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

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

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

3. Canada does not have a measure of poverty; low income cut-offs have been defined in the early 1960’s 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) 1.1 LICO

4. 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 LICO’s 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) 1.1 LICO

5. 1.2 MBM • In late 1990’s 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 Canada’s 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 Winnipeg’s 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 IncomeSource • 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, Sarlo’s 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. What’s 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 LICO’s

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