The federal poverty level (FPL) was developed in 1968 by Mollie Orshansky of the Social Security Administration as a threshold for distinguishing between the rich and poor in America, in order to more effectively combat the war on poverty. The term FPL was first published in Orshansky’s analysis of poverty for the U.S. Department of Agriculture. To prepare this report, she identified the amount an American home would need to spend in order to afford the “economy food plan” – an expenditure that would fulfill the nutritional needs of a family of three or more individuals. Assuming that each household spent approximately one-third of their income on food items, Orshansky subsequently calculated how much a family would have to earn in order to afford this diet. Income levels that fell below this estimate were considered poor (Department of Health and Human Services, 1997) .
FPL can be designated by two different standards of measure, the poverty threshold and poverty guidelines. The former is used primarily for statistical purposes (i.e. calculating the actual number of people living in poverty), whereas the latter applies to eligibility determinations for certain programs like Medicare and Medicaid (Office of the Assistant Secretary for Planning and Evaluation, 2013).
FPL values are typically represented as a percentage and are based on an individual’s income and the number of people in their family. For example, in 2013, the baseline FPL (100%) has been identified by the U.S. Census Bureau as a family of four with an annual income of $23,550. For larger families, add $4,020 per person; for smaller families, subtract the same amount. As a family’s income decreases, so does the percentage they are assigned, often permitting them to receive additional aid and subsidies from the government.
Beginning in January 2014, the Patient Protection and Affordable Care Act (ACA) extends Medicaid eligibility to individuals under age 65 earning below 133 percent (or 138 percent) of the FPL. This disparity in percentage levels accounts for the fact that five percent of income can be “disregarded” when determining eligibility (Families USA, 2013). Under the ACA, adults without dependent children will also be eligible. These regulations apply to the continental U.S. (with slightly different guidelines for Alaska and Hawaii). A graphical explanation can be found here.