While Peter Orszag, Director of the Office of Management and Budget, likes to describe how some vague payment reforms will “bend the curve,” the reality is Congress and the Administration are trying to put more people on a leaking boat.

The Mess in Medicaid and SCHIP. Only a few months ago, California wanted to expand its State Children’s Health Insurance Program (SCHIP) to 300 percent of the poverty level, enrolling children in families making over $62,000 per year. Governor Schwarzenegger is now threatening to end the entire program because the state is broke. The state of Washington is increasing cost-sharing for its state health program in the “hope” that people will drop their “public” health plan. In exchange for stimulus money, states cannot touch Medicaid eligibility or cost sharing, but they can cut reimbursement to doctors and other providers. Because Medicaid accounts for such a large portion of state budgets, taking parts of it off the table forces states into more dramatic actions elsewhere.

Explosive Costs. Under the header CBO Points the Way, Director Orszag addresses the devastating score the Congressional Budget Office gave the Senate HELP Committee legislation earlier this week: $1.3 trillion in spending, even without a Medicaid expansion. Expanding Medicaid and paying interest on even more debt will likely push the final cost to $2 trillion. While Director Orszag, who previously served as Director of CBO, is sounding an upbeat tone about the score, I suspect the unguarded reaction of his current colleagues to the news was not really that polite.

Director Orszag concludes his blog, “[t]he goal is to move toward a more efficient health care system (through the game changers) in addition to expanding coverage in a fiscally responsible way. The Administration is eager to consider all options that will strengthen this two-pronged approach, and I’m glad to see that the list of serious options discussed by CBO is a near match to our own proposals.” He does not mention that the “serious options” include a very familiar list of usual suspects of “improving Medicare and Medicaid payment accuracy” and cutting waste, fraud, and abuse as OMB has promised in past Administrations.

The Paradox. Orszag lays out three goals: 1) move to a more efficient health care system; 2) expand coverage; 3) be fiscally responsible. Director Orszag is certainly not the first to set these goals. He is simply echoing what has been said by previous OMB Directors Mitch Daniels, Alice Rivlin, and Cap Weinberger before him. Indeed, who in America does not want this to happen? But the strong medicine dispensed by CBO is a jolting reminder that health care reform is a paradox. In closed systems like Medicare and Medicaid, the harder one of the goals is pushed, the less likely the other two will be accomplished.

As elected state and federal officials have pursued goals #2 and #3 over the years, providers pushed back harder against goal #1, which made many politicians want to abandon goal #3. The curve already bends– so much, in fact, that we are in a loop.

Director Orszag has the same set of options to reduce costs as his predecessors. The options are the same but the stakes are even higher, because as goal #2 has been pursued over the years, entitlement has turned into dependency for more than 90 million people. Before expanding the role of government, as has been proposed, we ought to look to see what is happening right now in Medicare and Medicaid. Congress apparently will include $300 billion to fix Medicare reimbursement to doctors as part of “reform” just to stop more doctors from abandoning the program.

Killing Private Options and Raising Costs. The paradox is all around us and unintended consequences are playing out across the country. For example, lured by the promise of a government program created in 1997, the State Children’s Health Insurance Program (SCHIP), families dropped their private health insurance for their children. Following the fundamental rules of insurance pools, costs of coverage increased for those who remained in the private sector. Today, government is spending $90 billion on children on Medicaid and SCHIP and keeping these 36 million healthy lives out of the private insurance pools.

At the end of the day, any insurance plan– including a government health plan– must live by the same laws of economics as any other insurance pool. When government budgets can no longer absorb the strain of too many promises, the “efficiencies” of government are invoked—cut payments to providers, reduce benefits, raise cost-sharing, and as a last resort, kick people off the rolls. All of these have occurred over the years and will again as long as the same old proposals of expanding government programs are recycled.

The definition of insanity: Doing the same thing over and over again, and expecting a different result.