Senior poverty is much worse than you think

May 20, 2013

Senior citizens rally on the Capitol steps in Washington on July 22, 1981, to denounce President Ronald Reagan's proposed cuts in their Social Security benefits. (AP)

One frequent knock on the official poverty rate is that it generally excluded income from some government programs like food stamps and the Earned Income Tax Credit, but included income from others, like Temporary Assistance for Needy Families (TANF) and Social Security. That means people who, if those benefits were treated as cash, wouldn't be counted as impoverished, still get counted as such.

It's a fair enough point, and the Census Bureau responded by creating a Supplemental Poverty Measure (SPM) that takes such programs into account and, perhaps more importantly, breaks down the way that each government program affects the poverty rate. That measure showed that the government program that keeps the most people out of poverty is Social Security. In 2011, the SPM found a poverty rate of 16.1 percent. Without Social Security, that would have been 24.4 percent.

So good news for seniors, right? Not really. While the SPM takes transfer payments into account, it does the same with out-of-pocket medical costs. If you're an unmarried senior with no dependents, make $15,000 a year, and spend $10,000 of it on medical care, under the official poverty measure you'd most likely not count as poor, as $15,000 is above the 2012 poverty threshold for a single senior ($11,011).

But under the SPM, you'd count as poor as $15,000 - $10,000 = $5,000, which is below the relevant SPM threshold. And despite having Medicare, many seniors struggle with out-of-pocket medical bills. As my colleague Michelle Singletary pointed out over the weekend, the Employee Benefit Research Institute has found Medicare only pays for about 60 percent of seniors' total health costs. Sarah has written about how out-of-pocket costs tend to pile up particularly at the end of seniors' lives.

Due in part to such burdens, a new Kaiser Family Foundation report finds that the SPM poverty rate for senior citizens is actually higher than the official rate: 15 percent vs. 9 percent. And when you include people living within 200 percent of the poverty line, the picture under SPM looks even worse:

And a number of states are actually worse off than that. Every single state had a higher share of seniors living under 200 percent of the poverty line under the SPM as opposed to the official measure, and in some cases the differences were dramatic. For example, California's official poverty rate for seniors is 8 percent, while the SPM rate is 20 percent:

As always with studies like this, a few caveats are in order. One is that not all health care is strictly medically necessary, so this may be capturing out-of-pocket expenses that don't actually buy necessary treatment. The other is that this data is pooled over three years, 2009, 2010, and 2011, which means that it's even more affected by the recession than more recent data would be. These results are at least partly a reflection of the business cycle rather than any other phenomenon.

But this does suggest that we're a far ways from achieving the goal of Social Security, of, in FDR's words, ensuring no one must  "spend one's aged years in the poor house." One possible route for avoiding these cases came in a paper by the New America Foundation's Michael Lind, Steven Hill, Robert Hiltonsmith and Joshua Freedman last month, who proposed adding a $11,699 flat annual benefit for all retired workers on top of existing Social Security benefits.

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