DHS official approved payments to organizations he was involved with

There’s yet another scandal at the Minnesota Department of Human Services (DHS)


There’s yet another scandal at the Minnesota Department of Human Services (DHS). Former Assistant Commissioner Nathan Moracco, a senior DHS official, signed contracts and approved thousands of dollars in payments to the Minnesota Health Action Group (HAG), while he was serving on the board of that company.

The “Health Action Group”

Moracco was on the board of directors of HAG since 2004, and was chairman of the board in 2015 and 2016. 

By 2016, Moracco, as a DHS official, had signed $979,000 worth of contracts, and approved two $10,000 “membership payments” to HAG. 

DHS ended the contract with the Health Action Group after Moracco disclosed the conflict. The contracts that Moracco signed provided the Health Action Group with 85% of its total revenue in 2016. DHS did not extend the contract with Action Group in 2017, once Moracco was no longer in a decision-making capacity.

HAG is a consortium of both public and private employers, including the University of Minnesota and Best Buy, that advocates for “policy changes” in the health insurance market—especially those that interest large employers. The organization employs lobbyists at the Capitol in St. Paul.

Questions of impropriety

The Star Tribune points out that Minnesota’s state ethics policy says: “all state employees must ensure that neither they nor their agency are put in a situation where a potential conflict of interest exists or gives the appearance of existing.”

Now, the Minnesota Legislative Auditor’s office is looking into Moracco and HAG, and possible other cases involving DHS.

But DHS officials are pushing back. They say that DHS knew about the alleged conflict, and that it isn’t a problem because HAG is such a great organization. In other words, DHS is admitting they knew what was going on, and did nothing about it.

Sen. Jim Abeler, R-Anoka, responded that “this is one more example of how things have become casual and lax at the department.” 

DHS’s past troubles

DHS is already mired in scandal. Similar to the problems surrounding Nathan Moracco, DHS is in trouble for making over $50 million in improper payments to outside vendors and contractors.

DHS is also in trouble for improper payments made via the state’s Medicaid program, which included paying a provider $455 per day for people to take pills in their own houses. Those improper payments total at least $75 million. And because the federal government wants its money back from DHS, DHS is now going after the counties and Indian Tribes involved in the overpayments, even though it was DHS that made the mistake.

Next, DHS has failed to crack down on childcare assistance fraud, and didn’t punish the DHS official who was supposed to be responsible for stopping this fraud. 

And several high-level DHS officials have resigned, with no explanation given from the Walz administration. This includes Walz’s first appointment to DHS Commissioner, Tony Lourey, who stepped down earlier this year after only several months on the job. 

What happened to Moracco? 

To understand why DHS keeps having problems, look no further than Nathan Moracco. Moracco was replaced as assistant commissioner by the above-mentioned Tony Lourey, when Lourey briefly headed the agency earlier this year. But Moracco remains at DHS, in a new role as a “technology director” that pays $121,000 per year. This job was not publicly listed, or made available to other candidates, but seems to have been specially created for Moracco. 

Many Republicans have said that the $18 billion agency is too big to manage. Very true. And much of the problems with DHS stem from the federal government giving the agency bad incentives, and asking it to do too much, mostly due to Obamacare.

But there’s something else. 

This author would posit that during the Mark Dayton administration, things became especially lax at DHS. Just as Mark Dayton didn’t show up for votes in the Senate, he had a hard time being a governor, or was totally disinterested in the details. 

Tim Walz’s people came in and were stunned by the utter incompetence that was allowed to fester for so long. Thus the Tony Lourey resignation after only several months on the job. Lourey, an accomplished private sector executive, saw a sinking ship he couldn’t salvage and jumped off. 

But the Walz administration can’t admit to any of this, and publicly say how bad Dayton screwed things up, because Walz and Dayton are both Democrats. 

So that’s the risk in all this. One, that the problems will be allowed to continue, because there’s only so much cleaning-up that Walz can do without greater public scrutiny (e.g., Moracco getting a different job within DHS). Two, that the problems at DHS are even worse than we currently know, or could possibly imagine.


Willis Krumholz

Willis L. Krumholz is a fellow at Defense Priorities. He holds a JD and MBA degree from the University of St. Thomas, and works in the financial services industry. The views expressed are those of the author only. You can follow Willis on Twitter @WillKrumholz.