Developments in low income statistics and measurement of medical expenses Sylvie Michaud, Statistics Canada Washington September 2003

1
Developments in low income statisticsand
measurement of medical expensesSylvie
Michaud, Statistics CanadaWashingtonSeptember
2003
STATISTICS STATISTIQUE CANADA CANADA
2
Overview

• 1. Low income measures
• 1.1 LICO
• 1.2 MBM
• 2. MBM methodology
• 3. Out-of pocket medical expenses
• 4. LICO vs MBM

3
1.1 LICO

• Canada does not have a measure of poverty low
  income cut-offs have been defined in the early
  1960s and often used a s a substitute for such a
  measure
• LICO represent income threshold where people have
  to spend significantly more than the average
  family on necessities
• Necessities defined as food, shelter, clothing
• Significantly more 20 more than the average
  spending of a hhld
• Rates varied by size of region and family size
  (matrix of 35 cells)

4
1.1 LICO

• Proportion of income spent on necessities was
  recalculated with every new spending survey until
  1992 since 1992, used the same ratio of spending
  but the income thresholds have been adjusted for
  inflation through the CPI
• LICOs feature income after tax, but also
  calculated on income before tax after transfers
• LICO matrix based on the spending survey (FAMEX,
  SHS), while the rates are based on the income
  survey (SCF, SLID)

5
1.2 MBM

• In late 1990s Federal/provincial/territorial
  group on social development proposed a Market
  Basket Measure of poverty (MBM)
• absolute measure between deprivation and social
  inclusion pole
• Meant to be more easy to understand than the
  LICO
• LICO easy to measure statistically hard to
  understand
• MBM easy to understand methodology quite complex

6
1.2 MBM

• Basket based on costs (family 2 adults 2
  children, provincial)
• food
• clothing
• shelter
• transportation
• other
• the price of the basket is adjusted for various
  family sizes the cost is compared to an MBM
  disposable income a person is poor if family
  disposable income less than cost of basket
• MBM derived using multiple surveys in SC

7
1.2 Food component

• Items and quantities from Health Canadas 1998
  Nutritious Food Basket
• Pricing of items by Prices Division in 40 cities
  in 2000
• No pricing in the rural

8
Clothing component

• Items and quantities from the Social Planning
  Council of Winnipegs 2000 Acceptable Living
  Level (ALL) clothing list
• Pricing of items by Prices Division in 16 cities
  in 2000
• A third of the items were not priced for the
  first release of MBM, and for another third, the
  descriptions of the ALL were not specific enough
  
• Did a temporary measure

9
Shelter component

• Rent average of median 2 bedroom unit and median
  3 bedroom unit
• Utilities included
• Only units that do not need major repairs
• other amenities adjustment required because
  there are lots of provincial differences
• Sources of data
• Census of Population
• Labour Force Survey (Rent Supplement )
• Survey of Household Spending

10
Refinements to the shelter component

• Adjustment for quality
• Further adjustments could be possible to account
  for quality direct adjustments could be made,
  or a hedonic index could be developed and applied
• Zero and subsidized rent
• Zero rents excluded from calculations
• Subsidised rents included in the calculations
• No imputed rent

11
Transportation

• two independent procedures for pricing
  transportation component
• Urban areas served by public transit (size or
  area 100k)
• annual price of monthly passes for 2 adults 12
  taxi fares
• All other areas - annual price of operating a
  motor vehicle
• Cost based on prices in all cities
• Includes cost of vehicle, gas, maintenance,
  insurance

12
Other Expenses

• Construction of the Other Expenses Component
• Items to be included defined by
  Federal/Provincial/Territorial Working Group
• Average total annual expenditure on a set
  selected other expenses items expressed as a
  proportion of food/clothing
• Based on Survey of Household Spending (SHS)
• Calculated for MBM reference families in 2nd
  lowest decile of SHS after-tax income
• Canada level pricing, including both owners and
  renters, due to SHS sample limitations

13
Other Expenses

• Other expenses items from SHS include
• Telephone services Rental of cablevision,
  satellite service
• Personal care Household cleaning supplies
• Vacuum cleaners Sewing machines
• Service charges to banks Membership fees for
  sports, recreation facilities
• Movie theatres Sports and athletic equipment
• Home entertainment Live sports, performing arts
• Furniture Textbooks/reading materials
• Bicycles/toys Contributions to charity

14
Other Expenses

• Other expenses items from SHS exclude
• Tobacco and alcoholic products Purchase,
  renting, leasing vehicles
• Jewelry and watches Intercity transportation
• Computer equipment and supplies Purchase,
  operation of recreational vehicles
• Internet services Hospital care
• Cellular services Eye care, dental services
• Art, antiques Prescribed pharmaceuticals
• Musical instruments Physicians and other
  health practitioners care
• Above ground pools, playground equip. Personal
  insurance payments
• Pet expenses
• Gifts of money to persons living inside, outside
  Canada

15
MBM Disposable Income

• Expands upon traditional after-tax income
  concept to account for non-discretionary
  expenditures
• More closely represents what families actually
  have at their disposal to purchase the
  commodities identified in the MBM
• Total price of MBM items is compared with family
  disposable income to determine MBM low income
  status

16
MBM Disposable Income

• SLID to serve as the source for MBM disposable
  income
• Disposable income modifies the after tax concept
  to exclude non-discretionary expenses
• Deduction from Income Source
• CPP/QPP contributions calculation based on
  earnings
• EI contributions calculation based on earnings
• RPP contributions tax link/income interview
• Union and professional dues tax link/income
  interview
• Child/spousal support payments labour interview
• Work-related child care expenses labour
  interview
• Direct medical expenses imputation from SHS data
• Public health insurance premiums calculation
  based on province and net income

17
MBM Disposable Income

• Derivation of some non-discretionary expenses
  more problematic than others
• Limited SHS sample for provincial estimates,
  affecting reliability of estimates for imputing
  direct medical expenses
• Not clear that the current method reflects well
  all the expenditures
• Done a post-censal survey on disability in 2001
  some questions on costs prescriptions and
  drugs, medical supplies, care
• Results will be released in December 2003

18
Equivalence Scale

• Components of the MBM have been determined for a
  reference family of 2 adults and 2 children
• Baskets for other family sizes could be specified
  and priced, but it is easier to use an
  equivalence scale
• LIM and square root gave similar rates
• OECD scale gave a rate about 1.7 pp lower for all
  persons, compared to the LIM scale

19
2. Food basket, food expenditures, Sarlos basket
20
Basket versus clothing expenditures2 adult, 2
children households, 2000 prices
21
3. Out of pocket expenditures

• Not asked in the income survey because too many
  additional questions the amount is imputed using
  two sources
• Some medical expenses are tax deductible for
  people who gave tax permission, this is the
  amount used
• There is a minimum limit, below which you can not
  claim medical expenses on the tax return in
  2000, this was 3 of net income or 1,637,
  whichever is lower
• Only 10 of people (14 of disabled people) had
  claimed medical expenses in 2000

22
3. Out of pocket expenditures

• for those who did not claim or where tax
  permission was not provided, an amount was
  imputed using the survey of household spending
• the imputation uses family characteristics and
  province
• everybody has at least a minimum of 100

23
Distribution of out-of-pocket expenditures (EF)
by age group (SLID RY2000)
24
Disability rates (SLID RY2000 and PALS 2001)
25
Distribution of out-of-pocket expenditures (EF)
by disability status of adults (SLID RY2000)
26
Distribution of out-of-pocket expenditures (EF)
for 65 (SLID RY2000)
27
Distribution of out-of-pocket expenditures (EF)
for 65 by yrs disabled (SLID RY2000
definition of disability changed in 1999)
28
4. Rates

• With MBM, slightly more people with disability in
  low income compared to the LICO
• However, biggest impact for families, especially
  those with children income reduced by child care
  expenses and social contributions (and alimony in
  some cases)

29
LICO vs MBM by province (RY 2000)
30
LICO vs MBM by province (RY 2000)
31
LICO vs MBM by province (RY 2000)
32
Whats next

• SC has proposed revisions to LICO
• Larger cities calculated separately
• Inclusion of social contributions
• Yearly update of the basket
• SC will continue work with HRDC for MBM
• Probably have a consultation in the winter
• Definition of income used
• where we go with the LICOs

33
MBM next steps

• MBM is still a preliminary measure
• Clothing, north,
• Provincial basket ?
• SC will produce rates for HRDC in fall 2003
• Prices will have new basket of clothing for RY
  2003