Appendix 2A

Algebraic Representations of the Supplemental Poverty Measure and the Principal Poverty Measure

This appendix presents details of the arrangement of variables representing threshold (basic needs) and household resources in the Supplemental Poverty Measure (SPM) and the Principal Poverty Measure (PPM). Equations 2.1 and 2.2 summarize the current construction of the SPM, and Equations 2.3 and 2.4 highlight the differences in the proposed PPM. As depicted in Equation 2.1, medical care and childcare are not represented in the set of threshold needs; rather, as indicated in Equation 2.2, medical out-of-pocket (MOOP) care and out-of-pocket childcare (CCOOP) are incorporated indirectly as subtractions from resources. For the ideal PPM (Equations 2.3, 2.4, and 2.5), medical care, represented by a basic health insurance plan (BHP), and childcare (CC) explicitly appear as threshold needs.¹ As described in Chapter 2, while shifting aspects of the calculation from the resource side to the threshold side will raise threshold levels, adding health insurance benefits and childcare subsidies to estimates of households’ resources means that, on balance, these modifications to the SPM will not necessarily change measured poverty rates.² A family unit lives in poverty under the SPM if the value yielded by Equation 2.2 is less than that yielded by Equation 2.1; a family unit is living in poverty under the PPM if the value yielded by Equation 2.4 (a or b) is less than that yielded by Equation 2.3.

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¹ The equations simplify the needed calculations. For example, there would be consumer units in which children receive Medicaid but the parents are uninsured. The housing variable, Fair Market Rent (FMR), is introduced in Chapter 2 and described in detail in Chapter 5. These equations reflect the presumption that the barriers to including childcare in the proposed PPM, discussed in Chapter 4, can be overcome.

² The rationale for incorporating housing into the threshold using FMRs is discussed in Chapter 2 and explained in detail in Chapter 5.

NOTES: Scale_SPM,j and Scale_PPM,j are the SPM and PPM equivalence scales for family j which signifies differences in family type/size; FCSUti_t (food, clothing, shelter, utilities, telephone and internet) is estimated as 83 percent of the averages of the 47th–53rd percentile range of the FCSUti distribution by owner (tenure) type t; Mu is multiplier (now at 1.2 but would likely be different for the PPM); G_g is the geographic adjustment for area g (rebased for the housing share); I is income of family i; R is government transfers; T is taxes; Work is work-related expenses; CCOOP is out-of-pocket childcare cost for family i; MOOP is all out-of-pocket spending on insurance, cost sharing, and over-the-counter medications for family i; CS_i is child support paid by family i; g is geographic area; FCti is median of expenditures on the food, clothing, and telephone/internet threshold component; FMR is fair market rent applicable for household i in geographic area g; REQ/FMR is the rental equivalence for the homeowner, which initially is estimated using the appropriate FMR; Rentasst is the household’s rental assistance, BHP is the basic health insurance plan; CC is childcare cost; HOOP is out-of-pocket housing costs that apply to homeowners and which is capped at the imputed rental income; For renters (REQ/FMR_gj − HOOP_i) = 0; PremMOOP is premium payments, which are capped at the at the BHP or Medicaid/Veterans Health Administration limit; Csub is childcare subsidy; Msub is medical subsidy (zero if unsubsidized); NonPremMOOP is medical out-of-pocket cost share spending, which is capped at the BHP or Medicaid limit; for those without insurance, NonPremMOOP also includes direct purchase of medical services.

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