Dec. 4 (Bloomberg) -- Most major fiscal debates in Washington over the last five years have centered around tax cuts, Social Security reform and pork. Many budget experts argue that these issues pale in comparison to our nation's real long- term budget buster -- Medicare.

There are both important truths and major misconceptions about this statement and it is important to sort out which is which.

What is accurate is that over time, Medicare -- the government insurance program for the elderly -- will be the largest strain on our federal budget; Medicare is projected to rise from 3 percent of gross domestic product today to 4 percent by 2015 and to a whopping 11 percent by 2080.

According to the most recent report by the Social Security Board of Trustees, the resources needed to ensure that the Medicare Trust Fund is solvent over 75 years are double those needed to make Social Security solvent over the same period of time.

Yet, some raising Medicare alarm bells are also guilty of fostering two major misconceptions.

The first is the type often put forward by President George W. Bush's fiscal apologists. Their tactic is to downplay the fiscal damage wrought by tax cuts and new entitlement spending that were proposed and passed with no off-setting savings. In other words, let's not worry about ballooning budget deficits created under our watch because that's nothing compared with the chasm we will face with Medicare during the next 50 years.

Dig a Hole

This logic is as about as sound as a financial consultant telling a client to go ahead and triple credit-card debt because mortgage debt is already threatening his financial security. Since when is the projection of a large fiscal hole a justification to dig the hole deeper?

The fact is that the Bush tax cuts, if made permanent, would cost almost as much as it would to close the solvency gap of both Medicare's Hospital Insurance (Part A) and Social Security. Indeed, the cost of tax cuts just for those making more than $300,000 a year could cover about half of Medicare's Part A's insolvency.

The other -- and most damaging misconception -- is the notion that what is driving this fiscal challenge is Medicare's excessive generosity. Not so.

First, to state the obvious, Medicare costs will rise under any scenario because we have an aging society. Between 2006 and 2030 the number of Medicare recipients will grow to 78.3 million from 42.7 million.

Health-Care Inflation

Second, and most fundamentally, the per-person costs of Medicare are rising because health-care costs for our entire society are rising, and faster than both the rate of inflation and of economic growth. The same is true for the per-person costs in Medicaid, the government health program for the poor, nursing- home care and those with disabilities.

Studies have demonstrated that Medicare and Medicaid are relatively efficient programs. MedPAC, the federal body that advises Congress on Medicare, released a report last summer that found that Medicare is 11 percent cheaper than the average private plan offering Medicare services. According to a 2004 Urban Institute study, Medicaid spending per adult beneficiary was at least $1,000 less than spending on health insurance in the private market, adjusting for health differences.

This leads to an important but often under-appreciated truth: the most effective way to control the spiraling costs of Medicare and Medicaid is not taking a meat-axe to these programs, but finding ways to lower health-care cost inflation.

Cost Shift

President Bill Clinton's former lead adviser on health care, Chris Jennings, points out that simply cutting back on public- health benefits usually results not in more efficient health-care spending, but in cost-shifting to the private sector. This puts upward pressure on premiums for families and businesses.

A Medicare-only approach also would end up creating a two- tiered system of health care -- one for those who could afford benefits that keep up with health-care inflation, and a second made up of Medicare and Medicaid, whose benefits and access to providers fall further behind everyone else each year.

For those conservatives whose goal is to weaken public- sector crown jewels like Medicare and Social Security, this may be a good strategy.

But for the many Democrats and Republicans who want to support Medicare in a fiscally responsible manner, it means understanding that policies that limit health-care costs are essential ingredients to a Medicare solution.

Some first steps for bringing down costs throughout our health-care system might include expanding coverage to increase prevention, reduce cost-shifting, modernizing health-care information technology, chronic-care management initiatives, and benefit designs that find the right balance between ensuring needed care and reducing over-utilization.

Of course, there will be no pain-free fixes to our long-term fiscal challenges, Medicare included. But if President Bush, Speaker Nancy Pelosi and Majority Leader Harry Reid do find a bipartisan path to take on rising Medicare costs, lowering the rate of overall health-care costs while increasing coverage needs to be an important part of that discussion.

(Gene Sperling, author of ``The Pro-Growth Progressive,'' was President Bill Clinton's top economic adviser. He is a senior fellow at the Center for American Progress. The opinions expressed are his own.)

To contact the writer of this column: Gene Sperling in Washington at gsperling@cfr.org.

Last Updated: December 4, 2006 00:08 EST