefits and he incurred $8,000 in out-of-pocket medical expenses that year. Under the official measure of poverty, John is not counted as living in poverty because his $17,500 income in 2013 was higher than the nationwide official poverty threshold of about $11,200 for an elderly individual who lives alone. Under the SPM, however, John IS counted as being in poverty, because his high medical expenses are deducted from his income, leaving resources of $9,500. This amount is less than the SPM poverty threshold for a homeowner with a mortgage living alone in Louisville (about $10,700).
  • Doris, age 85, is a widower and rents an apartment in Miami, Florida. In 2013, her sole source of income was $12,000 in Social Security benefits, and she spent $500 on out-of-pocket medical expenses. Under the official measure, Doris is not counted as living in poverty because her $12,000 income is higher than the $11,200 official poverty threshold for an elderly person living alone. Under the SPM, Doris IS counted as being in poverty because she lives in an area with a high cost of living. Doris’s resources under the SPM are $11,500 (deducting her medical expenses from her income), which is less than the SPM poverty threshold for single renters living in Miami (about $13,400).
Table 1: Differences between the Official and Supplemental Poverty Measures
Official
Poverty Measure
Supplemental Poverty Measure
BASIS FOR POVERTY CALCULATION 3 times subsistence food budget, 1963 x
Mean 30th-36th percentile of FCSU expenditures x
THRESHOLDS Size of family x x
Ages of family members x
Non-related cohabiters x
RESOURCES Cash income before taxes x x
Public assistance (cash) x x
In-kind government benefits (non-cash) x
Tax credits x
Social Security income x x
Out-of-pocket medical expenses x
Work expenses x
Child support x x
ADDITIONAL FACTORS Basic necessities (FCSU) x
Geography/cost of housing x
Homeownership x
UPDATES Annually for inflation using CPI-U x
5 year average of real change in FCSU expenditures x
NOTE: FCSU is food, clothing, shelter, and utilities, plus an allowance for basic personal and household needs.

Proponents of the Supplemental Poverty Measure argue that it is an improvement upon the official measure because it provides a more up-to-date measure of the income needed to meet basic needs than the 1963 inflation-adjusted subsistence food budget; adjusts those standards to reflect regional variations in the cost of living; and more accurately conveys the income available to meet those needs by taking into account tax liabilities and credits, in-kind government benefits, and out-of-pocket medical and other expenses.7,8 One criticism of the SPM, however, is that it does not distinguish between necessary and discretionary out-of-pocket medical expenses, and therefore may overstate the extent to which medical expenses crowd out spending on basic needs.9,10 Broader criticism of both the official poverty measure and the SPM is that neither measure takes into account the value of families’ assets,11 nor do they take into account the risk of facing unaffordable medical expenses in the future or the extent to which individuals are insured against those risks.12

The poverty rates presented in this brief apply to non-institutionalized adults ages 65 and older, rather than the total Medicare population, which includes both adults ages 65 and older and younger adults with permanent disabilities and both facility residents and people living in the community. Rates of poverty among the total Medicare population would be larger than the estimates presented in this paper because income levels are lower among both nonelderly beneficiaries with disabilities and beneficiaries living in long-term care facilities.13

Findings

National Estimates of Poverty among People Ages 65 and Older

The poverty rate among people ages 65 and older is higher under the SPM than the official measure at the national level, both overall and among certain subgroups. The difference in poverty rates among older adults between the two measures is largely due to the fact that the SPM deducts out-of-pocket medical expenses from income, while the official measure does not.14

  • About one in seven people ages 65 and older (15%) had incomes below the SPM poverty thresholds in 2013, compared to one in ten (10%) based on the official measure (Figure 1). The difference between the two poverty measures is smaller among nonelderly adults, and the rate of poverty among children is actually lower under the SPM than under the official measure (16% versus 20%).15
  • Close to half (45%) of adults ages 65 and older fell below 200 percent of the poverty thresholds under the SPM in 2013, compared to one-third (33%) under the official poverty measure thresholds.
Figure 1: The 2013 poverty rate among people ages 65 and older was larger under the Supplemental Poverty Measure (15%) than the official poverty measure (10%)

Figure 1: The 2013 poverty rate among people ages 65 and older was larger under the Supplemental Poverty Measure (15%) than the official poverty measure (10%)

Poverty among People Ages 65 and Older, by Selected Characteristics

Under both the official measure and the SPM, poverty rates among people ages 65 and older rise with age, are higher for women than men, higher for Hispanics and blacks than for whites, and higher among people in relatively poor health than those in better health. In all cases, poverty rates are higher for demographic subgroups under the SPM than under the official measure (Appendix Table 1).

  • Age: Poverty rates among people ages 65 and older increase with age, whether based on the official measure or the SPM (Figure 2).
    • Under the SPM, the poverty rate was higher in 2013 for people ages 80 and older (19%) than among those ages 65 to 69 (12%); the difference between these age groups was even larger for the share living below 200 percent of poverty (57% versus 36%).
    • The patterns by age are similar under the official measure, but the poverty rates are lower for each age group.
Figure 2: The 2013 poverty rate increased with age among people ages 65 and older, under both the official poverty measure and the SPM

Figure 2: The 2013 poverty rate increased with age among people ages 65 and older, under both the official poverty measure and the SPM

  • Gender: A larger share of women than men ages 65 and older live in poverty under both poverty measures (Figure 3).
    • Under the SPM, 17 percent of women ages 65 and older lived in poverty in 2013, compared to 12 percent of older men, and exactly half of all women ages 65 and older lived below 200 percent of the SPM poverty thresholds, compared to 39 percent of older men.
    • Under the official measure, poverty rates are also higher among women than men, but lower than under the SPM.
    • The gender difference in poverty rates among older adults increases with age and is especially pronounced among people ages 80 and older: nearly one quarter (23%) of women ages 80 and older lived in poverty under the SPM in 2013, compared to 14 percent of men in this age group (these rates are 15% versus 6%, respectively, under the official measure). (Appendix Table 1).
Figure 3: The 2013 poverty rate was higher among women than men ages 65 and older, under both the official measure and the SPM

Figure 3: The 2013 poverty rate was higher among women than men ages 65 and older, under both the official measure and the SPM

  • Race/ethnicity: Black and Hispanic older adults have much higher rates of poverty than white older adults under both the official measure and the SPM (Figure 4).
    • Under the SPM, 28 percent of Hispanic adults and 22 percent of black adults ages 65 and older lived in poverty in 2013, in contrast to the much lower rate among white adults ages 65 and older (12%). At least 60 percent of black and Hispanic seniors live below 200 percent of poverty under the SPM (60% and 68% respectively), compared to 41 percent of whites.
    • Under the official measure, the poverty rate is nearly three times larger among Hispanic adults ages 65 and older and two and a half times larger among black adults ages 65 and older than among white adults in this age group (20%, 18%, and 7%, respectively).
Figure 4: The 2013 poverty rate was higher among Hispanic and black adults than white adults ages 65 and older under both poverty measures

Figure 4: The 2013 poverty rate was higher among Hispanic and black adults than white adults ages 65 and older under both poverty measures

  • Health status: Among adults ages 65 and older, poverty rates are higher among those in relatively poor health, based on both the official measure and the SPM (Figure 5).
    • Under the SPM, one in five (20%) older adults who rated their health as fair or poor lived in poverty in 2013, compared to one in eight (12%) older adults who rated their health as excellent, very good, or good. More than half (58%) of seniors who rated their health as fair or poor fell below 200 percent of the SPM thresholds, compared to less than half (40%) of seniors who rate their health as excellent, very good, or good.
    • Under the official measure, the rate of poverty is 14 percent among older adults in relatively poor health, compared to 8 percent among those in better health.
Figure 5: The 2013 poverty rate was higher among adults ages 65 and older in fair or poor health than those who are healthier under both poverty measures

Figure 5: The 2013 poverty rate was higher among adults ages 65 and older in fair or poor health than those who are healthier under both poverty measures

Poverty Among People Ages 65 and Older, by State

The rate of poverty among people ages 65 and older was higher in every state under the SPM than under the official measure, and was especially high in some states, based on pooled 2011-2013 state-level data (Appendix Table 2).16 The difference in poverty rates under the official measure compared to the SPM may vary geographically for several reasons, including state income distributions; differences in housing prices, which are factored into the SPM poverty thresholds; variations in medical use and costs, since such costs are deducted from income under the SPM but not the official measure; and differences in the generosity of state Medicaid programs, which affects medical expenses.

  • Under the official poverty measure, the share of people ages 65 and older living in poverty was less than 10 percent in a majority of states (36 states) (Figure 6). In contrast, under the SPM, at least 10 percent of people ages 65 and older lived in poverty in nearly every state and the District of Columbia (all but 4 states: Iowa, Maine, Missouri, and South Dakota) (Figure 7). Similarly, the official poverty rate for people ages 65 and older was above 15 percent only in DC, but under the SPM, at least 15 percent of older adults lived in poverty in one-third of states (17) and DC.
  • In DC, one in four seniors (25%) lived in poverty under the SPM, compared to 16 percent under the official measure. About one in five seniors lived in poverty under the SPM in another five states: California (21%), Florida, Louisiana, Nevada, and South Carolina (18% each).17
  • In 9 states, poverty rates among seniors were at least twice as large under the SPM than under the official measure: California (21% versus 10%), Connecticut (14% versus 7%), Hawaii (17% versus 8%), Indiana (13% versus 6%), Massachusetts (16% versus 8%), Maryland (16% versus 8%), Nevada (18% versus 9%), New Hampshire (14% versus 6%), and New Jersey (15% versus 7%).
Figure 6: Under the official poverty measure, less than 10% of people ages 65 and older lived in poverty in a majority of states (2011-2013)

Figure 6: Under the official poverty measure, less than 10% of people ages 65 and older lived in poverty in a majority of states (2011-2013)

Figure 7: Under the SPM, at least 10% of people ages 65 and older lived in poverty in nearly every state and DC (2011-2013)

Figure 7: Under the SPM, at least 10% of people ages 65 and older lived in poverty in nearly every state and DC (2011-2013)

The share of older adults below 200 percent of poverty was substantially higher in some states under the SPM than under the official measure.

  • Under the official poverty measure, less than 35 percent of people ages 65 and older lived below 200 percent of poverty in most (37) states (Figure 8). In contrast, at least 35 percent of people ages 65 and older were below 200 percent of the SPM poverty thresholds in every state and DC (Figure 9).
  • In 8 states and DC, the share of seniors living below 200 percent of poverty exceeded 50 percent under the SPM, but under the official measure, these shares were all below 50 percent: California (54% versus 33%), DC (57% versus 37%), Florida (52% versus 36%), Hawaii (54% versus 27%), Louisiana (51% versus 42%), Massachusetts (50% versus 30%), Nevada (50% versus 35%), New York (51% versus 37%), and North Carolina (52% versus 42%). In fact, under the official measure, no states had more than 50 percent of seniors living below 200 percent of poverty.
  • In 5 states and DC, the share of people ages 65 and older below 200 percent of poverty was at least 20 percentage points higher under the SPM than under the official measure: California (54% versus 33%), Connecticut (47% versus 25%), Hawaii (54% versus 27%), Maryland (47% versus 26%), Massachusetts (50% versus 30%), and DC (57% versus 37%).
Figure 8: Under the official poverty measure, less than 35% of people ages 65 and older lived below 200% of poverty in most states (2011-2013)

Figure 8: Under the official poverty measure, less than 35% of people ages 65 and older lived below 200% of poverty in most states (2011-2013)

Figure 9: Under the SPM, at least 35% of people ages 65 and older lived below 200% of poverty in every state and DC (2011-2013)

Figure 9: Under the SPM, at least 35% of people ages 65 and older lived below 200% of poverty in every state and DC (2011-2013)

Discussion

Under the Census Bureau’s Supplemental Poverty Measure, the poverty rate among people ages 65 and older in 2013 was 5 percentage points higher than under the official measure (15% versus 10%), and was particularly high among certain subgroups of older adults and in some states. Under both measures, the poverty rate among adults ages 65 and older was higher among women than men, higher for black and Hispanic adults than among whites, and higher among people in relatively poor health. At the state level, the share of seniors living in poverty was larger in every state under the SPM than under the official measure, and at least twice as large in some states. In light of the differences between the official measure of poverty and the SPM, there is ongoing interest in assessing these methods for measuring poverty and the implications of each measure for public policy.

Our analysis provides context for evaluating the implications of proposals that would affect the financial resources of people ages 65 and older, such as increasing Medicare beneficiaries’ contributions toward their medical care or reducing the cost of living adjustment to Social Security benefits. Higher premiums and cost-sharing requirements under Medicare could lead to higher a poverty rate among people ages 65 and older as measured by the SPM, though the official poverty rate would be unaffected by these changes. This is because the SPM deducts out-of-pocket medical expenses from income. Although Medicaid covers Medicare cost-sharing requirements for some low-income people on Medicare, many low-income beneficiaries do not receive Medicaid coverage. Proposed reductions in Social Security benefits, such as imposing a slower rate of growth on benefits by using the chained Consumer Price Index in the cost-of-living update,18 could also lead to higher poverty rates among adults ages 65 and older under both the official measure and the SPM over time. Yet regardless of how such changes would affect poverty rates among older adults, current estimates of poverty based on the SPM suggest that a greater share of older adults is already struggling financially than is conveyed by the official poverty measure.

The authors gratefully acknowledge assistance with data and methods from Dr. Trudi Renwick, Chief of the Poverty Statistics Branch, Division of Housing and Household Economic Statistics, U.S. Census Bureau; and Zachary Levinson for his work on the May 2013 version of this brief.

 

Introduction Appendix

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