When the payer is not the decider, accountability dies

The Washington Examiner reports that California has structured its Medicaid ambulance payments in a way that causes federal taxpayers — not California's own citizens — to absorb costs the state would otherwise bear itself. The mechanism, as the Examiner describes it, involves provider taxes and intergovernmental transfers that cycle money through the state's books so that Washington's matching share balloons well beyond what the framers of any such arrangement could have intended.

I want to be plain about the constitutional stakes, because they are structural, not merely fiscal. The genius of divided sovereignty — what we now call federalism — depends on a tight connection between the government that spends and the constituency that pays. When a state legislature votes to expand a program, its own citizens feel the cost; that friction is the check. When a state can engineer the accounting so that a distant national treasury bears the expense, the check disappears. The state gets the credit; the nation gets the bill; and no electorate is fully accountable for either.

This is precisely the dynamic I warned of in the convention and after: that the boundary between state and federal authority, if left unguarded, would erode not by frontal assault but by incremental encroachment. The Examiner notes that Congress has periodically tried to close these loopholes, only to see states devise new variations. That iterative evasion is not a curiosity — it is a demonstration that when institutional incentives point one direction, mere statutory prohibition struggles to hold the line.

Article I, Section 8 vests in Congress the power to lay and collect taxes and to provide for the general welfare. That power carries with it a duty of accountability to the national constituency. When states manipulate matching formulas, they effectively reach into the national treasury by indirection — spending a federal authority they do not formally hold. I would argue this is constitutionally troubling even if it is not, in a strict construction, prohibited: it corrodes the principle without violating the letter.

The remedy I would urge is structural, not merely punitive. Congress should design matching formulas that are genuinely resistant to circular financing — where the state's own contribution is verifiable and direct, not laundered through provider assessments that are recycled back as enhanced federal draws. Oversight alone is insufficient; the incentive to game the formula must itself be removed. That is the lesson of faction theory applied to fiscal federalism: do not rely on virtue where the interest runs the other way. Build the mechanism so that the interest and the public duty align. Anything less invites the very exploitation the Examiner has documented.