We describe a health inclusive poverty measure (HIPM)—with basic health insurance included in the poverty needs threshold and government- or employer- provided health insurance benefits or subsidies included in resources. A 1995 National Academy of Science panel that recommended a new framework for measuring US poverty attempted to include health care or health insurance, but found no valid and practical way. Instead, it recommended excluding heath from “material” needs, which required subtracting medical out-of-pocket expenditures (MOOP) from resources available to meet needs.  These recommendations formed the basis for the Census Bureau’s Supplemental Poverty Measure (SPM).  Although the SPM is generally considered a substantial improvement over the official poverty measure, the treatment of health care, and MOOP in particular, has been controversial.

We argue that changes to the US health care system resulting from the Affordable Care Act (ACA) and Medicare Advantage plans provide features necessary for a HIPM.  Key is the availability of insurance premiums unrelated to health status required for determining how much a family “needs” for basic health insurance. In short, while no valid and practical method for including health in US poverty measurement existed before, it does now.

Building on the SPM, we implement a pilot HIPM for the under-65 in 2010 Massachusetts, under a health reform similar to the ACA.  Although the HIPM poverty rate is only 1.3 percentage points lower than the SPM poverty rate for the under-65, a standard accounting exercise suggests that public health insurance benefits reduced the rate by 3.3 percentage points, and premium subsidies reduced it another 0.6 percentage point; together, public health insurance benefits reduced HIPM-poverty by a third. Among “cash poor” families who purchase individual insurance, the Massachusetts premium subsidies alone reduced the HIPM poverty gap by nearly 20 percentage points.

The HIPM has several conceptual advantages. Although the SPM can register the value of health insurance on poverty through any reductions in MOOP, it cannot register the risk reduction or access to health care provided by health insurance. Thus, if basic health insurance and health care are needs, the SPM misses but a HIPM captures critical ways that Medicaid, the ACA and employer-provided insurance reduce poverty.

Future applications of the HIPM could show the effect on poverty of states’ decisions to expand or not expand Medicaid benefits.  Although we found that the HIPM poverty rate was modestly lower than the SPM rate in Massachusetts, the HIPM rate could be far higher than the SPM rate where health insurance benefits are less generous.