This paper tests the assertion that out-of-pocket medical spending is "much more variable than needs for such items as food and housing." If it is not, then it might not be impractical to include out-of-pocket medical expenditures in the poverty budget underlying new thresholds.

Two tests are performed using 1992-3 data from the Consumer Expenditure Survey that overlaps the reference period of the March 1993 Current Population Survey data used most extensively in the NRC report. Variation in out-of-pocket medical expenditures and spending on shelter plus utilities by consumer units with incomes less than twice their poverty thresholds is examined. Spending by relevant subgroups is examined separately, including couples with two children (the NRC reference family type), units with a head aged 65 or older, and units in which the head or spouse is not working due to illness, disability, or other inability to work.

In addition, grounds for the panel's concern about "erroneous poverty classification" are tested. Families not poor when out-of-pocket health spending is included in the poverty budget and the resource definition, but poor when out-of-pocket health spending is excluded, are counted. They are deemed to illustrate the concern that including out-of-pocket health spending would classify as non-poor some families with resources minus out-of-pocket health spending insufficient to meet their non-medical needs. Then a similar process is followed to count families that are not poor when shelter and utilities are included in the poverty budget, but whose resources minus spending on shelter and utilities leave them with insufficient income for non-shelter needs.

The panel's claim that medical expenditures are "nondiscretionary" is not subject to such straight-forward empirical verification. The paper recaps the issue, and argues that the nondiscretionary nature of health spending has some parallel when it comes to other needs.

Finally, the paper will mention other considerations that tend to weigh against the proposed differential treatment of health needs. The need to model health spending for individual survey families would tend to introduce error and also restrict poverty analysis.