Health Care Expenditures, Financial Stability, and Participation in the Supplemental Nutrition Assistance Program

Year: 2014

Research Center: Southern Rural Development Center, Mississippi State University

Investigator: Kim, Jinhee, Yunhee Chang, and Swarn Chatterjee

Institution: University of Maryland

Project Contact:
Jinhee Kim
University of Maryland
1142 School of Public Health
College Park, MD 20854
Phone: 301-405-3500


Findings from extant literature suggest that financial instability of households is a determining factor in their Supplemental Nutrition Assistance Program (SNAP) participation. Households that experience poverty and financial strain are more likely to participate in SNAP. Among household-level predictors that impact household income streams, unemployment, employment changes, and job instability have been associated with SNAP participation. While the association between household income loss and SNAP participation has been widely studied, the impact of unexpected major expenses such as medical bills has rarely been studied in relationship to SNAP participation. Increasing health care expenditures has become a major cause of households’ financial instability. Household assets help alleviate the negative effects of financial stress.

Additionally, liquidity constraint often diminishes the financial well-being of households. However, out-of-pocket medical expenses arising out of health shocks can lead to financial strain among households that have inadequate reserves of emergency funds. Therefore, the liquidity constraints of households brought about by a sudden financial shock, such as an increase in medical costs, could affect SNAP participation. In the literature, financial instability has been predominantly measured with employment and income changes, while household assets and liquidity constraints have rarely been studied in understanding SNAP participation decisions of households. Increased out-of-pocket medical expenditures as well as inadequate reserves of buffer savings could increase financial strains among households. The purpose of this research was to examine the intertemporal effects of health care burdens on SNAP participation behavior of households, especially among those under liquidity constraints.

In the present study, three research questions were examined:

  1. How a household’s out-of-pocket medical expenditure is associated with its likelihood of participating in SNAP;
  2. Whether a household’s liquidity constraint is associated with its likelihood of participating in SNAP; and
  3. Whether the absence of liquidity constraint affects the association between out-of-pocket medical expenditure and SNAP participation.

The sample was drawn from the 2003, 2005, 2007, 2009, and 2011 waves of the Panel Study of Income Dynamics (PSID), which covers the period of the recent financial crisis and recession. In this study, income and income drop, current and past health conditions, insurance coverage, demographic characteristics, and state and year effects were controlled.

The study results indicate that SNAP participation during the 2003-11 periods ranged between 16.5-16.8 percent with SNAP participation highest in the 2009 wave. Approximately 75 percent of the respondents were employed and the average household income for the population ranged from $67,854 in 2003 to $62,674 in 2011. Household income, which was adjusted in 2003 dollars, showed a declining trend over the five waves of this data. During this period, 45 percent of the respondents held adequate liquid assets. Approximately 36 percent of the respondents were renters, and 75 percent owned a car. Eighty-nine percent of the respondents were covered by either private or public health insurance in 2003, however, the participation rate in health insurance declined to 72 percent in 2011. Interestingly, out-of-pocket medical cost (adjusted in 2003 dollars) was $9,069 in 2003, but steeply increased to a peak of $13,926 in 2009 and dipped to $12,832 in 2011.

The present study reveals that the health care burden of households might contribute to the SNAP participation behavior of households. The increase in health care costs was positively associated with SNAP participation for the entire sample, for the Southern States, as well as for the low-income household groups (<185 percent Federal poverty level). Additionally, out-of-pocket health care spending of SNAP participants was not significantly different from that of nonparticipants, while the household income of the non-SNAP participants was found to be three times higher than that of SNAP participants. These results suggest a high burden of medical expenditure on low- to moderate-income households.

Financial assets and savings might be used to smooth consumption and reduce SNAP participation. Not surprisingly therefore, liquidity constrained households were more likely to participate in the SNAP. Moreover, the findings of this study support the importance of savings for low-income groups.

Interaction between household financial stability and health care burden was significant in determining SNAP participation, suggesting financial assets could be used to alleviate the health care burden, and could reduce SNAP participation. Additionally, having inadequate reserves of emergency funds to deal with health shocks could lead to program dependency.

Findings of the current study imply that reducing the health care burden of households may not only improve health outcomes but may also result in a decrease in SNAP caseloads. Further, health care burdens with or without insurance can be financially draining, especially for households with chronic health conditions. With regards to calculating SNAP eligibility and benefits, medical care costs are deductible expenses only for households with members who are elderly or have disabilities. Such expenses can be considered relevant for households that contain members who require continuous or unexpected health care spending.

More importantly, the findings support the importance of savings for households including low-income groups. Low-income households need to be encouraged to build buffer savings. Asset limits for SNAP benefits also need to be revisited. While many States increased the limit or eliminated them through a broad-based categorical eligibility, asset limits often pose a barrier to building savings, and financial security for low-income families. The current Federal limit does not assure adequate buffers for families to deal with financial emergencies such as health care expenses or car problems. Lack of such buffer savings could lead to financial challenges for low-to moderate-income families, resulting in increases in SNAP participation.