State Should Beware of the Certainty of Federal Broken Promises

Charlie Arlinghaus

February 6, 2013

As originally published in the New Hampshire Union Leader

As the governor and legislature struggle to put together a balanced budget, regulators are consider two budget dangers: helping the federal government regulate the new federal health law (the health care exchange) and a costly expansion of Medicaid. Lawmakers should move cautiously and know that the federal government is eager to shift costs to New Hampshire taxpayers when it has the chance.

The centerpiece of the federal health care law (ObamaCare or PPACA depending on your mood) is the Exchange. An exchange is the structure used to enforce all the rules of the 2000 page law, regulate insurance carriers, and – perhaps – offer subsidies. In 2012, the state put into law a prohibition against New Hampshire operating the regulatory structure and assuming the financial risks of implementing federal regulations – essentially telling the feds: you’re writing the rules, you raise your own taxes and fund your own bureaucracy.

But the federal government was counting on us. It doesn’t want to implement the law itself. In fact, at this point it appears unable to do so. So they came up with a new scheme – a so-called partnership exchange. They’ll do some of the stuff and ask the state to do most of the public functions. In exchange, they absolutely, positively promise that they will pay for it. You guys do stuff and we’ll pay you for it – blank check, unlimited budget, really, we promise.

The governor and her regulators are going move on this without legislative approval. We need to be careful that whatever they do by executive fiat, the state treasury is not encumbered. The federal employees managed by state regulators should not be mixed into our pathetically funded retirement system as if they’re state workers, should not be promised employment beyond any federal funding, and we need to make sure we’re not stuck floating money that never gets reimbursed.

When the funding goes away, so should the task. Period. All departments used to have sunset clauses. Unfunded ones definitely need them. To be fair to the employees, they need to understand that this is a temp job so they aren’t misled.

A more dangerous situation is the potential and unaffordable expansion of Medicaid. A provision in the federal health care law had originally promised that the feds would pay 100% of the costs of expanding Medicaid for the first few years and then 90% after that.

If the feds kept their promise – and they are already retreating from it – that would cost the state $85 million by 2020 according to supporters of the expansion. Never mind that the state budget doesn’t have an extra $85 million.

One big concern is that the federal government can’t be trusted. After a year of everyone waxing poetic about what a great deal this was, the administration began a retreat. As part of an early budget submission, the Obama administration originally proposed switching to a “blended rate” as a cost savings mechanism.

The left-wing Center for Budget and Policy Priorities criticized the bland rate as an attempt to “shift significant costs to the states.” Well, of course. That’s how the feds work. Some more naïve policymakers actually believed the promise to “cover 100%” of the costs.

Federal budget writers often start off with good intentions. I think someone back in 1975 really, honestly thought they were going to pay 40% of special education costs. The fact that they never did is disheartening to that one idealist. The rest of us, however, have learned lessons.

Obama’s blended rate is not currently on the table. He beat a temporary retreat. But I’m not breaking news when I tell you that there is significant budget pressure in Washington. Shifting a little bit here and there is a federal goal.

They make nice promises on the exchange and on Medicaid Expansion. They even mean some of them. But reluctantly, with great sadness, they decide that they will fund most of but not all of what they promised. They tell themselves it’s still a good deal and that they had the best of intentions. Besides local taxpayers can afford it more than the nearly bankrupt federal government can.

It’s already started happening. The administration did us all a favor by floating a retreat trial balloon. It warned us. The money they’re promising? They can’t deliver even if they want to and they don’t exactly want to.

There are reasonable policy debates to have on both serving a contractor for the feds on an exchange and on expanding Medicaid coverage. But don’t pretend the money’s going to be there. We know it isn’t.

1 reply
  1. maynard thomson says:


    Good points.

    Much mischief is done by fostering the view that this level or that of government pays for something. Wouldn’t it be useful to make people understand that they’re the shareholders of a conglomerate. While the conglomerate keeps separate financial statements for the various entities it owns, ultimately the shareholders are on the hook for aggregate indebtedness, and ultimately it’s the shareholders who pay for everything–not the conglomerate’s “Widget Division” or the “food processing subsidiary.”

    Which underscores the need for all levels of government to adopt realistic accounting, which is at least as accurately descriptive as GAAP. Every voter should be able to see, on line, his or her pro-rata share of all undertakings and liabilities, up-dated almost daily.

    Why not agitate for this?


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