Poverty guidelines

Poverty Guidelines: Definition, Applications, and Criticisms

Poverty guidelines are a set of income thresholds issued annually by the U.S. Department of Health and Human Services (HHS) to determine financial eligibility for numerous federal programs. These guidelines serve as a crucial tool in public policy finance, enabling the government to allocate resources and provide financial assistance to individuals and families with low income. They represent a simplified version of the poverty thresholds calculated by the U.S. Census Bureau.⁶⁹ The poverty guidelines are primarily used for administrative purposes, such as determining eligibility for social programs, rather than for statistical reporting of poverty rates.⁶⁷, ⁶⁸

History and Origin

The foundation for modern poverty measures in the United States was laid in the mid-1960s by Mollie Orshansky, a staff economist at the Social Security Administration (SSA).⁶⁶ Tasked with understanding the impact of poverty on children, Orshansky developed a set of poverty thresholds in 1963.⁶⁵ Her methodology derived these thresholds from the cost of a minimum food diet, specifically the Department of Agriculture's "economy food plan," which was designed for temporary or emergency use.⁶⁴ She found that families of three or more persons typically spent about one-third of their after-tax money income on food in 1955.⁶³ Based on this, she calculated poverty thresholds by multiplying the cost of the economy food plan by three.⁶²

President Lyndon B. Johnson's declaration of the "War on Poverty" in 1964 intensified the need for a standardized measure of poverty.⁶¹ Orshansky's detailed thresholds, which accounted for family size and composition, were adopted by the U.S. Office of Economic Opportunity in 1965 and subsequently became the official poverty measure for the federal government.⁶⁰ The poverty guidelines, as a simplified variant, were later developed by HHS for administrative purposes, while the Census Bureau continued to use the more detailed poverty thresholds for its statistical data collection and official poverty rates.⁵⁷, ⁵⁸, ⁵⁹

Key Takeaways

• Poverty guidelines are income thresholds set annually by the U.S. Department of Health and Human Services (HHS).
• Their primary use is to determine eligibility for various federal, state, and local financial assistance and social programs.
• The guidelines are a simplified version of the U.S. Census Bureau's poverty thresholds, which are used for statistical reporting.
• They are updated annually to account for inflation, primarily using the Consumer Price Index (CPI-U).⁵⁵, ⁵⁶
• Poverty guidelines vary by family size and are issued separately for the 48 contiguous states and the District of Columbia, Alaska, and Hawaii.⁵³, ⁵⁴

Formula and Calculation

While there isn't a single mathematical "formula" in the traditional sense for poverty guidelines, they are calculated and updated based on specific criteria. The Department of Health and Human Services (HHS) annually updates the poverty guidelines by adjusting the previous year's figures for inflation using the Consumer Price Index for All Urban Consumers (CPI-U).⁵¹, ⁵² The base for these guidelines originated from the poverty thresholds developed by Mollie Orshansky, which were initially derived by multiplying the cost of a minimum food diet by three.⁴⁹, ⁵⁰

The guidelines present a matrix of income levels corresponding to different family or household sizes. For example, for families with more than eight persons, a specific dollar amount is added for each additional person to determine the guideline.⁴⁸ These adjusted income levels serve as the benchmarks against which a household's total income is compared to determine eligibility criteria for various programs.

Interpreting the Poverty Guidelines

Interpreting the poverty guidelines involves comparing a household's gross income to the guideline relevant to its size and geographic location (contiguous states, Alaska, or Hawaii). If a household's income falls at or below the specified poverty guideline, they are considered to meet the income requirements for certain federal programs.⁴⁷

It is common for programs to set eligibility at a percentage multiple of the poverty guidelines, such as 125%, 150%, or even 200% of the guidelines, depending on the program's specific rules and objectives.⁴⁵, ⁴⁶ This means that a family's eligibility for specific subsidies or other forms of financial assistance is not always strictly at 100% of the poverty guideline. These percentages allow for a broader range of low-income individuals to qualify for needed social programs.

Hypothetical Example

Consider a family of three residing in Ohio, consisting of two parents and one child, seeking eligibility for a specific social welfare program. They report a total household income of $28,000 for the year.

To determine their eligibility, they would consult the current poverty guidelines for the 48 contiguous states and the District of Columbia. Let's assume the current poverty guideline for a family of three is $26,650.⁴⁴

1. Identify household size: Three persons.
2. Locate relevant guideline: For a family of three in the contiguous U.S., the guideline is $26,650.
3. Compare income to guideline: The family's income of $28,000 is greater than the $26,650 guideline.

In this hypothetical scenario, if the program's eligibility threshold is set at 100% of the poverty guidelines, this family's income exceeds the threshold, making them ineligible. However, if the program allows for eligibility up to 138% of the poverty guideline (a common threshold for programs like Medicaid), then:

• 138% of $26,650 = $36,777⁴³

In this case, the family's income of $28,000 would fall below $36,777, potentially making them eligible for the program based on this higher income threshold. This illustrates how the guidelines are applied and how varying percentages are used for different programs of financial assistance.

Practical Applications

Poverty guidelines have widespread practical applications across various sectors, particularly within government expenditure and social safety nets. They are critical for:

• Determining Program Eligibility: Numerous federal programs use the poverty guidelines to establish eligibility for benefits and services. Examples include Medicaid, Children's Health Insurance Program (CHIP), Head Start, the Low-Income Home Energy Assistance Program (LIHEAP), and various nutrition programs.⁴⁰, ⁴¹, ⁴²
• Immigration Sponsorship: U.S. Citizenship and Immigration Services (USCIS) uses the HHS poverty guidelines for the Affidavit of Support (Form I-864), which is required for certain immigrants to demonstrate they will not become a public charge.³⁸, ³⁹
• Statistical Analysis: While the Census Bureau's poverty thresholds are used for official poverty statistics, the HHS poverty guidelines are often used by other agencies, like the Centers for Disease Control and Prevention (CDC) for health surveys, to analyze health disparities related to income.³⁷
• Research and Policy Making: Researchers and policymakers use the guidelines as a consistent benchmark to study economic inequality, evaluate the effectiveness of social programs, and inform budget decisions related to poverty reduction initiatives.
• Non-Federal Organizations: Many state, local, and even private charitable organizations adopt the federal poverty guidelines, or multiples thereof, to administer their own financial assistance programs.³⁶

The consistent annual update of these guidelines by HHS ensures that eligibility criteria for these vital programs remain responsive to changes in the cost of living.³⁵

Limitations and Criticisms

Despite their widespread use, poverty guidelines face several limitations and criticisms, primarily concerning their accuracy and relevance in reflecting modern economic realities.

One major criticism is that the original methodology, based on a 1955 study of food consumption patterns, is outdated.³³, ³⁴ The assumption that food constitutes one-third of a household's budget no longer holds true; today, food accounts for a much smaller proportion of typical family expenditures, while costs for housing, childcare, transportation, and healthcare have significantly increased.³⁰, ³¹, ³² This means the fixed "multiplier" of three may underestimate the true cost of basic needs.

Furthermore, the guidelines generally do not account for geographic variations in the cost of living within the contiguous United States.²⁸, ²⁹ While separate figures are provided for Alaska and Hawaii due to their historically higher expenses, the cost of living can vary dramatically between, for example, a major metropolitan area and a rural town in the same state.²⁶, ²⁷ This uniform application can lead to an underestimation of poverty in high-cost urban areas.²⁵

Another point of contention is that the poverty guidelines consider only pre-tax cash income and do not account for non-cash benefits (such as food stamps or Medicaid), taxes paid, or work-related expenses like childcare and transportation.²², ²³, ²⁴ This can lead to an incomplete picture of a household's true disposable income and economic well-being.²⁰, ²¹ Critics argue that these omissions can misrepresent the number of people experiencing actual economic hardship.¹⁹

Poverty Guidelines vs. Federal Poverty Level (FPL)

The terms "poverty guidelines" and "Federal Poverty Level" (FPL) are often used interchangeably, leading to confusion. However, there is a technical distinction. The poverty guidelines are specifically issued annually by the U.S. Department of Health and Human Services (HHS).¹⁸ Their primary function is administrative, serving as income thresholds to determine eligibility for a multitude of federal, state, and local social programs and benefits.¹⁶, ¹⁷

The Federal Poverty Level (FPL) is a broader, more generalized term that commonly refers to the HHS poverty guidelines in public discourse and by some agencies.¹⁵ While HHS explicitly states that "federal poverty guidelines" is the correct terminology for its administrative income thresholds, "FPL" is widely used to denote the same figures.¹⁴ The underlying figures for both, however, originate from the more detailed poverty thresholds established and updated by the U.S. Census Bureau.¹³ The Census Bureau's poverty thresholds are primarily used for statistical purposes, such as measuring the official poverty rate and analyzing demographic trends related to economic indicators.¹¹, ¹²

In essence, while the poverty thresholds are used for statistical measurement of economic inequality, the poverty guidelines (often synonymous with FPL in common usage) are the practical application of these thresholds for determining who qualifies for government assistance programs.

FAQs

Q: Who sets the poverty guidelines?
A: The U.S. Department of Health and Human Services (HHS) issues the poverty guidelines annually.⁹, ¹⁰

Q: How often are the poverty guidelines updated?
A: The poverty guidelines are updated once a year, typically in January, to account for changes in inflation based on the Consumer Price Index (CPI-U).⁷, ⁸

Q: Do the poverty guidelines vary by state?
A: Yes, the HHS poverty guidelines provide separate figures for the 48 contiguous states and the District of Columbia, Alaska, and Hawaii. However, they do not vary by individual state within the contiguous U.S.⁵, ⁶

Q: Are non-cash benefits, like food stamps, counted in the income for poverty guidelines?
A: No, the poverty guidelines are based on gross cash income before taxes and generally do not include the value of non-cash benefits such as food stamps, Medicaid, or housing subsidies.³, ⁴

Q: What is the main purpose of the poverty guidelines?
A: The main purpose of the poverty guidelines is to determine who is eligible to receive financial assistance and services from various federal programs.¹, ²