The official poverty rate has been criticized for decades. Based on traditional poverty measures, an estimated 45.7 million Americans live in poverty. However, when taxes, medical bills, and other expenses as well as benefits and assistance programs are accounted for the figure rises to about 47.8 million. This difference of 2.1 million Americans living above or below the poverty line is the difference between the official poverty rate and the supplemental poverty rate.
The official poverty measure, developed in the early 1960s, uses income from wages, Social Security benefits, interest, dividends, and pensions to determine the income of Americans and therefore whether or not someone is poor. By contrast, the supplemental poverty rate uses income after necessary costs like medical bills and living expenses are taken away, as well as after government subsidies like benefit programs and tax credits are added.
In most states the supplemental poverty rate is higher than the official measure, meaning that on balance necessary expenses outweigh the benefits of government programs in these states. To determine where poverty is likely far worse than traditional estimates suggest, 24/7 Wall St. identified the states with the largest differences between the official and supplemental poverty rate.
Hawaii has the largest such gap, with a 10.9% official poverty rate and a 16.8% supplemental poverty rate. According to the Census Bureau, the largest expenses pushing Americans into poverty are out-of-pocket medical costs, work-related expenses, and income tax.
> Supplemental poverty rate: 15.1% (14th highest)
> Official poverty rate: 12.5% (23rd lowest)
> Cost of living: 7.1% greater than nation (7th highest)
> Uninsured rate: 2.8% (the lowest)
The typical Massachusetts household earns $70,628 annually, roughly $15,000 more than the median household nationwide. With such relatively high incomes, just 12.5% of Massachusetts residents live below the poverty line, versus the official 14.5% national poverty rate. When adjusted for housing costs, taxes, medical bills, and other expenses, however, the state’s poverty rate climbs to 15.1%, matching the national supplemental poverty rate. The 2.6 percentage point difference between the official and supplemental poverty rates — representing 174,000 residents — may be partially due to the high cost of living in Massachusetts. Rent in the state is 23.5% more expensive than the national average, one of the largest rental price variations in the country.
While more than nine in 10 Americans have health insurance, out-of-pocket expenses such as health insurance premiums, prescription drugs, and doctor copayments can can add significantly to household expenses. The nonprofit health organization Kaiser Family Foundation found that out-of-pocket deductibles for employees with health insurance increased to an average of $1,478 from $1,318 in 2015. For the 22% of U.S. households — roughly 25 million — earning less than $25,000 each year, a costly medical bill could be the difference between living above or below the poverty line. For those without health insurance, medical costs are likely even higher.
Housing is also a major expense for most families. The typical housing expense of owner-occupied homes nationwide is $17,724 a year, and in some states the housing cost is far higher. Seven of the 11 states where poverty is worse than it seems have among the highest housing costs of any state.
While not directly a part of the supplemental poverty rate measure, cost of living can also make a large difference to low-income households. High cost of living further adds to residents’ financial burdens. Of the 11 states on this list, the cost of living in nine is greater than the national average. Notably, in Hawaii, goods and services as well as housing costs are 17% more expensive than across the nation, the highest cost of living of any state.
The difference between official and supplemental poverty measures can vary by age group. For children, the supplemental poverty rate is often lower than the official poverty rate, because of the many benefits and assistance programs available to households with children. These payments sometimes help lift a low-income family above the supplemental poverty line.
On the other hand, the supplemental poverty rate for the elderly is often higher than the official poverty rate for the age group. The elderly are more likely to face far greater out-of-pocket medical expenses than the average American. Florida, which has the sixth largest difference between official and supplemental poverty rates, also has the largest elderly population of any state.
To determine the states where poverty is worse than you think, 24/7 Wall St. reviewed data from the Census Bureau’s recent release, “The Supplemental Poverty Measure: 2015.” The states were ranked on the percentage-point difference between the supplemental poverty rate and official poverty measure. While the official measure determines poverty status by considering a family or individual’s before-tax cash income, the supplemental poverty rate considers the sum of cash income plus noncash benefits and tax credits, minus taxes, work expenses, out-of-pocket medical expenses, and child support paid to another household. The poverty rates are a three-year average over 2013, 2014, and 2015. Data on median household income, health insurance coverage, housing costs and age came from the Census Bureau’s 2015 American Community Survey. Data on regional price parity, or cost of living, came from the Bureau of Economic Analysis and are for 2014. Unless otherwise specified, all data are for the most recent period available.