The never-ending dilemma over Medicare and Social Security: this pair of political hot potatoes has generated lots of debate, but no viable solutions, as a basic question continues to remain unanswered: How long will the working population agree that a rising share of its taxes should go to the people no longer working?

• Author: Weidenbaum, Murray
• Position: National Affairs

THERE IS A BASIC mismatch in the national debate on health care. On one hand, the actuaries tell us that the Medicare program will mn into very serious financial problems in the years ahead. On the other, the public concern is focusing on the inadequacy of benefits and the lack of health insurance on the part of many Americans. In effect, the experts are saying that there is not enough revenue coming into the health care system, while the public is saying that not enough is being spent. That is going to be a very difficult question of public policy to deal with. Likewise, the financial and political issues swirling around the Social Security situation have no simple solutions. However, we will tackle Social Security later. First, we turn our attention to health care.

There is no simple way of cutting medical costs. Of course, there is a certain amount of avoidable waste, and more widespread use of information technology would make for cost efficiency and fewer medical errors. Also, legal reform might reduce medical insurance expenses. All that would help, but the major thrust behind increasing medical costs is technological advance.

Remember, Americans are living longer. That cannot be put off to good luck or the adoption of healthier lifestyles. The genuine life extenders are those MRIs and other medical gadgets that minimize invasive surgery and enable physicians to perform procedures that were not feasible a generation ago. Moreover, let us not forget the medicines that cure or contain many diseases without surgery and the research breakthroughs that are increasing physicians' knowledge of illnesses. All have one characteristic in common: They are very expensive. Let's be honest. Nobody wants to shorten his or her life in order to balance the health care budget. Rather, the general attitude is: I want the best possible medical care, especially if I do not have to pay for it.

There are no simple or straightforward answers to this dilemma. It probably will take a combination of actions over a long period of time--without any assurance that the problem will be solved. Some background information may provide a useful start.

The average citizen is not aware of or concerned about the financial status of the Medicare Trust Fund, or the rising share of gross domestic product going to health care. Citizens worry about having to forego health insurance, especially if they lose their job or their employer cuts benefits. That is becoming increasingly likely, with employees sharing more of the costs. However, all those factors are pressures to maintain demand for health care, as is the concern over those who lack health insurance. That makes dealing with the financial problem very difficult.

About 85% of the population has health care coverage, mainly working people and their families through their jobs. In contrast, buying a policy for an individual or a family is very expensive. People over 65 receive health care through Medicare. That Federal program primarily is financed by a payroll tax and a deduction from the monthly Social Security benefit. In addition, the Medicare Trust Fund receives a large and growing contribution from the Treasury paid--generally--by taxpayers (mainly from income taxes).

Most of the uncovered 15% work for very small businesses, which find the costs of health insurance prohibitive. There are huge economies of scale in insurance premiums. The labor forces of large firms are more representative of population as a whole--they constitute good "risk pools." Moreover, overhead costs for health insurance coverage varies from five percent for employers of 10,000 or more, to 25% for employers of 20-49, and 40% for employers of 1-4. As a result, premiums for small business (per worker) are much higher than for bigger companies. Off the record, insurance companies tell us that they lose money on the Mom-and-Pop businesses. As a practical matter, they cannot raise premiums high enough to cover their costs.

To compound the problem, state governments mandate the minimum composition of health insurance policies. That provides great opportunity for lobbying. For example, some states require covering hair transplants and other optional items. Thus, the small company cannot buy a "Chew" when it comes to health insurance. It must buy a "Cadillac" or "Lincoln"--or nothing.

Many other uncovered people are young. They turn down health insurance if they have to pay part of the cost. They think they are too healthy to bear such expenses. We forget that one-third of the uninsured report household incomes of more than $50,000 a year. Also, one-fourth are covered by Medicaid, which they do not consider as insurance. About one-fifth without health care coverage are foreign born, including many illegal aliens.

Some historical perspective is useful. Prior to World War II, most people paid their own medical bills...