Comments on Proposed Adjustments to Federal Poverty Levels

June 20, 2019

Chief Statistician Nancy Potok
Office of Management and Budget

Re: Directive No. 14, “Consumer Inflation Measures Produced by Federal Statistical Agencies”

Kentucky Voices for Health (KVH) is writing regarding the Office of Management and Budget’s request for comments on switching to a different measure of inflation for recalculating the poverty line each year. KVH leads a coalition of concerned Kentuckians and organizations from across the Commonwealth in advocating for better health outcomes by improving access to affordable, comprehensive, and quality healthcare. As the state that has seen the greatest decrease in uninsured populations through expanded Medicaid and ACA marketplace assistance, KHV offers its strong opposition to this change and the long-term harms it will cause to millions of Americans.

Because you said you were not seeking comment on the impact of changing the HHS poverty guidelines, we are not commenting directly on that issue. However, were you to consider moving forward with a change to the thresholds that affects the guidelines, it would be imperative to first undertake in-depth research and analysis and solicit public comments regarding the potentially negative impact a change in the thresholds would have on low income and other vulnerable populations. A change to the thresholds would affect the following programs of concern to organizations which partner with Kentucky Voices for Health:

Medicaid & CHIP

With smaller annual adjustments to the federal poverty line, the income eligibility limits for Medicaid and the Children’s Health Insurance Program (CHIP) (that is, the maximum amount of income a family can earn for a household of that size) will be lower than they otherwise would be in any given year, with the reductions growing larger over time. In other words, the Administration is effectively proposing to impose an automatic cut to eligibility, adversely affecting low-income children (as well as parents, pregnant women, seniors and people with disabilities), with the magnitude of the cut becoming sharper each year. It is estimated that after 10 years, more than 300,000 children would lose Medicaid or CHIP coverage if the poverty measure’s inflation adjustment shrinks. More than 250,000 adults would lose coverage in the states that have implemented Medicaid expansion.

Because of expanded access to health coverage through Medicaid and CHIP, the proportion of uninsured children declined from 9.7 percent in 2008 to 4.7 percent in 2016. However, recent government policies have reversed that decline. For example, the proportion of uninsured children rose to 5 percent in 2017, or about 300,000 more children without health coverage. The federal government should not make this worse by shrinking the poverty measure so fewer children and families qualify for Medicaid or CHIP.

Similarly, the expansion of Medicaid in 37 states—like Kentucky—plus the District of Columbia has resulted in increased health care coverage for millions of adults with incomes below the income-eligibility cutoffs. Shrinking the inflation adjustment for the poverty measure will undo some of this progress, causing more people to be uninsured.i,ii

Kentucky’s successes with Medicaid expansion are well-documented. For instance, Kentucky experienced a 700% increase in substance use treatment from 2014 to 2017 thanks to expansioniii, and colorectal cancer screenings increased 230%, leading to a 27% reduction in deaths from that disease.iv Further, states that expanded Medicaid coverage saw a reduction in heart-related deaths.v These are just three examples of the difference Medicaid expansion has made in the lives of individuals. On a broader scale, expansion has increased employment in healthcare related fields and provided a payment source for hospitals that had previously provided uncompensated care.vi Medicaid coverage provides life-saving health care to which low-income populations would not otherwise have access. Limiting access through the means of artificially decreasing eligibility limits will take thousands of otherwise-eligible, underpaid, working Kentucky adults back to where they were before expansion: uninsured.

Affordable Care Act (ACA) Marketplace Health Insurance for individuals

Because eligibility for cost-sharing assistance and premium tax credits are dependent on the relationship of people’s incomes to the poverty level, shrinking the inflation adjustment for the poverty line would over time reduce or eliminate subsidies that make insurance more affordable. It is estimated that by the 10th year, more than 150,000 ACA marketplace consumers would lose cost-sharing assistance and be required to pay higher deductibles. Tens of thousands of Americans would lose premium tax credits. Even with Kentucky’s move from a state-based exchange to the Federal marketplace, a large number of Kentuckians continue to rely on these subsidies in order to afford quality coverage. In the last year of open enrollment, over 86,000 Kentuckians were able to access insurance due to this assistance. Hundreds would stand to lose coverage based on this new rule.

Supplemental Nutrition Assistance Program (SNAP; formerly called Food Stamps)

Households are ineligible for SNAP if their gross income exceeds an amount that is tied to the federal poverty guidelines (between 130 percent and 200 percent, depending on the option the state adopts). For example, for a household of four people, the current gross monthly income cannot exceed $2,720. Each year, that figure is adjusted for inflation. If the adjustment shrinks, over time fewer households will qualify for assistance. Working families with small earnings gains over time will find themselves ineligible despite high housing and child care (subsidies for which will also be negatively impacted) or other work-related expenses.

While the SNAP program allows households with gross income below the 130 percent of poverty cutoff to qualify for higher benefits if they have high shelter costs, if their income exceeds the gross income standard, they will be denied assistance regardless of high shelter costs. The U.S. Department of Agriculture found that 15 million households with 40 million people faced food insecurity in 2017, meaning they experienced difficulty in affording food. For people below 185 percent of the poverty line, more than 30 percent were food insecure. A change in the measure of inflation used to calculate guidelines could lead to nearly 200,000 people, mostly in working households, losing SNAP altogether. We should not be increasing the number of households that do not qualify for SNAP assistance when so many beyond even the current guidelines find it difficult to afford an adequate diet.

In Kentucky, this change is projected to leave about 4,000 households without SNAP benefits. vii In a state already facing food insecurity at a rate higher than the national average,viii this change will only exacerbate hunger.

Explanation of Chained CPI, how it differs from CPI-U

The Office of Management and Budget has requested comments on its proposal to change the methodology for updating the federal poverty line for inflation. Instead of using the Consumer Price Index for All Urban Consumers (CPI-U), which is now used extensively, the proposal suggests switching to the “Chained CPI for all Urban Consumers” (C-CPI-U) or a similar index. The Chained CPI assumes that as prices of goods rise, individuals substitute less expensive items, thereby reducing their overall expenses. However, there is evidence that low-income people cannot as readily take advantage of such substitutions, since they are already doing without the more expensive items (and even without moderately priced items). Research suggests that costs may rise more rapidly for low-income households than for the population as a whole. They pay a greater percentage of their income for housing and utilities, for instance.

Over the nine years from the third quarter of 2004 through the third quarter of 2013, average inflation accumulates to 33% for households with incomes below $20,000 but to just 25% for households with incomes above $100,000.

Because low-income households experience more inflation in the goods they purchase than households with higher incomes, and do not have as much opportunity to switch to less expensive items, the Chained CPI is not an appropriate means of calculating the poverty line. It will inaccurately define low-income working or retiree individuals or households as out of poverty when they are struggling to pay for necessities. Denying them eligibility for benefits such as health coverage, prescription drugs, heating or cooling assistance, or nutrition assistance will increase hardship and threaten health, child development, and family stability, contrary to the intent of Congress in establishing these programs.

Better Measures of Poverty

OMB has said it is not seeking comment on the impact of changing the HHS poverty guidelines. However, if OMB is considering going forward with a change to the poverty thresholds that would affect the guidelines, it should certainly not be undertaken without in-depth research and analysis, and should solicit public comments regarding impacts such as the number of individuals losing assistance and a demographic profile of those individuals and families, how service providers would be affected, and how the impacts would change over time. The onus should be on the federal government to conduct these kinds of extensive analyses before suggesting a policy change that would harm large numbers of people.

It has long been understood that the Official Poverty Measure is incomplete and outdated. It was first set during the Johnson Administration after research showed that low-income families at the time spent about one-third of their income on food. Since then, it has basically been increased for inflation, but without a serious revision based on current spending patterns. Today’s families with children, for example, spend a high percentage of their income on housing and child care. Similarly, not all income sources are included in the Official Poverty Measure (also known as the Poverty Threshold). Changing one small aspect of the poverty measure (the annual inflation adjustment) is certain to result in further inaccuracies. Any change should build on existing research that suggests the official poverty measure is too low for most types of households, and that shrinking the inflation adjustment will make it less accurate, not more. The Bureau of the Census has begun this kind of research, developing the Supplemental Poverty Measure, which does count income sources such as SNAP and refundable tax credits, as well as taking into account more accurately expenditures such as housing, child care, and out of pocket medical expenses. The Supplemental Poverty Measure shows a somewhat higher poverty level and rate for most types of households, as compared to the official measure.

We know that households just above the official poverty line report higher than average rates of food insecurity and difficulty paying rent and utilities. They are more likely to be uninsured. These facts suggest that shrinking the annual rate of increase in the Official Poverty Measure will artificially push people over the poverty line even though they struggle to make ends meet. Such a change would be unsupported by the evidence and would have unfortunate impact of increasing hardships for people who work at low and volatile wages, and for retirees whose earnings were never high and who were unable to build adequate savings.

OMB should not ignore all the evidence of low-income worker and retiree spending and income patterns and simply shrink the annual inflation adjustment for the poverty measure. Far from making the annual assessment more accurate, it will make the current flaws worse. Kentuckians who would be most adversely affected by this unsupported change include children, single mothers, people of color, people with disabilities, and low-income retirees. They need programs such as Medicaid, Medicare Part D prescription drug subsidies, SNAP, WIC and more. Denying them benefits by making the poverty line a less accurate reflection of their circumstances is contrary to Congressional intent and the national interest.

Some alternate measures of poverty include the Asset Limited, Income Constrained, Employed (ALICE) and the Self-Sufficiency Standard, both of which are budget-based measures of the real cost of living for a household. The Self Sufficiency Standard developed for Kentucky demonstrated, for multiple household composition settings, that the costs of housing, health care, child care, food, and other necessities far exceeded the federal poverty guidelines.ix

This work was completed in 2001; increases in housing, child care, and health care—along with relatively flat wages—would paint a much different picture today.

In closing, the proposed changes to the federal poverty guidelines do nothing to lift families out of poverty. It ignores the real-life struggle low-income Americans face and attempts to bury these struggles by moving the goalposts. The measure is already too low, as was demonstrated in Kentucky 18 years ago, and we urge the administration to not take actions that will reduce it further.

Sincerely,

Jason Dunn
Policy Analyst

i https://ccf.georgetown.edu/2019/05/09/trump-administration-proposes-to-make-many-fewer- lowincome-individuals-and-families-eligible-for-medicaid-and-chip-over-time/

ii https://www.kff.org/medicaid/issue-brief/the-effects-of-medicaid-expansion-under-the- acaupdated-findings-from-a-literature-review-march-2018/

iii https://www.shadac.org/publications/final-report-study-impact-aca-implementation-kentucky iv https://www.facs.org/media/press-releases/2019/medicaid022219

v https://newsroom.heart.org/news/fewer-people-died-from-heart-disease-in-states-that- expanded-medicaid-coverage-through-the-affordable-care-act

vi https://kypolicy.org/medicaid-boosts-kentuckys-economy-new-barriers-coverage-will-hold-us- back/

vii https://www.urban.org/sites/default/files/publication/100410/proposed_changes_to_the_povert y_line_would_reduce_snap_participation_over_time_0.pdf

viii https://map.feedingamerica.org/

ix http://selfsufficiencystandard.org/node/56