The national health care debate has inflamed public passions. However, participants on all sides consistently ignore two key realities that hold the key to meaningful reform. We can't really fix what ails health care until we face them.

The first is that while Medicaid is a stand-alone program, it addresses larger social needs. We debate health care reform as though it is in a vacuum. It is not. Our failure to understand this creates many new problems and blinds us to possible solutions.

Consider Charlene, a 21-year-old single mom trying to provide a better life for her two kids and herself. She has aspirations, but for now is mired in a $7.50-an-hour job that until recently seemed to have no future. The job has no health benefits but Charlene is signed up for Medicaid.

Charlene's reliable work ethic has caught the attention of the owner, Ellen. One of the shift managers is leaving and Ellen offers Charlene the job at $13 an hour.

Wanting the most for her kids, Charlene is registered for food stamps, a housing subsidy, and daycare assistance. She files for the earned income tax credit. She even gets a tiny amount of TANF, the traditional welfare program.

With the promotion, Charlene loses her food stamps, housing subsidy, TANF, her own Medicaid, most of her earned income tax credit, and part of her daycare assistance. On top of that, her raise, unlike her government benefits, will be taxable. Charlene declines Ellen's offer. She can't afford the promotion.

Ellen responds by upping the ante to $15 an hour. Ellen does not know that by going from $13 to $15, Charlene loses her remaining daycare help and wipes out her kids' Medicaid. In fact, at $15-on the surface a doubling of Charlene's pay-her real family income would be about 80 percent of what it is at half the pay. And she pays more taxes.

It gets worse. Jared, the children's father, stayed around for a while, but with no prospects he has moved on. If Charlene had married Jared, she would have been economically worse off. But now her kids will grow up not knowing their father.

A child from an intact family is less likely to be a victim of violence, less likely to become involved in crime, and more likely to succeed in school than a child growing up without a father in the home. This holds true even if we control for race, income, and the parents' education. Yet, we persist with policies that hinder young parents from getting married. Medicaid is part of this problem, but no one raises that in our current debate.

While the situation varies from state to state, no state coordinates its social welfare programs. Washington won't let them. The failure to realize that Medicaid is only one part of a larger social safety net is a classic case of not seeing the forest for the trees. We will do much better if we move back from the health-care tree and look at the safety-net forest.

There is a second pesky reality that the current debate ignores: health insurance costs more for the old and sick than for the young and healthy, a lot more.

A healthy 25-year-old male will pay about 20 to 25 percent of the premium of a healthy 60-year-old for the same policy. The possibility of childbearing narrows the gap for females but an unhealthy member of either sex will find it almost impossible to get any coverage.

Current ERISA regulations largely hide this. All employees pay the same premium, regardless of age or health status. Another aspect many people don't realize is that larger employers self-insure for all but the largest claims. They may outsource the handling of claims, but they pay the bills. That means the cost of a sick employee or a sick dependent directly hits the bottom line.

It should be no wonder that, as The Wall Street Journal recently reported, employers are switching more employee health costs to the employees themselves. They have no choice in a competitive marketplace. Without action, this trend will accelerate.

Consider the situation facing an employer with a traditional health benefit plan. The plan has good coverage and low deductibles, and places little of the premium on the workers. Of course, by paying for a generous health care package, the employer limits what it can pay in salary and wages.

Let's assume a competitor sets up shop nearby and tries to attract some of our traditional employer's workers. The new competitor does not offer traditional health coverage, instead offering a high-deductible plan. Because the new competitor has lower health insurance costs, it can offer a health savings account and higher pay.

Some of our current employees check out the new competitor. Those with healthy families find the higher pay attractive. Those with sick family members or their own chronic illness will find the high deductible more than offsets the higher pay. They stay put. What is happening? The new competitor is assembling a lower-cost workforce despite paying higher wages while the high-cost workers stay with the traditional employer. This is a very slippery slope.

We have laws that prohibit employers from discriminating on the basis of age or disability, but in this scenario, is the new competitor discriminating against older or sicker applicants? Quite the contrary, the older and sicker workers are discriminating against the new employer! Traditional plans are doomed.

Many of President Obama's critics push tax credits to help people buy their own health insurance. This idea has merit, but, to work well, everyone has to buy health insurance. This means a mandate and strict regulation-things Obama's conservative critics abhor.

If we do have strict regulation so that all health insurance costs the same ("community rating"), the young and healthy will pay more than their share so the old and sick can pay less. This starts to come unraveled when some of the young and healthy decide to go without. For many who don't yet have many assets to protect, foregoing health insurance will make economic sense, especially if we ban insurers from considering pre-existing conditions. If they do get sick, they can get coverage then, so why buy it now?

We badly need health care reform. The status quo is unsustainable. Seniors have flooded town hall meetings to fight changes in Medicare, but Medicare must change. The Medicare trusts are running out of money. Medicare as we know it is doomed. We will be forced to make real reforms, raise taxes, or cut benefits. We may kill ObamaCare, but the "death panels" and other unpalatable cost-savers still lurk in our future.

What should we do? Face reality. We can combine existing federal funding for all current social programs-including Medicaid, food stamps, housing, day care, TANF, and others-and send the money in a single block grant to the states. Let the states integrate the various programs into a more logical design that works best for them and their needy.

We can also revise the ERISA regulations so that employers can sponsor a true health insurance benefit that employees can take with them when they leave. We should devote our resources to making a smooth transition from the status quo to a system where everyone owns their own insurance policy. We will be better off helping the old and sick afford their own health insurance than introducing stifling regulations and mandates. This may mean a more generous tax credit for the old and sick so they can afford the higher premiums the market will dictate.

Facing reality is not easy when that reality flies in the face of cherished fantasies. A good place to begin is the consistent dissemination of objective factual data. Solving our problems will get easier when we have timely, relevant, and accurate information with which to make decisions. The health care debate illustrates this need.

We are engaged in a heated debate on health care that has captured the national spotlight almost to the exclusion of other important issues. Yet, as I pointed out above, two of the most important aspects of the issue are almost completely ignored.

While no one can guarantee that all relevant points will be considered in any debate on public policy, improved financial reporting-as set forth in two recent OCPA studies on how to enhance financial reporting in state government-makes it more difficult to overlook important features. For instance, if we defined the purpose of Medicaid and other means-tested welfare programs in terms of helping those less fortunate, we might more quickly grasp how interconnected are the effects of these programs, even if the administration of the programs is not.

Our society may pay a terrible price for its failure to understand what health care reform really means. If we make poor decisions, in part because of incomplete or confusing information, seniors may find needed care denied, younger workers may find health insurance beyond their reach, those with chronic illness may not find hoped-for breakthroughs in treatment forthcoming, and many who depend on our social safety net may find it a trap that destroys initiative and hope for the future.

Tom Daxon is a former Oklahoma state auditor and inspector and a former secretary of finance and revenue for Gov. Frank Keating. A Certified Public Accountant who holds both an undergraduate and a master's degree from Oklahoma State University, Daxon is the author of two recent OCPA studies on enhanced financial reporting and one on comprehensive health care reform.