The poverty rate would be substantially lower if the market value of in-kind tra

Question

The poverty rate would be substantially lower if the market value of in-kind transfers were added family income. The largest in-kind transfer is Medicaid, the government health program for the poor. Let's say the program costs $7,000 per recipient family.
a. If the government gave each recipient family a $7,000 check instead of enrolling them in the Medicaid program, do you think that most of these families would spend that money to purchase health insurance? Why? (Recall that the poverty level for a family of four is about $20,000.)
b. How does your answer to part (a) affect you view about whether we should determine the poverty rate by valuing in-kind transfers at the price the government pays for them? Explain.
c. How does your answer to part (a) affect your view about whether we should provide assistance to the poor in the form of cash transfers or in-kind transfers? Explain.

Explanation / Answer

a. No. Any payment given in cash will be divided between all good that the family has not reached a satiation point in. Poor people have a lot of goods that have not reached their satiation point, including food and housing. b. It doesn't. We should determine the poverty rate by valuing in-kind transfers at the price the family would have had to pay for the same amount of the good regardless of how the family would spend a cash transfer. c. Yes. The poor would be better off if they received a cash transfer rather than an in-kind transfer. The fact that they would spend the cash on other things rather than medical care is evidence that they value other things more and would be better off with cash.

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