Yesterday, the Department of Health and Human Services (HHS) released its proposed regulations for the Obamacare version of health insurance exchanges. State lawmakers are a key audience for these regulations, which is why HHS wrapped its announcement in talk of “state flexibility.”

In truth, the proposed regulations don’t give states any additional flexibility beyond what they are permitted under Obamacare anyway, and in some places they may further limit state lawmakers’ options.

For example, state lawmakers are particularly concerned about how Obamacare gives the exchanges control over Medicaid eligibility. Some are considering establishing an exchange mainly to retain state control over Medicaid by requiring the exchange to contract with their states’ Medicaid offices to determine eligibility—something explicitly provided for in the Obamacare statute.

However, Section 155.110 of the proposed regulations, dealing with exchange contracting with other entities to perform exchange functions, states in Subsection (b), “To the extent that an Exchange establishes such arrangements, the Exchange remains responsible for ensuring that all Federal requirements related to contracted functions are met.” Thus, it’s difficult to see how state lawmakers can retain control over Medicaid eligibility under these regulations.

When HHS officials talk about “state flexibility,” they are really fishing for compliments for their restraint in not turning Congress’s vague and badly drafted statutory language into a one-size-fits-all federal regulatory straightjacket. Forbearing from engaging in regulatory micro-management is a pretty low standard for what constitutes “flexibility.”

Those state lawmakers that are even considering establishing Obamacare exchanges in their states also don’t want to put a lot of effort into creating one without certainty that HHS will approve what they produce. However, the proposed regulations don’t give them much on the “certainty” score either. The regulations say that to have its exchange approved, a state must (1) submit a plan for establishing an exchange “in a form and manner specified by HHS,” and (2) “demonstrate operational readiness to execute its Exchange Plan through a readiness assessment conducted by HHS.”

State lawmakers—both Republicans and Democrats—keep asking: “What exactly do we have to do by January 1, 2013 (the deadline for HHS to determine if a state will have an acceptable exchange in place by the following year)?” The answer is yet to come. HHS says that it will issue future “guidance” on what needs to be in the “exchange plan” and how “operational readiness” will be determined. Thus, on this score, the proposed regulations are a “non-answer” answer to state lawmakers.

One big problem for the Administration is that state officials correctly view Obamacare as a federal, not a shared, program. Unlike Medicaid and CHIP, the new Obamacare coverage subsidies are entirely federal money, and the new insurance rules, as well as the exchanges to administer both the subsidies and the market regulations, are a federal design. So the states’ default option is to do nothing and let the federal government figure out how to implement its own program.

While state lawmakers are all very concerned about how PPACA will affect their states, they don’t “own” this legislation or its implementation. Indeed, many of them committed to reversing it, and there are others, including Democrats, who are wary of “over-investing” is something that may well be repealed or significantly reworked before it even takes effect.

Those same state lawmakers also know better than to buy the “happy talk” that Administration officials keep peddling about the supposed benefits of Obamacare. With long experience in managing Medicaid and regulating insurance, they know that Obamacare will increase state government spending and health care costs while reducing health insurance choice and competition.

Tellingly, the strongest argument state lawmakers can muster for why their own states should design and operate an Obamacare exchange is that state control over the exchange offers the potential to somewhat limit Obamacare’s damage and disruptions.

It’s not a good sign if you’re trying to create “partnerships”—as HHS keeps saying it wants to do with states—and the foremost concern in the minds of your potential partners is whether partnering with you is their best strategy for limiting the damage you will cause.