Two recent news stories highlight how the hidden flow of government health dollars provides cover for public officials who slash funding for the poor while idly watching as wealthy private institutions drain the public treasury.

Faced with a mounting budget crisis, our leaders have cut hundreds of millions from Medicaid, and tens of millions more from block grants to safety net institutions like Cambridge Hospital (disclosure: I work there). As a result, thousands of patients with severe mental illness will find care unavailable, and many of the poor face unaffordable co-payments. At the same time, the Globe tells us that Partners HealthCare (disclosure: I also work there) has used its market muscle to extract higher rates – about 20% above average for the same services, and twice as much as Cambridge Hospital – from private insurers. That’s how Partners has managed to amass huge surpluses in recent years, money they’ve invested in expensive high tech facilities that drive costs ever higher, while studiously avoiding investments in facilities for the chronically mentally ill or other unprofitable patients.

The Partners story may seem disconnected from the state’s budget woes, but its not. You see, state and local governments in The Commonwealth will spend about $3.6 billion on private health insurance premiums for their employees and retirees this year. About 12% of that – about $430 million – will go for care at Partners’ facilities. (Partners gross receipts account for about 12% of total health expenditures in Massachusetts, and they probably have about the same market share among state workers). Hence, if private insurers paid Partners at the same rate they pay other hospitals in the Commonwealth, state and local governments would save nearly $90 million annually on their employees’ health insurance premiums. If they paid Partners the rate they currently pay Cambridge Hospital the savings would be more than $200 million.

Millions more go for tax subsidies for private insurance. In fact, these tax subsidies – which accrue largely to the wealthiest families – cost government treasuries almost as much as Medicaid. But these tax expenditures on behalf of rich and powerful institutions and individuals are carefully hidden. When it comes time to cut, they’re out of sight, while programs for the poor like Medicaid are in the spotlight.

When times are tough – as they surely are right now – government should not selectively spare the wealthy.

A little noticed feature of the first stage of health reform shipped additional millions of Medicaid dollars to the rich and powerful teaching hospitals and drained them from primary care. In a widely trumpeted move the state upped Medicaid rates for inpatient care – a change that mainly benefited Partners and other financially healthy institutions that provide expensive tertiary care services. (In 2007, the MGH reported a surplus of $354 million, while Brigham and Women’s Hospital had a surplus of $48 million in the second quarter of 2008). But at the same time Medicaid and free care pool payments for outpatient services were shrunken, dealing a body blow to cash-strapped institutions that provide a large volume of primary care to the poor.

On top of this, the state withheld tens of millions promised in the legislation to Cambridge Health Alliance (CHA) (disclosure – that’s where I work) – the only public hospital system left in the Commonwealth. The cash shortage has already cost CHA millions in interest costs.

The latest round of cuts inflicts further wounds on CHA and Boston Medical Center – the other large safety net provider in eastern Massachusetts. Not only will Medicaid rates for the future be cut, the state is demanding a refund of $100 million from past payments to those two systems.

At CHA we’re seeing more uninsured patients than ever, but our funding from the state has been slashed by tens of millions. In the second quarter of 2008 alone we lost $25 million, hundreds of health workers have already been laid off and clinic closures are in the offing.

In the months ahead, tens of thousands of workers in Massachusetts will lose their jobs – and their health insurance coverage. Many will need safety net and subsidized care. The costs of subsidized coverage under Commonwealth Care will predictably rise and the state’s fiscal condition will deteriorate even further. The promise of universal coverage will be broken – and the safety net that cared for the uninsured for decades before health care reform will be left a shadow of its former self.

What are the alternatives? In the short term: cut from the wealthy teaching hospitals that have been racking up huge surpluses for years, rather than the poor ones that are already staggering. In the long term: implement a single payer system that saves billions on profit and bureaucracy, and use the savings to cover the poor and to upgrade coverage for the rest of us.

This approach reprises the format of Medicare’s ongoing privatization. Despite promises of strict regulation and a level playing field that would allow the public plan to flourish, private insurers would (as they have done in Medicare) predictably overwhelm regulatory efforts through crafty schemes to selectively recruit profitable, lower-cost patients, and avoid the expensively ill. Like the Medicare Advantage program, originally touted as a market-based strategy to improve Medicare’s efficiency, the HCAN plan would evolve into a multibillion dollar subsidy for private insurers whose massive financial power (amassed largely at government expense) would prove a political roadblock to terminating the failed experiment.

Unfortunately, proposals like HCAN’s that cede a central role to private insurers can only add coverage by adding costs. They promise savings from computerization and chronic disease care management. Yet the Congressional Budget Office has warned that there is little or no evidence for such savings.

The HCAN proposal forgoes most of the $350 billion annually in administrative savings possible under single payer national health insurance (NHI). Administrative waste is a natural byproduct of the private insurance firms that would retain a central role under HCAN’s plan. Private plans’ overhead is 12-fold higher than under NHI; the excess is squandered on marketing, underwriting, utilization reviewers and profits, and for the billions paid to executives. And the multiplicity of insurers envisioned in the plan precludes paying hospitals a global, lump sum budget; such budgets would save additional billions by obviating the need for most hospital billing and much of the internal accounting needed to attribute hospital costs to individual patients and payers.

HCAN’s proposal duplicates key elements of health reforms that have passed (and then failed) in multiple states: Massachusetts in 1988; Oregon in 1989; Tennessee, Minnesota and Vermont in 1992; Washington State in 1993; and Maine in 2003. In each case, rising costs scuttled the reform effort; none had a durable impact on the number of uninsured. The 2006 Massachusetts law, which incorporates many of the features of HCAN’s plan, is already threatened by rising costs, despite offering skimpy coverage and leaving many uninsured. And Massachusetts, with its low rate of uninsurance to begin with, and a large fund devoted to care of the uninsured, offered the optimal conditions for trying such a plan.

HCAN’s proposal tries to avoid a head-on collision with private insurers, but the result is a plan that cannot achieve universal coverage or make care affordable. For physicians, offering a placebo in place of effective treatment is a serious ethical violation. Hence, while we salute the good intentions of the members of the HCAN coalition, we must warn against their proposal.