Medical Care Economic Risk Measuring Financial Vulnerability from Spending on Medical Care (2012) / Chapter Skim
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3 Concepts of Resources
3 Concepts of Resources
Pages 51-66
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From page 51... ...
1 As we noted in Chapter 2, the proposed measure of medical care economic burden, which is derived from the SPM, will use the SPM definition of resources.
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From page 52... ...
Money Income The Census Bureau's concept of money income as applied in the CPS ASEC is defined as total pretax cash income excluding lump sum payments and capital gains (Ruser, Pilot, and Nelson, 2004)
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From page 53... ...
The Census Bureau's concept of disposable income, as used in the SPM, adds the cash value of noncash benefits while subtracting not only taxes, but also work-related expenses (including child care) , child support payments to another household, and medical care out-of-pocket expenses (including premiums)
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From page 54... ...
Withdrawals from savings, in general, are not construed as income under the Census Bureau or alternative income concepts discussed below, but the tax-advantaged savings plans that are replacing DB pensions receive a different treatment. Thus, for purposes of federal income taxes, distributions from these plans are counted in adjusted gross income (AGI)
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From page 55... ...
. The mix is shifting, however, and the implication is that, without a new approach to defining and measuring retirement income from nontraditional sources, the CPS ASEC will understate the income of the elderly by an increasing amount in the years to come, which could introduce a trend toward overestimating medical care economic risk.
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From page 56... ...
This tax-based concept, which recognizes income only when it is realized, for the most part, is important to the discussion in this chapter not only to highlight the differences that exist in how income is defined, but also because major household surveys -- including some that we discuss in Chapter 5 -- sometimes refer their respondents to their tax returns when collecting data on income. Tax-based concepts of income have become more relevant to medical expenditures with the passage of the Affordable Care Act, which imposes a uniform income concept defined in the tax code for determining eligibility for Medicaid, the Children's Health Insurance Pro
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From page 57... ...
If a survey questionnaire follows the tax return, then it would have to include separate questions to capture these several sources. Moreover, the two largest components of Census money income -- wage and salary income and Social Security benefits -- are not fully taxable for most people and therefore may not be fully included in AGI.
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From page 58... ...
. Amounts excluded as pretax deductions are not reported on the tax return, so a survey questionnaire that asks respondents to report amounts from their tax returns will exclude these amounts from wage and salary income unless they are collected separately.
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From page 59... ...
Under models of life-cycle saving, people accumulate savings (including funds held in retirement accounts) during their working years and then draw on these savings in retirement.
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From page 60... ...
MEPS understates net assets relative to the Survey of Consumer Finances -- a survey focused on the measurement of wealth -- so it is possible that sizable assets extend even lower in the wealth distribution than these findings suggest. To exclude assets entirely from the resources used to measure MCER, and in so doing make this a measure of income-related economic risk, ignores accumulating evidence on how families prepare for potentially high medical expenditures and how well they are able to absorb them.
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From page 61... ...
Financial assets include checking and savings accounts, certificates of deposit, stocks and mutual funds, and a variety of retirement accounts, which are primarily tax-advantaged. Property assets include homes, vehicles, rental and other real property, and businesses.
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From page 62... ...
, so fine distinctions among asset types may be of little use in the implementation of a measure of MCER. With that in mind, the panel recommends that a share of the value of financial assets held outside retirement accounts along with the posttax value of assets held in retirement accounts be taken into consideration as resources in measuring MCER (see "Conclusions and Recommendations" section)
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From page 63... ...
as a resource that is available to offset a medical need is not a viable option, because this approach does not address the long-term financial hardship that would be created if a family consumed too large a share of its assets on medical expenditures -- or any other purpose -- in a single year. But if only a portion of a family's accessible liquid assets can be counted toward offsetting MCER, how should that portion be determined?
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From page 64... ...
Pros and Cons Defining the asset contribution to resources as a fixed percentage of asset value, rather than amount earned on assets during the most recent year, would prevent a large decline in the value of assets from producing negative family income. Likewise, calculating an annuitized value from the balance of liquid assets would also avoid generating a negative contribution during a year in which the value of asset holdings declined broadly.
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From page 65... ...
Cen sus Bureau modify its concepts and measurement of money income and disposable income to better account for income flows from self employment and from new forms of retirement income for use in mea sures of poverty and medical care economic risk and burden that are derived from its household surveys. Recommendation 3-2: The panel recommends that, for measuring med ical care economic risk, a portion of liquid assets be included in the resources of all persons, regardless of age or employment status.
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