In May, the Trump administration announced it was considering changing the way the federal poverty line is adjusted annually for increases in cost of living, and is seeking public comment until June 21, 2019. The alternatives they are considering could take away Medi-Cal eligibility for tens of thousands of Californians, reduce subsidies for over one million Californians with subsidized insurance from Covered California, and reduce the number eligible for dozens of other programs including CalFresh. The Center on Budget and Policy Priorities estimates that, nationally, millions of people could lose or see reductions in their benefits.

Currently, the federal poverty line is adjusted each year according to the growth of the Consumer Price Index for All Urban Consumers (CPI-U), which measures the price level for goods and services purchased by residents of urban or metropolitan areas. The Trump administration is considering using the Chained Consumer Price Index for All Urban Consumers (Chained CPI-U), which tries to take into account changing purchasing decisions caused by price increases.

To understand the difference between the two measures, imagine a family that buys five pieces of fruit per week: three apples and two oranges. CPI-U calculates the overall change in prices assuming that even as the prices of apples and oranges rise by different amounts, the family still continues to buy three apples and two oranges. Chained CPI-U, however, makes an adjustment to take into account that, while the family still buys five pieces of fruit, they may instead buy two apples and three oranges if the price of apples went up more than the price of oranges.

Importantly, this means Chained CPI-U shows slower growth in the cost of living than CPI-U. Over the next ten years, the Congressional Budget Office projects that the cost of living measured by CPI-U will increase by 27 percent, but the cost of living measured by Chained CPI-U will increase by only 24.5 percent. The current CPI-U may already underestimate cost of living increases for low-income people, and using the Chained CPI-U would only exacerbate that issue.

There are many other issues with the official poverty threshold beyond the choice of inflation index. This proposal cherrypicks one of those issues, only serving to set the federal poverty line meaningfully lower than under current practice.

Many public healthcare and public assistance programs, including Medi-Cal, subsidies for insurance through Covered California, and CalFresh, have eligibility thresholds or benefit formulas that are based on family income as a percentage of the federal poverty line. With a lower federal poverty line, family income as a percentage of it would rise, making some families ineligible for programs or reducing the benefit they receive.

Using projections from the UC Berkeley-UCLA California Simulation of Insurance Markets (CalSIM) Model, we estimate that if the use of Chained CPI-U were to be adopted in 2021, by 2028:

• 30,000 adults and 30,000 children who would otherwise be enrolled in Medi-Cal would lose eligibility; and

• Over 1 million Californians with subsidized coverage through Covered California would receive smaller premium subsidies, and some would lose their subsidies entirely. A family of four with an income of $80,000 would have to pay an additional $300 per year in premiums. Some of these Californians would also receive reduced assistance with out-of-pocket costs. For a California family with income just below 200 percent of the poverty line, this change could more than triple their deductible.

Additionally, some of the 3.7 million Californians enrolled in CalFresh could lose access to the program, as could many of the Californians enrolled in dozens of other public programs which use the federal poverty line to establish eligibility or benefits.

While this proposal may seem simply technical in nature, the harm in California would be very real. Over time, millions of Californians would lose eligibility for benefits or receive reduced benefits, and that reduced assistance would translate to hundreds of millions of fewer federal dollars flowing into the state’s economy.