Federal Health Care Reform, Paid For By the States, and the 17th Amendment

One of the interesting things about the Baucus health care reform bill now under consideration by Congress is that it will place a large financial burden on state governments, while state governments already consider themselves fiscally overburdened.  You would think that governors and state legislators would be up in arms about this, but I’ve heard little from them in terms of objections.

The burden has been noticed by many, including Senate majority leader Harry Reid of Nevada, who is pushing to have 100 percent of Nevada’s extra costs covered by the federal government.  While Senator Reid may have the power to effect this change in the bill, you’d think that this shifting of costs to the states would be enough to eventually kill it.  Isn’t there enough political clout at the state level to stop this from happening?

The shift of costs to the states is a result of increasing the scope of Medicaid, whose costs are shared between the federal and state governments.  The Baucus bill already proposes to pay between 77 and 95 percent of the additional state costs for the first five years, after which the states are on the hook for all of it.  So the costs that Senator Reid is worried about are a small part of the burden states would face in five years.

I don’t really view this as a partisan issue.  Regardless of what you think about health care reform generally, does anybody think that it would be a good idea for this federal initiative to place additional financial burdens on state governments?  They would either have to raise their taxes to pay for a federal program, let Medicaid crowd out other state expenditures, or some combination of both.  In support of my claim that the issue is not partisan, Democrat Harry Reid is on my side.

The root of this particular problem goes back nearly a century, to the passage of the 17th amendment in 1913.  Prior to the 17th amendment Senators were chosen by their state legislatures, and represented the interests of their state governments.  Under that system, this cost-shifting could not have been remotely feasible, because the representatives of the state governments, in the Senate, would not possibly sign off on it.  Now, with the popular election of senators, Congress is more able to pass the costs of its initiatives on to the states.

I’ll go a step further and argue that the cost-sharing arrangement in the original Medicaid program approved in 1965 could not have passed had Senators been chosen by their state governments rather than by popular vote.

Lots of people have criticized Senator Baucus’s health bill, and I’m one of them.  Looking at the bigger picture, the issue I’ve raised also provides a nice illustration for why we should repeal the 17th amendment.

Randall G. Holcombe is Research Fellow at the Independent Institute and DeVoe Moore Professor of Economics at Florida State University. His Independent books include Housing America: Building Out of a Crisis (edited with Benjamin Powell); and Writing Off Ideas: Taxation, Foundations, and Philanthropy in America .
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