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Published on Friday, April 6, 2007 by The New York Times

Children Versus Insurers

by Paul Krugman

Consider the choice between two government programs.
Program A would provide essential health care to the eight million uninsured children in this country.

Program B would subsidize insurance companies, who would in turn spend much of the money on marketing and paperwork, and also siphon off a substantial fraction of the money as profits. With what's left, the insurers would provide additional benefits, over and above basic Medicare coverage, to some older Americans.

Which program would you choose? If money is no object, you might go for both. But if you can only have one, it's hard to see how anyone could, in good conscience, fail to choose Program A. I mean, even conservatives claim to believe in equal opportunity — and it's hard to say that our society offers equal opportunity to children whose education may be disrupted, who may even find their lives cut short, because their families can't afford proper medical care.

And here's the thing: The question isn't hypothetical. Universal health care may happen one of these years, but the choice between A and B is playing out right now.

Program A is the proposal by Senator Hillary Clinton and Representative John Dingell to cover all children by expanding the highly successful State Children's Health Insurance Program. To pay for that expansion, Democrats are talking about saving money by shutting down Program B, the huge subsidy to private insurance plans for Medicare recipients — so-called Medicare Advantage plans — created by the 2003 Medicare Modernization Act.

The numbers for that trade-off add up, with a little room to spare. Covering all children would cost about $50 billion over the next five years, while the Congressional Budget Office estimates that eliminating the Medicare Advantage subsidy would save $65 billion over the same period (and $160 billion over the next decade.)

Now, nobody is proposing that Medicare ban private plans — all that's on the table is requiring that they compete with traditional Medicare, run directly by the government, on a fair basis. And that's not what's happening now. According to Medpac, the official nonpartisan commission that assesses Medicare payments, Medicare Advantage plans now cost taxpayers an average of 12 percent more per enrollee than traditional Medicare. Private fee-for-service plans, the fastest-growing type, cost 19 percent extra.

As I said, it's hard to see how anyone can, in good conscience, think that preserving subsidies to insurance companies is more important than providing health care for children. But that is, of course, exactly the position taken by the Bush administration, which is adamantly opposed both to any attempt to expand the children's health insurance program — in fact, the administration wants to cut its reach — and to any attempt to reduce Medicare Advantage payments.

The official reasons given for this position are evasive and dishonest.

Explaining the administration's opposition to expanding the children's program, Michael Leavitt, the secretary of health and human services, said the program "should not be the vehicle by which we insure every adult and every child in America." But that isn't what the Democrats are proposing.

As for why the administration wants to keep subsidizing insurance companies, Mr. Leavitt says, "The president and I are for competition." But nobody is against competition — it's subsidized competition that's the problem. Mr. Leavitt added that "the marketplace beats the government at controlling costs and delivering value" — but he's not willing to put that assertion to the test by requiring that private insurers compete on a level playing field.

Lately, both the insurance lobby and the administration have also started playing the race card, claiming that Medicare Advantage offers special benefits to the poor and to minority groups. (Remember how Social Security was supposed to be bad for black people?) But a new report from the Center on Budget and Policy Priorities thoroughly debunks these claims: low-income and minority seniors are less likely than the average Medicare recipient to be enrolled in a Medicare Advantage plan.

Clearly, the real reasons for the administration's position have nothing to do with any of these supposed justifications. They are, instead, political, having to do with the long-term battle over the future of the welfare state.

But that's a subject for another day. For now, the choice is between A and B — health care for children, or subsidies for insurance companies. Which will it be?

Paul Krugman is Professor of Economics at Princeton University and a regular New York Times columnist. 
© 2007 The New York Times

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