As claims about the impending insolvency of Social Security appear increasingly threadbare, some members of Congress and journalists are arguing that Medicare, not Social Security, should be at the top of the reform agenda. Such talk will intensify following last week's release of the Social Security and Medicare Trust Fund Reports, which concluded that "Medicare's financial difficulties come sooner—and are much more severe—than those confronting Social Security. In addition, the projected cost of the prescription drug benefit under the Medicare Modernization Act (MMA) of 2003 has gone up yet again. As the economics editor of Barron's pithily put it, "Social Security is probably affordable? Well, fine, but that's like saying the credit card bill can be handled while ignoring the car payments and the mortgage."

While Medicare faces far more immediate and serious cost pressures than Social Security, the real challenge the nation needs to confront is rising health care costs across the board—for private companies and individuals as well as the government. Health spending as a proportion of GDP is expected to jump from 14.9 percent (2002 figures) to 18.4 percent by 2013. This growth will affect private health plans and public health programs alike. The problem isn't, for the most part, Medicare's supposedly antiquated fee-for-service structure, the waste inherent in government programs, or the aging of the U.S. population—rationales frequently offered by right-wing commentators and embraced by the misinformed.

Relative to growth in health care spending in the private sector, Medicare's spending actually has been slightly lower over the past four decades. Private managed care plans that participate in Medicare spend more, on a per capita basis, to treat Medicare beneficiaries than in traditional fee-for-service. Extra payments made to plans under the MMA will raise, not lower, Medicare costs over at least the next few years. And the enactment of the prescription drug benefit in itself isn't likely to put health care spending on a higher upward trajectory. It mainly will shift the source of payments for drugs as the rise in spending on drugs by all payers should slow—partly because a number of popular drugs will lose patent protection. The unsettling growth in health costs shouldn't be an argument for abruptly dismantling Medicare's existing structure in favor of private managed care plans.

Older Americans do use more health care than younger Americans, but the aging of the population won't rapidly increase the demand for health care services. This is because the aging will take place quite gradually. Even by 2030, at the peak of the baby boom's retirement, the proportion of the U.S. population over the age of sixty-five will be just twenty percent, up from around twelve percent today. Moreover, if the trend toward declining disability continues, older Americans are likely to be considerably healthier than today's seniors. Overall longevity gains cost the Medicare program relatively little because so much of the program's spending on each beneficiary is concentrated in the last year of life—longer life spans don't add much to costs on a year to year basis.

With these facts in mind, it's conceivable that cost containment could be handled completely within Medicare without a major restructuring of the program. This would involve a combination of tax hikes, benefit restrictions, and reductions in payments to doctors, hospitals, and other providers, combined with a growing economy. This has been done in the recent past, most significantly in the Balanced Budget Act of 1997.

However, if Medicare isn't the culprit behind rising costs, shoring it up doesn't solve the problems of a fragmented and massively dysfunctional U.S. health care system-which spends nearly twice as much as any other industrialized nation without producing a notably healthier population. Increasing medical spending on older Americans, while tens of millions of younger and middle-aged working Americans lack health insurance altogether, is both unethical and unwise. The dilemma of rising costs for federal health programs, combined with the parallel erosion of employer-based coverage, marks both a watershed and an opportunity.

Here's what should be done in response to the real problem of growing spending on health care and eroding insurance coverage: enact a universal health insurance system, administered by private insurers, in which the government sets national benefit and coverage standards for different levels of insurance coverage. Subsidies would be available for older Americans, the poor, and the disabled. Those who want the most expensive and unproven care will pay higher premiums. This proposal would include a mandatory basic level of coverage and would focus on covering the most important and cost-effective therapies and medical procedures. Incidentally, Medicare has been taking the lead in studying how such measures of cost-effectiveness can be developed and brought to bear practically and fairly.

This strategy is best suited to placing sensible, market-based limits on the growth of new and expensive medical technologies—the biggest source directly or indirectly of growth in health care spending. Many of these therapies and medical devices are unproven or marginally better than existing standards of care. This approach is better than the opposed choices that are likely to feature in upcoming health care reform debates—consumer-directed insurance plans such as health savings accounts that shift unacceptable risk to individuals; or politically infeasible single-payer plans that would crimp innovation and reduce access to truly important new technologies.

Leif Wellington Haase is a senior program officer and health care fellow at The Century Foundation.