Geographic Variation in the Cost of Living: Implications for the Poverty Guidelines and Program Eligibility

06/01/2013

This report, prepared by the Urban Institute, provides a thorough review of the literature on the extent of price variation across geographic areas, an assessment of the available indices to use to adjust the poverty guidelines for geographic price variation, and trial estimates of how geographically adjusted poverty guidelines would affect program eligibility and federal and state costs. The Institute then utilized two alternative price indices to adjust the poverty guidelines for geographic variation in the cost of living and simulate eligibility for benefit programs, including Medicaid, CHIP, Affordable Care Act Advanced Premium Tax Credit (APTC), SNAP, and CCDF subsidies.

There are a number of studies dating back to the 1970s that have documented significant between- and within-state variation in the costs of housing, food, and medical care. Two indices were identified to be most relevant for adjusting the poverty guidelines for differences in the cost of living; one is from the Department of CommerceтАЩs Bureau of the Census, which is used to adjust the poverty thresholds for the Research Supplemental Poverty Measure (SPM) for housing costs, and the second is from the Bureau of Economic Analysis - Regional Price Parities Index (RPP) - which reflects the full market basket of goods and services.

On a national level, the adjustment by either the SPM or RPP index results in little change in the average poverty guidelines. Adjusting the poverty guidelines by either the SPM or RPP does have significant impacts on the level of the state poverty guidelines. Applying either of these indexes at the more local level to capture within-state variation in prices or the cost of living results in somewhat wider ranges in the levels of the poverty guidelines with significant within-state variation.

On a national level the use of geographic price indices to adjust the poverty guidelines between states and within states makes little significant difference in the number of persons eligible for the programs examined. Applying geographic price or cost of living indices to adjust the poverty guidelines for program eligibility would result in significant numbers of individuals in low-cost states losing program eligibility. Conversely, in high-cost states eligibility would be significantly expanded.

  • Geographic Variation in the Cost of Living: Implications for the Poverty Guidelines and Program Eligibility, (PDF, 85 Pages)
  • Geographic Variation in the Cost of Living: Implications for the Poverty Guidelines and Program Eligibility Appendix AтАУC, (PDF, 103 Pages)
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