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High gas and diesel prices like those we are experiencing now have sweeping negative economic effects on Americans. Beyond the financial hit at the pump, the economic harm is inflicted in many ways that may not be evident to most.

For example, prices for goods such as food, clothing, and household goods are higher than they otherwise would be since gas and diesel play an important role in supply chains. And there could be higher costs and reduced services for critical functions like police and emergency medical services because of their heavy reliance on fuel to carry out their duties.

Particularly striking is the extent to which states can be centers of policy innovation. They have distinct economies, and although they vary greatly in size, even the largest and most diverse states have populations whose interests and attitudes are more cohesive than those of the country at large. States also tend to be better at assembling big coalitions to support major policy action, and they do not have the kinds of procedural hindrances--the filibuster and the line-item veto--that often hamper the federal system. As a result, states have long been drivers of progress and change. As early as the nineteenth century, for example, Iowa, Massachusetts, and Pennsylvania lifted bans on interracial marriage, even as other states imposed them. Over time, however, states with bans repealed them as public support for interracial marriage grew; the Supreme Court's landmark 1967 Loving v. Virginia decision extended the repeal to the federal level.Indeed, many of the most important federal policy changes--including ending slavery; expanding marriage rights, voting rights, and civil rights; changing health-care access, reproductive rights, and welfare coverage; reforming public education; and protecting the environment--were first tried at the state level, making states what U.S. Justice Louis Brandeis called "laboratories of democracy." But states do more than test new policy; they also fill in existing policy gaps when the federal government stalls. Consider the issue of immigration. Despite an economy that relies heavily on an immigrant workforce, the United States often leaves those seeking permanent status in legal limbo for years. As a result, states have filled the policy gap, with blue states such as California and New York offering access to health care and education for the undocumented, and red states such as Arizona and Texas using their own resources to increase border enforcement and internal patrols. Similarly, when the federal government failed to impose a strict national standard on auto emissions, California created its own and, because of the size of its market, was able to force automakers to manufacture cars nationwide that meet California's standards. And in the absence of federal policy to address social media companies' banning users because of their political viewpoints, Texas legislators enacted a law in 2021 limiting content moderation. (The law has been temporarily blocked, pending a lawsuit now making its way through the courts.) Over the past two decades, states have also gained leverage to experiment in areas such as legalizing marijuana, despite conflicting federal law. The states are taking advantage of a federal government that has pulled back on marijuana-related enforcement unrelated to organized crime but has failed to repeal federal criminal penalties on marijuana possession and sale. And with federal action on climate change increasingly impeded--including, paradoxically, by state-led challenges, such as West Virginia v. EPA--states have new opportunities to fill the breach. Already, many states are decarbonizing their energy sources, and 21 states have set 100 percent clean energy goals. Some are enacting zoning rules that ban gas hookups in new buildings and are prohibiting new industry on the basis of greenhouse gas emissions; New York State denied construction permits to a crypto currency mining operation on the grounds that it was at odds with the state's sustainability goals. In this dance of adaptation and response between Washington and the states, the federal system builds in enough flexibility for U.S. policymakers to innovate and take on major issues facing the country, even when the federal government is hobbled by polarization, legislative gridlock, and court-imposed limits. NETWORKS, NOT NATIONS Despite their growing role in domestic policy, states may appear to have little sway in foreign affairs, where nation-to-nation diplomacy and hard power reign supreme. But in many regions of the world and on a host of issues such as aviation, ocean management, climate change, and refugee resettlement, those traditional tools now compete with other forms of influence. As the scholar Anne-Marie Slaughterhas argued, networks of institutions and individuals--scholars and scientists, government officials, business executives, and the leaders of social movements--have long been sharing ideas and coordinating strategies across borders. In areas of technology policy, these networks have allowed smaller countries to have global influence that far exceeds their relative size and hard power: Estonia, for example, has played a leading part in counter-disinformation strategy, and South Korea has been a pioneering force in public-private partnerships for online authentication. In the United States, international networks have become a critical way for the country to assert its leadership on many issues. When bolstered by state governments' power to develop policy experiments and set international standards, such cross-border exchanges can drive policy innovations--including in such areas as artificial intelligence (AI), biomedicine, block chain, and renewable energy--that are becoming more difficult to achieve at the federal level. It was in part to buttress such networks in the face of rising geopolitical competition that the U.S. government was spurred in May 2022 to create the Indo-Pacific Economic Framework--a loose arrangement to promote standard-setting, sustainable growth and broader economic connections between the United States and its allies in the region. States with outsize stakes in energy, trade, and technology have special incentives to engage in foreign policy. In economic sectors that are underfunded or left unaddressed by Washington, larger states are seeking their own international partnerships or agreements to compensate. In 2014, California began a cap-and-trade agreement with Quebec, allowing the two regions jointly to create the largest carbon market in North America; in 2022, the Massachusetts Biotechnology Council launched a partnership with a European Union health industry trade body to promote cross-border biotechnology research. Although the U.S. Constitution prevents states from entering into formal treaty arrangements, the State Department has interpreted these constraints to apply only to agreements that are "legally binding," leaving plenty of room for states to make international arrangements by other means. Even in hard-power conflicts such as Russia's invasion of Ukraine, subnational networks can play an important role. Notably, since the war began, Western corporations, responding to pressure from shareholders and the public, have left the Russian market en masse. Civil society institutions are working with Ukrainian officials and technology companies to thwart Russian disinformation efforts. And local communities are signaling their openness to receiving refugees. Of course, different U.S. states have different geopolitical interests: a more open trade policy tends to benefit oil-producing Louisiana and Texas far more than it does Michigan or North Carolina, whose populations may fear losing more jobs overseas under such a policy. Rather than leading to greater centralization of power, then, the current age of growing geopolitical conflict and accelerating technological change seems likely to push more states to become involved in national and international affairs.

Imagine a world in which your favorite policy proposals are no longer blocked by Nancy Pelosi, Mitch McConnell, Bernie Sanders, or Ted Cruz. In this world, Washington’s longstanding partisan warfare no longer [stops] paralyzes action on health care, welfare, education, and infrastructure.

Impossible? Not at all. The simple solution is federalism. Rather than watch lawmakers in Washington fight for the right to impose a one-size-fits-all solution on America, we can let state governments, which are closer to the people, tailor local solutions to local problems.

Polarization and divided government have produced gridlock and a slowdown of national policy production, again generating incentives for groups to venue shift to the states. Since the 1970s, polarization has increased in Congress and divided federal government has become a more frequent occurrence. This has led to policy gridlock and “drift”—and higher costs of national policy change for policy demanders. Faced with federal gridlock, policy demanders may increasingly turn to states to implement their agendas. Federal gridlock also means that these policy demanding groups can be more confident than in earlier periods that their state policy victories will not soon be reversed by federal legislation or court rulings. In the rarer moments when important federal policy does pass, polarization and divided government may increase incentives for members of Congress to delegate authority to the states. A legislator who would ideally implement his or her ideal policy across all 50 states may accept a decentralized policy as a second-best option if it moves the average outcome (such as the policy regime for the average state or average individual) toward his or her ideal. Moreover, the district-based electoral connection in Congress can improve the relative appeal of the second best option because “representatives know that when they delegate to state and local agents, policy for their constituents will be set by representatives elected by those same constituents.” Indeed, the rise of polarization in Congress has coincided with what scholars call a “devolution revolution.” In a similar fashion, the federal judiciary has undergone a “federalism revolution” in which the courts are an increasingly “state friendly arena” precisely during an era of increasingly partisan and narrow (5–4 split) decisions.

The United States Federal Government is established by the US Constitution. The Federal Government shares sovereignty over the United Sates with the individual governments of the States of US. The Federal government has three branches: i) the legislature, which is the US Congress, ii) Executive, comprised of the President and Vice president of the US and iii) Judiciary. The US Constitution prescribes a system of separation of powers and ‘checks and balances’ for the smooth functioning of all the three branches of the Federal Government. The US Constitution limits the powers of the Federal Government to the powers assigned to it; all powers not expressly assigned to the Federal Government are reserved to the States or to the people.

The traditionally nation-state-dominated arena of global climate change governance has become increasingly populated by subnational governments and the coalitions and networks they form. Contra the existing unitary, state-centric and top-down structures of the United Nations (UN), this has produced a new international plane of climate mitigation activities where multiple centers of bottom-up power and influence exist, a growing landscape of “polycentric climate governance.”[1]

While this new plane operates independently from and parallel to traditional global climate governance structures, the two are also increasingly collaborating with one another, a trend being called “hybrid multilateralism.”[2] In both cases, subnational actors are demonstrating their crucial potential to reduce greenhouse gas (GHG) emissions and thus directly contribute to climate governance goals pursued by the nations of the world. Illustrative of this potential is the case of the State of California, its subnational coalition building both globally and vis-à-vis the U.S. and China, and the resultant direct support for Paris Agreement goals in the absence of U.S. federal leadership.

While international relations is mainly the responsibility of national governments, diplomacy can be practiced at every level of government. Crises such as COVID-19 and difficult global issues like climate change present opportunities for subnational diplomacy—diplomacy conducted by officials at various levels of government below the national level—to overcome barriers that have national governments stuck in the mud. From governors to mayors to tribal leaders, relationships between officials at the subnational level have and will continue to open multiple diplomatic channels.

At the height of the pandemic, the lengths to which local leaders were willing to go to secure supplies for their communities was staggering. In April 2020, Illinois Governor J.B. Pritzker coordinated a secret charter plane to bring PPE from Shanghai, China. Governor Pritzker’s plan was meant to circumvent the Trump administration’s alleged seizing of PPE shipments from abroad.7 A hallmark of the desperation and supply chain challenges at the time, the state of Illinois was forced to hand million-dollar checks to intermediaries in parking lots to get more masks, gloves, and gowns for healthcare workers.8

When facing common problems or pursuing similar agendas, states often reach out to other states. States cooperate with one another in many ways, including joint administrative agreements, uniform state laws, multistate legal actions, and interstate compacts. For example, simple administrative agreements between two or more states can be created fairly easily and adjusted or rescinded as needed. Uniform state laws adopted by legislatures offer another mechanism for cooperation, as do multistate legal actions pur- sued by state attorneys general. Interstate compacts, the focus of this article, are an increasingly important form of cooperation. Table A summarizes the notable characteristics of these four cooperative options. The Evolution of Interstate Compacts Interstate compacts are authorized in Article I, Section 10 of the U.S. Constitution. Historically, compacts were used primarily to settle boundary disputes between a pair of neighboring states, such as the 1949 Kansas-Missouri Boundary Compact. The focus of compacts was fairly narrow and there were not many of them. One estimate of the num- ber of compacts at the turn of the 20th century found fewer than 40 of them in use, the vast major- ity of them dealing with state borders.1 Since that time, the substance of compacts has expanded far beyond the resolution of territorial disputes. One of the most prominent early compacts is the Port Authority of New York & New Jersey, established in 1921. By the 1970s, compacts were increasingly being used to address a diverse array of contem- porary problems and policies on topics including child welfare, criminal justice, education, health, natural resources, taxation and transportation. Not only has the substantive focus of compacts expanded, so too have administrative, financial and technical aspects of compacts. By 2017, the number of compacts has increased to more than 200, with several more in developmental stages.2 Benefits of Compacts The growing use of compacts is largely a function of their potential for states to address shared prob- lems, promote a common agenda, or produce col- lective goods. Further, by joining a compact, a state can reduce the costs associated with policy design and experimentation. Table B provides examples of these conditions. As noted by Michael Buenger and his colleagues in their book, The Evolving Law and Use of Inter- state Compacts, compacts have several advantages relative to other vehicles for accomplishing these goals. First, because states themselves are designing the compact, it can be more responsive to the interests and needs of member states than federal action. Second, compacts have the salutary effect of blurring the borders that separate states and reducing state insularity.3 Third, compacts can preempt potential federal interference into traditional state responsibilities. Finally, compacts offer a “predictable, stable, and enforceable mechanism for policy control and implementation” to participating states.4

It might surprise attentive high school students nationwide that the |venerable Schoolhouse Rock! narrative for a bill becoming a law1—bicameral legislative passage followed by executive presentment—has a lesser-known understudy, one that looks like a state law, acts like a federal law, and yet is neither. This substitute is the interstate compact.2 An oddly amalgamated creature, the interstate compact roams uniquely through our constitutional system. It represents a vestige of the sovereign treatymaking powers abandoned by the thirteen colonies in their formation of the Union—providing states with the unique capability to act in concert without federal involvement. Compacts were originally governed by Article I, Section 10 of the U.S. Constitution, which provides: “No state shall, without the consent of Congress, . . . enter into any Agreement or Compact with another State, or with a foreign Power . . . .”3 However, the U.S. Supreme Court’s 1978 decision in United States Steel Corp. v. Multistate Tax Commission eviscerated the Compact Clause’s influence in constitutional law—perhaps without fully meaning to.4 Today, compacts often take effect without any oversight from Congress.5 This should concern us because compacts are everywhere. If you are a Californian pulled over for speeding in Oregon, your California driver’s license may have points deducted thanks to the Driver License Compact between forty-five states.6 If you have ever flown to New York City, or taken a subway ride in Washington, D.C., you have experienced an interstate compact in action—those transit systems are both products of innovative compacts between neighboring states.7 Indeed, countless little-noticed compacts are the sine qua non backbone of interstate initiatives integral to our daily lives. Compacts are increasingly important in an age of polarization, as they form between the lines of state and federal power—a space Rhett Larson has aptly dubbed “interstitial federalism.”8 Federal government action, or inaction, now routinely encounters state-based resistance, often in the form of a proposed compact, which can lack meaningful oversight without enforcement of the congressional approval requirement. For instance, Democratic governors have sought to forge compacts mitigating President Trump’s withdrawal from the Paris Accords and the lack of congressional action on gun safety in the wake of the Parkland massacre.9 Republicans did the same under President Obama, when they sought to enforce stronger federal immigration laws locally.10 Meanwhile, forty-six states have established their own independent system to administer a multibillion-dollar annual revenue stream from a settlement with tobacco companies despite Congress’s failure to endorse such a solution, producing a nationwide increase in cigarette prices.11

There are literally thousands of articles and several journals on various aspects of federalism. Yet health policy scholars have put remarkably little effort into developing criteria to assess the comparative advantages of state versus federal dominance.1 If the usual American approach is deference to states, then one might argue that the default option for policy making in health care ought to be state-level reforms. If the states are unable to arrive at satisfactory solutions, then responsibility should shift to the federal government. In either event, it would be helpful to have some agreed-on criteria for when federal intervention would be appropriate.

In this article, we set forth and analyze a set of normative criteria for determining whether states or the federal government should more appropriately lead in health care reform. They should help move the debate beyond opportunism or overly broad arguments for state or federal leadership. We develop our criteria by comparing the ability of the federal government and the states to live up to certain desirable values: social justice, procedural democracy, compatibility with value pluralism, feasibility, and economic sustainability. The next section argues that leadership is the right framing because no level of government can effectively act alone on major issues, but in an interpenetrated intergovernmental system one level needs to lead (see also Mechanic 2003 and Sparer 2003). We then expand on the criteria and their implications for health reform policy.

Therefore, federal law permits the Secretary of Health and Human Services to waive certain provisions of the Social Security Act and associated regulations as needed to conduct demonstration projects in Medicare, Medicaid, or both Medicare and Medicaid. Waivers are purely discretionary unless legislation mandates a specific project.

Medicaid Waivers under Section 1115:

In the event that these waivers were not granted, the bills stipulate that the states would continue to obtain funding through existing channels, but that the program would be administered in such a way that, to the extent possible, the specific arrangements under which funds are obtained would happen behind the scenes, allowing members to continue to deal directly (and solely) with the state’s “single payer.”

The second source of funds is, of course, taxation. The New York bill specifically calls for progressive taxes on payroll and other forms of income, and requires the governor to include the necessary provisions in the executive budget beginning with the fiscal year after the bill is enacted.

Are these tensions reconcilable? Our health care system has always been a regulatory push-pull between federalism and uniformity. ERISA itself is about both. It is about uniformity in the sense of sparing large multi-state employee benefit plans the burden of complying with 50-different sets of state regulations; it is also about federalism in its desire to reserve the regulatory terrain over the everyday regulation of insurance to the states. The ACA, on the other hand, is about uniformity and federalism in almost the opposite way. The ACA’s long-term vision is universal, equal health care, whereas ERISA divides the world of health plans into parts. And the ACA’s federalism is not about divvying up the terrain of health care into state and federal domains. Instead, the ACA’s federalism is about enlisting the states as partners in the ACA’s reforms and encouraging states to innovate with their own forms of insurance-exchange design, service delivery, and payment. The AHCA’s federalism philosophy might not be so different. If anything it may be more federalist and less universally oriented than the ACA. This is because the Republican plans thus far have not been as committed to the principal of universal care (particularly when it comes to the poor). So it seems the current Congress and Administration might not care so much if ERISA divides health policy into the “haves” and “have nots.” After all, those with employer-sponsored plans tend to be wealthier Americans. And those plans that avoid regulation are for the most part sponsored by large corporations. On the other hand, Republicans claim their driving philosophy is to return control over health policy to the states. It is hard to see how that can be done with ERISA impeding state regulation of health plans, since regulating health policy typically means regulating these plans. In other words, if the AHCA aims to give states more policy choices, it might be putting those policy choices on a collision course with ERISA. It seems doubtful that Congress will seek to fully repeal ERISA. It is less clear whether the Republicans could incorporate into the AHCA provisions that push ERISA aside for state policy choices made in implementing the AHCA. Any such efforts are likely to meet serious political resistance from stakeholders, including the powerful corporations who sponsor the plans. Democrats might not want repeal either, depending on their views about whether state governments can even be trusted on matters of health policy in a post-ACA world. (The House did pass a bill that takes a small step toward curbing ERISA by excluding stop-loss policies---which self-insured plans rely on to limit spending risk---from ERISA’s preemptive reach. If enacted into law, the bill could deter smaller employers from creating this kind of plan to avoid state regulation.) Change is most likely to come from the Court itself. Several commentators have already noticed that Advocate Health Care Network puts the Court in a particularly tricky position -- caught between its past tendency to read ERISA’s reach broadly, which would be more consistent with finding these plans subject to ERISA, and its more recent line of cases that seeks to accommodate religious employers seeking refuge from federal mandates. These cases may thus push the Court toward a narrower reading of ERISA than those from last term. And when it comes to the Court, there is a special puzzle with ERISA: even as the Court has taken a generous view of ERISA’s reach, the opinions have actually been explicit in interpreting ERISA’s power as narrower—weaker—than the statute’s literal text would allow. The Court has done this on the ground that ERISA’s broad language about displacing state laws that relate to insurance, read to its fullest power, would swallow all forms of state participation in health care, a result the Court seems to view as too extreme. Instead, the Court has tried to read ERISA in light of its ostensible purposes—especially ease of plan administration across state lines—all the while assuming Congress did not intend the statute to extend to the full possible reach of its language. The real point, however, is that Congress never really intended ERISA’s major effect to be on health care in the first place. Perhaps the current political and legal circumstances will finally create a legal environment conducive to remedying that error.

Finally, there are a pair of federalism issues that the state would have to deal with to institute a single payer system. ERISA (Employee Retirement Income Security Act), a federal law that originally set certain standards for private pensions, also keeps states from regulating self-insurance plans, or insurance plans in which employers agree to bear the cost of insurance payments. In theory, that would get in the way of the legislation's ban on selling insurance.

Gottfried told us that while self-insured plans could still exist, the NYHA benefits would be better due to the lack of deductibles, co-pays and out-of-network charges. Companies also wouldn't be allowed to pay doctors and hospital systems extra under the bill. Therefore, "there would be no sense in an employer continuing to have a self-insured plan."

Unable to directly regulate most employer-sponsored health plans, state based reform plans tie themselves in knots trying to work around it. Most state single-player plans would indirectly but strongly encourage companies to drop insurance benefits and increase wages to make up for it.

Vermont considered funding their plan with a payroll tax because payroll contributions are deductible business expenses.

An inspection of Table 4 shows modest support for the federalist voting hypothesis. Respondents with accessible attitudes on unemployment are more likely to link vote for (against) their incumbent senator when they attribute functional responsibility to the national government and credit (blame) government for policy outcomes in connection with this issue. Respondents with accessible attitudes on unemployment but who attributed functional responsibility to the state government showed a similar significant and positive relationship between causal responsibility attribution for unemployment and their vote choice for governor. This pattern did not extend to mayoral voting behavior.

Accessible causal responsibility attributions regarding education and traffic congestion linked to mayoral vote choice when functional responsibility for these issues coincided with the city. In contrast, accessible causal responsibility attributions for these issues did not affect senate or gubernatorial vote choice when functional responsibility matched those levels of government. Moreover, if accessibility for these attitudes is lowered, at a certain point all of these coefficients shrink and become statistically insignificant. To illustrate, Figure 1 displays the combined effect coefficients for unemployment (and their 95% confidence intervals) calculated at different levels of attitude accessibility in the gubernatorial vote choice model. Note that as causal responsibility attributions regarding unemployment become less accessible (i.e., the latency score increases), the combined effect shrinks and the confidence interval crosses zero. Consequently, the federalist voting hypothesis may only apply, if at all, to a subset of voters for whom a particular issue is salient and readily accessible.

Despite substantial differences in the local politics of coverage expansion, states across the country are leading major changes in health care payment and delivery. For example, Arkansas and Tennessee are avidly pursuing bundled payments, Maryland has largely eliminated fee-for-service payment to hospitals, Massachusetts has established statewide cost growth targets, and Idaho is creating a statewide network of multipayer medical homes.

These efforts and many others, while largely under the radar of national attention, may have a profound effect on the health care system’s ability to provide better care at lower cost. Understanding why and how states of all political hues are engaged in such efforts and recognizing the limitations of state-led reform are critical to appreciating the opportunities and challenges of this unique moment in US health care.

With ample motivation to improve health care and many tools at their disposal, state leaders can create a local political moment and set an agenda for reform. Governors, regardless of political party, can form effective alliances with business leaders concerned about rising health care costs, health care executives worried about the future of payment, and patient advocates concerned about quality of care. With hard work and an appreciation for its complexity, health system transformation may be one of the few policy areas in which local culture trumps national political affiliations when it comes to designing a reform model and deploying state levers for implementation.

Individual states would voluntarily enter an agreement (an interstate compact) to take over health care spending from the federal government. In those states, most existing federal health programs would be cashed out and folded into a single, gigantic grant to be administered by the state. (Defense and veterans health would be excluded. So would the big tax breaks for employer-sponsored health benefits, which come through the tax code.)

In non-compact states, the status quo would continue unchanged.

The first step on a state’s road to a quasi-single payer system is to obtain a waiver from the ACA. This is well within reach because the act includes language that permits a state to receive a waiver from the ACA’s strictures, beginning in 2017. A state can be granted this waiver if it demonstrates that its alternative would provide coverage at least as good, for at least as many people, as the ACA would, and not add costs to the federal budget. For states that receive waivers, the federal government must provide funds to the state that equal what it would spend pursuant to the ACA. A state promising to provide comprehensive, universal care would easily clear this hurdle.

Achieving integration between a state system and Medicare and Medicaid would be more difficult because the law does not permit a broad waiver from these programs. But the law does provide ample room for the administration of these programs within a state to be altered to align billing systems and prices. This would allow Medicare and Medicaid to appear to providers and patients to be almost seamlessly integrated with a state system, although this strategy would require a state to dedicate resources to reconcile claims with the federal government.