VALUING GOVERNMENT EXPENDITURES: THE CASE OF MEDICAL CARE TRANSFERS AND POVERTY*

TLDR

Recent studies by the Congressional Budget Office and Morton Paglin underscore the importance of medical transfers in poverty measurement, though their methodologies are contested. The paper investigates how different valuation methods for medical transfers affect estimates of their anti‑poverty impact. The authors compare three valuation approaches—government costs, cash‑equivalent values, and released funds—and allocate benefits assuming universal Medicare and Medicaid coverage. Estimates for 1968 and 1974 show medical transfers substantially reduce poverty, with aggregate impacts largely insensitive to the valuation method, though the method matters for the elderly and rural poor.

Abstract

This paper explores the choices and potential biases involved in valuing one type of government expenditure, medical transfers, and in estimating its antipoverty impact. Three methodological approaches–(a measure of) government costs, (a measure of) cash‐equivalent values and (a measure of) funds released–are contrasted both in concept and in practice. We assign benefits to individuals after assuming that Medicare and Medicaid provide insurance to all those who are eligible. The resulting estimates for 1968 and 1974 illustrate the efficacy of these medical transfers in reducing the number of persons in poverty. Two recent studies, one by the Congressional Budget Office, and the other by Morton Paglin, further highlight the importance of medical transfers for estimating poverty, despite the fact that we do not wholly agree with the methodologies which they employ. Our results indicate that in the aggregate, while medical care transfers have a substantial impact on poverty, the choice of a specific estimation approach has little effect on poverty estimates. However, for the elderly and possibly also for other groups (e.g. the rural poor), choice of estimation technique is quite crucial for estimating the extent of poverty.