The New Federalism that evolved under the Reagan administration tends to grant states more discretion in the implementation of health care programs. It thereby rekindles old concerns about the commitment, capacity, and progressivity of the states. This paper reviews recent policy developments and reconsiders state performance from the vantage point of the mid-1980s. While hard evidence remains elusive, a plausible case exists that any gap between the states and Washington on commitment, capacity, and progressivity has diminished. State administrative capacity in particular has probably increased. The continued presence of substantial variation among the states needs to be underscored, however. Moreover, the relentless imperative of economic development, or migration, theory sets severe limits on how far states can go in adopting redistributive measures to assure adequate medical care for the poor. Given current federal laws, the most optimistic, plausible scenario envisions the rise of a technical politics of efficiency in the states. In spite of state limitations, health policy reformers need to pay increased attention to their potential role.