Those of you who get my FierceHealthcare newsletter (and if you don’t you should as it’s free!) will have read plenty from the NY Times last week about how Medicaid is a web of corruption and fraud and from the Washington Post this week about how Medicare is a maze of inefficiency that wastes one dollar in every three. OK; not exactly news to those of us in health care. In fact the very first post on THCB was about how screwed up Medicare was and why. (Hint: the answer is fee-for-service medicine)

This has now degenerated into a blogging argument between those "pro-business" DLC Democrats who think that the party should get in the vanguard of reforming those programs, and the liberal Dems who are scared (rightly) that given who’s in power (i.e. neither of them) any excuse possible will be taken by the current bunch of clowns running the country to eviscerate both programs to the detriment of those they cover.

And worse, TNR’s Jonathan Cohn who is probably quaffing his third latte before setting off to get his kids from soccer practice in his Volvo 4×4 has decided that, as his time is more valuable than mine, I should have to do remedial education for the whole party.

The first point obviously is that in any sensible country the liberal end and the pro-business end of the Democratic party would be two different parties, and the fundamentalist loonies/mercantilist thieves that compromise the Republican party here would still be locked in the attic. But given that that’s not the case, let me try to set out the problem here as simply as possible.

The problem: Government-funded health care programs in the US (and Medicare and Medicaid are by far the two largest programs within that category) do two completely different things

First, these are benefit programs for seniors and the very poorest of the poor. Without them, the elderly would be dying in the streets (just as the uninsured actually are), just as without social security we’d be back to bread lines. That is because (and this is something the American public just cannot get its brain around) health care costs are very uneven –they are concentrated among the old, the sick and the poor far more than other groups — and if we want to help those groups we have to subsidize them. That is what social insurance is, and that’s why we pay taxes. (Or at least that’s a small part of why we pay taxes, and it’s the part that Grover Norquist et al think we shouldn’t be paying for). The good news is that overall the American public believes in that cross-subsidization, whatever Grover and his pals may think.

Now we come to the second part of the story. Medicare and to a smaller effect Medicaid are extremely complex programs that don’t give a direct benefit to their "members" but instead allow an entire industry (in fact many industries) to deliver goods and services to those people with the government picking up the tab. Yup, Medicare is closer to defense spending than anything else, and within it there’s the same level of complexity, fraud and bad behavior as in that sector (and I never mentioned Halliburton once. Dang, just did!). In fact as Medicare sets the tone for almost all health care spending, but there are hundreds of payers rather than just one big one, health care is probably more complex, fraud-ridden, and inhabited by murky characters than defense…but I digress.

More importantly the defense contractors doctors,hospitals, insurers and more recently drug companies were heavily involved in the writing of the original rules of these programs (for more read down in my Hillarycare article from last week). So they made the programs look as much like an open spigot to the US Treasury as possible, and the Federal government has been trying (and failing) to balance between the aggressive demands of those concentrated interests and those of the beleaguered taxpayer ever since. And although Medicare is very popular among its recipients (remember their alternative is dying in the streets), because costs have gone up so much, as a share of income those recipients have greater proportional out of pocket costs than they did back when the program was introduced–even though Medicare is taking care of most of their costs.

Why is this? Well essentially the cost of health care is the services delivered times the price. Those delivering services will always tell you that if you want to reduce costs you must reduce services, and will always explain why the other side of that equation must be fixed (or in fact must ratchet upwards). Of course, that’s been explained many times to be rubbish, but that won’t stop providers putting a bunch of old ladies on the street to protest Medicare cuts….and hence blurring the lines between the two parts of the story.

If they are really interested in getting this debate advanced along, both sides within the Democratic persuasion should agree on two things.

First, that the health care system as a whole will always raise prices and accept losing a few to the uninsured pool as a price effect, rather than seek a different solution because that solution is to put everyone into one pool and, gulp, limit the total dollars going into it. That’s why universal coverage (with some manner of a controlled budget) is in the end the only way to get costs under control–and it’s done that way in every other country, even if they all look very different to each other. If you don’t do that, the system will inevitably keep costing more and more, and Medicare and Medicaid will have to pay their share of it. You see we can always spend more, and would you deny care to a little old lady?

Second, that even without getting to universal coverage, you can reform Medicare and Medicaid in ways that providers may not like without financially or physically hurting patients, and that those reforms may also help reduce the waste and fraud (or at least put it on the tab of a private insurer!). How to do that is a much, much longer conversation, but the important part for this piece is that it is theoretically separable from the need to privatize the funding of the system (via means testing), which will turn Medicare from a benefit program to a welfare program — with the inevitable result of it being marginalized and all the gains of the first part of our story being eroded.