One can only pray that Congress returns from its August recess still willing to tackle health care reform. In sections of the country represented by moderate Democrats and Republicans, constituents will be bombarded with dueling television ads, one side claiming the government is about to take over health care, the other suggesting the insurance industry is what stands between you and your doctor.

How's that going to help?

Lost in the barrage will be the last chance to build greater public understanding of the core problems facing our dysfunctional health care system: we pay too much for what we get; we get too much stuff that doesn't add value; and we're taxed too little and in the wrong way to provide for an aging society.

Yet, last week's polls said the public still supports covering the uninsured, and people are still willing to pay higher taxes to build a better system if it provides greater security for everyone. So, in that spirit, let me address today the third of those problems -- financing -- which will have to be dealt with if reform legislation is going to pass.

Last Friday, I attended a forum where Mark McClellan of the Brookings Institution once again repeated the usual arguments for taxing more expensive health care plans to both raise revenue to cover uninsured and hold down health care costs. But he passed lightly over the "more skin in the game" rationale (if we make people pay more, they'll use less), and instead emphasized that a major attraction of a tax on benefits is that it is a tax on health care, and will grow as that sector of the economy continues its inexorable upward push.

I hadn't really heard that argument before. But the more I thought about it, the more I realized it has an attractive if perverse logic behind it. If the special interests that provide health care are too powerful to overcome in the short or long run, then a tax that grows with the size of the health care economy and that is designated for subsidizing people without insurance makes sense. Most other fiscal approaches would be a temporary fix.

But the proposal conveniently ignores the fact that covering the uninsured is only half the health care financing problem. Private insurance may cover 170 million of the 300 million souls in this country, but it only accounts for a third of national health care expenditures. Public programs -- Medicare and Medicaid primarily -- cover less than a third of the population but are over half the budget since the old, the poor and folks in the military make more claims.

And it's in those public budgets where the big problem lays in the immediate future. Most people don't realize it, but the 1.45 percent payroll tax (employers match that) that pays for Medicare Part A (hospitalization) fell into deficit last year for the first time. Income of $231 billion fell nearly $5 billion short of expenditures. The $321 billion trust fund built up over 40 years is now officially on the way down and will run out in 2017, according to the most recent Medicare Trustees report.

What happens when Medicare begins drawing down its trust fund? The federal government must start redeeming IOUs in the Medicare lockbox (ha!) and exchange them for Treasury bills bought by the general public, which these days amounts to the Chinese, Saudis, Japanese and any other surplus-generating nation willing to continue investing in America.

Medicare's Parts B (physician services) and D (drugs), meanwhile, are already paid by the federal government's general revenue, a hefty portion of which is financed by debt. And, as we're seeing from the debates on Capitol Hill, there's not a lot of evidence that Congress is on the road to making a serious effort to  "bend the cost curve down."

Under current law, hospital expenditures will rise by 76 percent over the next decade; physician expenditures will rise 73 percent (and that assumes allowing the sustainable growth rate formula to take effect, which Congress never allows); and Medicare drug spending will rise a staggering 124 percent. No wonder the drug industry is running ads supporting reform while promising to shave a hundred billion dollars off its projected $500 billion increase.

My point is that even under the best-case scenario where Congress actually enacts reforms that succeed in lowering the rate of cost increases, Medicare will need to boost taxes to cover the Baby Boomers who will be flooding into that system over the next  ten years. A tax on privately-provided health insurance does nothing for them, or the government's ability to finance Medicare over the long-term. 

Instead of a tax on benefits, Congress should take a closer look at raising the Medicare payroll tax. This would not only cover the growing shortfalls in the hospital program, but it would free up general fund revenues to pay for other health care services, including covering the uninsured.

There's two ways to go about this. A simple 1 percent increase would raise $592 billion over the next ten years -- just as much as capping the health insurance tax exclusion at the average cost of health insurance, according to a recent report from the Committee for a Responsible Federal Budget.

But a 1 percent payroll tax falls on both low-wage and high-wage workers, and hits employers, whom we want to create jobs, to boot. A fairer way to go about it would be to lift the payroll tax exclusion on non-wage income -- the dividends, interest and and capital gains that are disproportionately earned by high-income citizens. Applying the same 1.45 percent that is already levied on workers wages to non-wage income would raise $500 billion over the next ten years -- the lion's share of what's needed to pay for the overall reform package.

The advantages are plain. It would both resolve Medicare's long-term financing problem, and it would free up other government revenue to cover the uninsured.

Unless you're a true believer that taxing the health insurance benefits of the working population is an effective means of holding down costs -- which I'm not -- then extending the Medicare payroll tax to non-wage income makes a lot more sense. It deals with both sides of the ledger: the failure of the employer-based private insurance market to provide for 50 million of our fellow citizens, and the looming shortfall in the public sector's ability to provide for 85 million older and poorer Americans who rely on Medicare and Medicaid.