POVERTY

In 1999, in the United States, 3.2 million people age sixty-five and over, representing 9.7 percent of the older population, were officially classified as poor, that is, their income (or that of their families) fell below the income threshold defined by the Census Bureau as the poverty line for their family size. This percentage represented an all-time low for the poverty rate among older persons, which has declined fairly steadily since U.S. poverty statistics first became available in 1959. This decline was dramatic during the 1960s, during which time the rate dropped from about 35 percent to about 25 percent, and there were further sharp declines in the early 1970s (to about 15 percent) in the wake of significant Social Security increases that took place in that period. Plateauing during the "stagflation" of the late 1970s, the elderly poverty rate has since undergone further gradual improvement.

This evolution was accompanied by an equally dramatic shift in the age distribution of poverty. In 1959, older persons were experiencing rates of poverty substantially higher than those of any other age group. Their disadvantage, relative to children, did not diminish during the late 1960s as the War on Poverty was initiated; it actually appears to have widened somewhat during this period, when antipoverty initiatives focused heavily on families with children. By 1969, the child poverty rate had declined to below 15 percent (a rate it has not achieved since), compared to about 25 percent for older persons. However, beginning in the early 1970s, these age groups experienced a sharp reversal of relative fortune. By 1974, the 65+ poverty rate had improved to the point that it had overtaken the child poverty rate, and the two rates have continued to diverge. During the Reagan era of the 1980s, child poverty rates worsened while those for older people improved, and the gap has remained since. In the mid-1990s, the 65+ poverty rate began to dip below the rate for those aged eighteen to sixty-four, and was slightly below that rate in 1999 (U.S. Bureau of the Census, 2000, p. ix).

Half-Full or half-empty?

These developments might be, and often have been, viewed as an unalloyed "good-news" story for older people. Indeed, particularly in conjunction with findings suggesting that the highest-income portion of the older population is becoming increasingly affluent (Crystal, 1982; Crystal and Waehrer, 1996), some have suggested that the major remaining social policy question is why these gains have not been shared by members of other age groups, especially children.

Other data, however, provide reason for concern. Of particular significance is the high proportion of near-poor older people. In 1999, 13.2 percent of older people had incomes between 100 percent and 150 percent of the poverty line, a higher proportion than was the case either for children or for those of working age. Altogether, a total of 22.9 percent of older people lived below 150 percent of the poverty line (U.S. Bureau of the Census, 2000, p. 2).

Taking a longitudinal, rather than a "snap-shot," perspective on late-life poverty also suggests that impoverishment is a very real possibility in older life, despite relatively low cross-sectional poverty rates. Rank and Hirschl (1999) used life table analyses of Panel Study of Income Dynamics data to examine the probability that individuals with various characteristics will experience a year below the poverty line at some point after age sixty. Overall, they estimated that this will occur for 40 percent of America's elderly population and that 48 percent will experience a year below 125 percent of the poverty line. These rates were much higher for those with less than 12 years of education and for African Americans. For example, 88 percent of unmarried, African-American women with less than twelve years of education were projected to fall into poverty at some point in old age, as compared with 13 percent of married white females with twelve or more years of education. In addition to increasing the risk for transitions into poverty, these same factors have also been shown to inhibit escape from poverty among elders (Jensen and McLaughlin, 1997), leading to more persistent old-age poverty among these subgroups.

In addition to highlighting the important role of racial differences and marital status, these results also confirm the importance of educational attainment in determining the risk of late-life impoverishment. This is consistent with other evidence that early advantages, such as those gained by formal education (typically completed by one's mid-twenties) shape individuals' economic destinies in a continued, and even increased, fashion many decades later in the life course, through a process of cumulative advantage and disadvantage (Crystal and Shea, 1990). For example, Crystal, Shea, and Krishnaswami (1992) found that years of education explain more of the variance in income after age sixty-five than at earlier ages, despite the many vicissitudes of life in the intervening decades. It is likely that among baby boomers, individuals with limited formal education will be at even greater risk of late-life impoverishment when they reach old age, since income gaps by education have been considerably higher for baby boomers than for earlier cohorts (Crystal and Johnson, 1998).

Comparing poverty rates across life stages

Perhaps of even greater concern is the question of whether the official poverty line sufficiently reflects the needs of older people, particularly in a society in which so many aspects of health care, long-term care, and other needs related to disabilities of aging depend on older people's own resources rather than public provision. Further, the poverty line for elderly individuals and for two-person, elderly-headed households is somewhat lower than the line for the nonelderly, although it is not clear that their economic needs are really less. For example, in 1999, for an older person living alone, the poverty line was $7,990, compared to $8,667 for a nonelderly person; for a two-person, elderly-headed family the poverty line was $10,075, compared to $11,214 for a nonelderly family. On the other hand, some have argued that the situation is even better for older people than the poverty figures show because the value of Medicare is not included in the poverty-line calculation.

The conventional poverty line has been widely acknowledged to be rather arbitrary in its construction. It dates from the 1960s, when it became important to planners of the War on Poverty to have a measure of a minimally adequate living level with which to define poverty and monitor progress toward the ambitious goal of eliminating it—an objective toward which there has only been real progress, ironically, with the older population, despite the War on Poverty's emphasis on children.

The basic idea underlying the original construction of the poverty definition, which was undertaken in the 1960s for the federal government by Mollie Orshansky, was straightforward to the point of being simplistic. Essentially, based on some studies that suggested that lower-income people spent about one-third of their income on food, Orshansky constructed food budgets for a minimally adequate diet, and multiplied these budget amounts by three. These original poverty line figures have been updated subsequently, based on Consumer Price Survey inflation adjusters. They have been criticized since their creation, both from the left (largely on the basis that a static measure of this kind does not incorporate increasing expectations for minimal adequacy in a society of increasing prosperity) and from the right (largely on the basis that they overestimate deprivation and have under-represented progress, since they do not incorporate the value of in-kind benefits such as Food Stamps, Medicaid, Medicare, and housing subsidies).

Those who believe that trends in the existing poverty measure present a more positive picture than they should have often argued that a relative income measure, such as a specified percentage of the median income, would be a more appropriate measure of trends in poverty than the existing poverty lines, because it would take account of the increasing cost of social participation at a basic level (automobiles, flush toilets, or air conditioning in Southern climates might be considered more of a necessity in 1999 than in 1965). Those who believe that the trends present an overly negative picture have often argued for valuing in-kind benefits in the poverty calculation. The argument here may be strongest for benefits like Food Stamps, which are near equivalents of cash. The argument for including health benefits seems more tenuous, as it does not appropriately address the greater health care needs of older persons, who even with Medicare spend more out-of-pocket on health care than do the non-elderly. Crediting each older individual with the average value of his or her Medicare benefit, as measured by average spending on behalf of all older people, attributes a large sum of "income" to each older person, though most are not receiving anything like that amount of services, since the distribution of Medicaid spending is highly skewed and a significant share of it takes place near the time of death. Such a calculation would distort cross-age comparisons by crediting the older age group with greater income because of their higher use of medical services. It would also distort time-trend analyses, making older people seem increasingly well-off as the cost of medical care services increases, thus reducing their income available for other purposes. If one attempted to attribute varying amounts of in-kind income to older individuals based on their actual or predicted Medicare expenditures, one would have the even more illogical result that older individuals get richer as they get sicker.

There have been a number of attempts to construct alternative poverty measures. A National Academy of Sciences (NAS) panel reviewed these issues and issued a report that recommended new ways to measure poverty. This report (see Citro and Michael, 1995) was critical both of the current measure's noninclusion of in-kind benefits and its failure to take account of the ways in which the cost of various goods, such as food, housing, and medical care, has changed relative to other goods since the early 1960s. Most recently, in response to such concerns, the Census Bureau has calculated poverty rates based on four alternative measures of poverty, one of which generally follows the NAS recommendations (Short, Garner, Johnson, and Doyle, 1999). This alternative measure adjusts poverty thresholds by geographical differences in the cost of living, counts noncash benefits as income, and subtracts from income some work-related, housing, and childcare expenses. The other three alternative measures include: the Different Child Care Method (DCM) assigns fixed amounts of child-care expenses to working families with children, based on the number and age of the children; the Difference Equivalence Scale (DES) uses a new method for adjusting for changes in expenses as family size increases; and the No Geographic Adjustment (NGA) measure, that, unlike the NAS measure, does not adjust thresholds for geographic differences in the cost of living. The alternative measures were standardized to the 1997 official poverty lines in such a fashion that each produced the same overall (all-ages) U.S. poverty rate as the official rate, and the measures were applied to income data for 1999. Interestingly, the 65+ poverty rate was considerably higher for each of the alternative measures than for the current official measure, while the child poverty rate was lower (there was little change for working-age persons). For example, while the 1999 poverty rate for persons 65 and over was 9.7 percent by the official measure, it was 13.3 percent (NAS), 13.0 percent (DCM), 13.7 percent (DES), and 13.6 percent (NGA) for the four alternative measures. By contrast, the poverty rate for persons under eighteen years of age was 16.9 percent under the official measure, but was 14.8 percent (NAS), 15.5 percent (DCM), 14.3 percent (DES), and 14.6 percent (NGA) for the four alternative measures. These results tend to support the argument that the official poverty lines underestimate the real prevalence of poverty among older people.

It is also important to note that the relatively low elderly poverty rate is not an indication that older people do not need Social Security; the rate is low only as a result of the presence of Social Security and would be far higher without it. For example, the Census Bureau found that without government transfers (mainly from Social Security) the 1999 poverty rate for persons over age sixty-five would have been 47 percent. Social Security has an important equalizing effect on income distribution—while there is evidence that inequality is higher among older people than at any younger age (Crystal and Shea, 1990), inequality would be far worse without Social Security. Social Security's tremendous success in reducing poverty in old age results in large part from its progressive income replacement design. It replaces a higher proportion of low incomes than of higher ones, while collecting the same contributions as a percentage of income (up to a ceiling)—a redistribution strategy that would be difficult to maintain to the same extent if part of Social Security benefits were replaced with individual private retirement accounts.

Differential needs and out-of-pocket health care costs

Of particular relevance in evaluating efforts to calculate needs-to-income for older people, as the official poverty lines do, is the burden of out-of-pocket health care costs. Clearly, the health care needs of older people are greater than those of younger people, a factor not taken into account in the official poverty lines. While it is sometimes assumed that a needs-tested safety net exists for the poorest elderly, most older people living at near-poverty or worse are not reached by that safety net. For example, Medicaid (which covers Medicare's co-payments and deductibles as well as services such as prescription drugs and long-term health care that are not covered by Medicare) is received by less than half of older people in the lowest income quintile (Crystal et al., 2000).

The two major types of out-of-pocket expenditures that are significant for older people are payments to health care providers and insurance premiums, including Medicare Part B premiums. About one-third of Medicare beneficiaries receive help in filling Medicare's gaps through retiree group health benefits from a former employer or a spouse's former employer, typically at no cost or at a highly-subsidized price; these benefits tend to be unavailable to individuals who held lower-paying jobs and those with less education. More than one-third of Medicare beneficiaries purchase individual supplemental policies (Medigap) in the marketplace. Prices of these products are unsubsidized and their coverage is limited.

Out-of-pocket costs for prescription drugs, a major category of health care not covered by Medicare, have received considerable attention. There has been less attention to the costs of dental services, also uncovered by Medicare, and of home health and assistive care. Analyses using the 1995 Medicare Current Beneficiary Survey (MCBS) indicate that despite Medicaid coverage for some, older people in the lowest income quintile (roughly equivalent to those living below about 140 percent of poverty) were spending 32 percent of their incomes on health care expenditures (in 1995). Prescription drugs accounted for 40 percent of their payments for health care goods and services (as opposed to 26 percent for those in the highest-income bracket), and dental care accounted for 12 percent (Crystal et al., 2000). With these high levels of financial need for health care, it seems illogical that the poverty line for elderly-headed households is lower than that for non-elderly-headed households, suggesting that the official poverty lines underestimate true poverty among older people.

Late-life poverty in the United States and abroad

Social Security, as noted above, does incorporate a redistributive element and plays an equalizing role that reduces old-age inequality. However, it lacks, even in combination with related programs such as Supplemental Security Income (SSI), a high minimum benefit and provides less protection for lower-income individuals than do systems in a number of other developed countries. Smeeding, Rainwater, and Torrey (1993) compared levels of late-life inequality and minimum benefits in public pension systems (as a percentage of median income) across a number of countries. The United States provided the lowest minimum benefit (defined by the means-tested SSI level) at 34 percent of median income, and experienced the highest level of late-life inequality. Countries such as France, Canada, and Australia guaranteed benefits close to 50 percent of median income and experienced intermediate levels of late-life inequality, while the Netherlands and Sweden, with their well-developed social welfare systems, provided guarantees of 72 percent and 66 percent of median income, respectively, and experienced the lowest rates of late-life inequality. Countries such as the Netherlands and Sweden with high minimum retirement income guarantees have largely eliminated late-life economic poverty. Of course, these and their other social welfare protections typically have come at the cost of a higher payroll tax and other taxation rates on working-age citizens than have been found politically acceptable in the United States.

While the existing U.S. poverty measure has significant limitations in comparing poverty rates across years or age groups, it is nevertheless a useful indicator of a group among the older population that is clearly experiencing economic privation. Similarly, near-poverty (e.g., those living below 150 percent of the poverty line) is a useful way to define a group that, while not in quite as dire straits, also experiences considerable privation and is an appropriate target for efforts to address unmet needs in the older population. It is therefore helpful to examine the characteristics of the older population living in poverty. Not surprisingly, they are disproportionately female, and living alone, have chronic health conditions, and are over seventy-five years of age. In 1999, 69.7 percent were women. The poverty rate (in 1999) was 26.4 percent among African American women and 5.7 percent among white men. Similarly, among the 7.5 million elderly Americans living below 150 percent of the poverty line, 68.4 percent were women (47.1 percent of African American women fell into this category, and 14.7 percent of men). These differentials reflect lagged effects of differences in early advantages and disadvantages, differences in economic opportunities during the working years, the economic impact of differential rates of disability and ill health across socioeconomic groups in later life, and similar factors. This process of cumulative advantage and disadvantage reflects the fact that despite some redistributional features, retirement income systems in the United States are based heavily on pre-retirement earnings. The circumstances of the substantial population living below 150 percent of poverty (almost one-quarter of the older population) contrast sharply with those of more affluent older adults, representing a continuation of a long-standing "two worlds of aging" pattern in the United States (see Crystal, 1981).

Stephen Crystal

See also Consumer Price Index and COLAs; Economic Well-Being; Income Support for Nonworkers, National Approaches; Inequality; Life Cycle Theories of Savings and Consumption; Savings.

BIBLIOGRAPHY

Chulis, G.; Eppig, F.; Hogan, M. O.; Waldo, D.; and Arnett, R. "Data Watch: Health Insurance and the Elderly." Health Affairs Spring 1993: 111–118.

Citro, C. F., and Michael, R. T. Measuring Poverty: A New Approach. Washington, D.C.: National Academy Press, 1995.

Crystal, S. America's Old Age Crisis: Public Policy and the Two Worlds of Aging. New York: Basic Books, 1982.

Crystal, S.; Harman, J.; Sambamoorthi, U.; Johnson, R.; and Kumar, R. "Out of Pocket Health Care Costs Among Older Americans." Journal of Gerontology: Social Sciences 55B, no. 1 (2000): S51–S62.

Crystal, S., and Johnson, R. The Changing Retirement Prospects of American Families: Impact of Labor Market Shifts on Economic Outcomes. Public Policy Institute Publication #98-01. Washington, D.C.: AARP, 1998.

Crystal, S., and Shea, D. "Cumulative Advantage, Cumulative Disadvantage, and Inequality Among Elderly People." The Gerontologist 30, no. 4 (1990): 437–443.

Crystal, S.; Shea, D.; and Krishnaswami, S. "Educational Attainment, Occupational History, and Stratification: Determinants of Later-Life Economic Resources." Journal of Gerontology: Social Sciences 47, no. 5 (1992): S213–S221.

Crystal, S., and Waehrer, K. "Later-Life Economic Inequality in Longitudinal Perspective." Journal of Gerontology: Social Sciences 51B, no. 6 (1996): S307–S318.

Jensen, L., and McLaughlin, D. "The Escape from Poverty Among Rural and Urban Elders." The Gerontologist 37 (1997): 462–468.

Karoly, L., and Rogowski, J. "The Effect of Access to Post-Retirement Health Insurance on the Decision to Retire Early." Industrial and Labor Relations Review 48 (1994): 103–123.

Lillard, L.; Rogowski, J.; and Kington, R. "Long-Term Determinants of Patterns of Health Insurance Coverage in the Medicare Population." The Gerontologist 37 (1997): 314–323.

Rank, M., and Hirschl, T. "Estimating the Proportion of Elderly Americans Ever Experiencing Poverty During Their Elderly Years." Journal of Gerontology: Social Sciences 54B, no. 4 (1999): S184–S193.

Short, K.; Garner, T.; Johnson, D.; and Doyle, P. Experimental Poverty Measures: 1990 to 1997. U.S. Census Bureau, Current Population Reports, Consumer Income, P60-205. Washington, D.C.: U.S. Government Printing Office, 1999.

Smeeding, T.; Torrey, B. B.; and Rainwater, L. Going to Extremes: An International Perspective on the Economic Status of the U.S. Aged. Working Paper No. 87. Luxembourg: Luxembourg Income Study, 1993.

U.S. Bureau of the Census, Current Population Reports; Series P-60, No. 210, Poverty in the United States: 1999. Washington, D.C.: Bureau of the Census, 2000.

POWER OF ATTORNEY

See Advance directives for health care

PRESCRIPTION DRUGS

See Medication costs and reimbursement