In yesterday’s post on my new draft essay, Federalism and the End of Obamacare, I emphasized the benefits of returning more regulatory authority to the states. Today, I’d like to draw out a different point: the need for the federal government to take the lead when it comes to financing health reform.

The states face two enormous obstacles to achieving near-universal coverage on their own. First, the states don’t have the same fiscal capacity as the federal government. Keep in mind that the ACA is a large, countercyclical spending program:

When a recession hits, many people will lose both their jobs and their employer-sponsored coverage. The ranks of those eligible for Medicaid and for ACA subsidies will predictably grow, leading to larger federal outlays. At the same time, the economic downturn will depress tax revenues. The federal government can deficit-spend to manage these countercyclical fluctuations. The states, however, cannot. With the exception of Vermont, the states are legally obliged to balance their budgets every year. And states are understandably reluctant to adopt large obligations that will require savage spending cuts or hefty tax increases when times get tough. Cuts and taxes are not only unpopular, but they would also depress the economy further, exacerbating the recession. Broad coverage expansions thus commit states to an economic policy that could inflict serious damage on their residents.

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