Healthcare in the United States is controlled by both federal and state governments, and the line between their roles is blurry, contested, and constantly shifting. The Constitution grants states broad authority to protect public health under their general police powers, while the federal government shapes healthcare through its power over interstate commerce, its massive spending programs like Medicare and Medicaid, and its exclusive authority over drug approval. In practice, almost every corner of the healthcare system involves some tug-of-war between Washington and the state capitals, with the balance depending on the specific issue at hand.
The Constitutional Foundation
The basic division traces back to the Tenth Amendment, which reserves powers not given to the federal government to the states. Courts have long interpreted this to mean that states hold primary responsibility for enacting and enforcing laws that promote the health, safety, and welfare of people within their borders. That is the legal basis for state health departments, state licensing boards, quarantine rules, and a wide range of public health regulations.1PubMed Central. U.S. Public Health 101
The federal government, meanwhile, draws its healthcare authority mainly from the Commerce Clause, which gives Congress exclusive power to regulate interstate and foreign commerce. In the health context, this means the federal government can impose quarantines on diseases coming from abroad or crossing state lines, regulate drugs and medical devices that move in interstate commerce, and attach conditions to the enormous sums of money it sends to states through programs like Medicaid.1PubMed Central. U.S. Public Health 101 The spending power is arguably the federal government’s most potent tool in healthcare: by offering funding that states can’t afford to refuse, Washington effectively sets healthcare policy in areas that would otherwise be purely state business.
Who Regulates Health Insurance
Insurance regulation is one of the clearest examples of shared control, and also one of the most confusing. Since 1945, the McCarran-Ferguson Act has established that states have the primary role in regulating the business of insurance.2KFF. The Regulation of Private Health Insurance Each state has its own insurance commissioner, its own rules about what policies must cover, its own consumer-protection requirements, and its own marketplace dynamics. This is why your health insurance options and premiums can look dramatically different depending on whether you live in, say, New York or Texas.
But there is a massive exception carved out by a federal law called ERISA, the Employee Retirement Income Security Act of 1974. Most large employers don’t buy insurance policies on the open market; they self-insure, meaning the company itself pays employees’ claims rather than buying a policy from an insurance company. As interpreted by the Supreme Court, ERISA prevents states from regulating these self-insured employer plans, even though states can regulate the insured plans that smaller employers tend to buy.3PubMed. The critical role of ERISA in state health reform The practical consequence is enormous: a majority of Americans with employer-sponsored coverage are in self-insured plans that state regulators largely cannot touch. Courts have extended ERISA preemption to block state hospital rate-setting laws, regulation of preferred provider organizations, and even some medical malpractice claims related to coverage decisions.3PubMed. The critical role of ERISA in state health reform
The Affordable Care Act added another federal layer on top of this patchwork. The ACA set minimum standards for what individual and small-group insurance plans must cover and created health insurance exchanges where people can shop for coverage. States were given the option to build and run their own exchanges, but their plans had to meet federal minimum standards. If a state refused or couldn’t meet the requirements, the federal government would step in and run the exchange for that state.4Publius: The Journal of Federalism. Hybrid Federalism, Partisan Politics, and Early Implementation of State Health Insurance Exchanges State officials also had the choice of whether to expand Medicaid eligibility under the ACA, which led to a patchwork where some states expanded and others did not.5Publius: The Journal of Federalism. Implementing the Affordable Care Act Health Insurance Exchanges The result is a hybrid system where federal law sets the floor, states decide how high above that floor to build, and the federal government sometimes acts as a backstop.
Medical Licensing Is a State-by-State Affair
If you want to practice medicine in the United States, you don’t get a federal license. Each state has its own medical board that grants licenses, sets standards for practice, and investigates complaints against physicians and other health professionals.6PubMed Central. State Medical Boards, Licensure, and Discipline in the United States A doctor licensed in California cannot simply treat a patient in Oregon without also holding an Oregon license. The same goes for nurses, pharmacists, and most other healthcare providers.
This state-by-state structure creates headaches for telehealth. When a physician in one state video-calls a patient in another state, both states’ licensing rules apply, and historically that has meant the physician needs a license in the patient’s state. Several reform efforts have tried to smooth this out. The Interstate Medical Licensure Compact lets participating states streamline the licensing process so physicians can more easily practice across state lines. Research shows that before the pandemic, states participating in the Compact saw roughly double the rate of out-of-state telehealth use compared to non-participating states.7PubMed. Permissive Telehealth State Licensure Policies Are Associated with Increased Telehealth Utilization During COVID-19, many states also temporarily relaxed their licensing restrictions, and in-state telehealth use rose in those states as well.7PubMed. Permissive Telehealth State Licensure Policies Are Associated with Increased Telehealth Utilization
At the federal level, Congress has taken some steps too. The VA MISSION Act of 2018 allows the Department of Veterans Affairs to waive state licensing and geographic restrictions for telehealth within its own system, letting VA providers treat veterans regardless of state boundaries.8PubMed Central. Reforming Physician Licensure in the United States to Improve Access to Telehealth Proposals to extend similar waivers to Medicare more broadly have been floated, but the basic architecture remains one where states control who practices within their borders.
Where the Federal Government Delivers Care Directly
In most of the healthcare system, the federal government acts as a funder or regulator rather than a direct provider. But there are important exceptions. The Veterans Health Administration runs its own network of hospitals and clinics, employing its own doctors and nurses to serve military veterans.9PubMed Central. The Veterans Health Administration: an American success story? The VHA operates at three levels: a national office that sets policy and quality standards, regional offices that oversee compliance, and individual hospitals where care is delivered.10Medical Care. The Measurement of Quality of Care in the Veterans Health Administration This is one of the few parts of American healthcare that looks like a national health service, with the government both paying for and providing care.
The Indian Health Service is another, more troubled example. The federal government has a legal trust responsibility to provide healthcare to American Indian and Alaska Native communities. In practice, though, persistent underfunding of the IHS has led to major gaps in the care available.11PubMed Central. American Indian Health Policy: Historical Trends and Contemporary Issues Many tribal communities rely on a mix of IHS facilities, tribally operated health programs, and urban Indian health centers, often supplemented by Medicaid and other insurance. The IHS illustrates a recurring theme: even where the federal government has direct responsibility, chronic underfunding can shift the real burden elsewhere.
Medicare, the federal health insurance program for people over 65 and certain younger people with disabilities, sits in between. The federal government sets the benefit structure, payment rates, and quality requirements, but the actual care is delivered by private hospitals and physicians. Medicaid, by contrast, is jointly funded by the federal and state governments, with each state designing its own program within broad federal guidelines. This means Medicaid looks quite different depending on where you live: eligibility thresholds, covered services, and provider payment rates all vary by state.
Hospitals and the Certificate of Need
Who decides whether a hospital can open, expand, or offer a new service? In roughly two-thirds of U.S. states, the answer involves a regulatory process called a certificate of need. These CON laws require anyone who wants to build a new facility or add certain services to first prove to a state regulatory body that the community actually needs the additional capacity.12PubMed Central. Certificate of Need Laws in Health Care: Past, Present, and Future The remaining states have repealed their CON laws, leaving hospital expansion to market forces.
The federal government historically encouraged these laws. The Hill-Burton Act of 1946 was a federal program that funded hospital construction across the country, with the explicit goal of redistributing hospital beds more evenly across states. Research found that it succeeded at evening out bed supplies between states, though it did not manage to redistribute physicians to match.13PubMed. The impact of Hill-Burton: an analysis of hospital bed and physician distribution in the United States, 1950-1970 When it comes to hospital mergers, the federal-state tension gets particularly interesting. Federal antitrust agencies like the Federal Trade Commission typically review hospital mergers for competitive concerns. But some states have created their own alternative: Certificates of Public Advantage, or COPAs, which let states approve mergers that would otherwise face federal antitrust scrutiny, in exchange for state-imposed conditions on pricing and behavior. Research evaluating these COPAs found that while they lowered the price impact of mergers in concentrated markets by about 11 percentage points compared to unregulated mergers, they were associated with slightly worse quality outcomes, suggesting that state-imposed behavioral remedies are a poor substitute for traditional federal antitrust enforcement.14International Journal of Industrial Organization. Evaluating substitutes for federal antitrust
Drug Approval vs. Drug Pricing
Drug regulation is an area where the federal-state split is especially stark. The Food and Drug Administration has exclusive authority over whether a drug can be sold in the United States. No state can approve or ban a pharmaceutical that the FDA has cleared (or refused to clear) for the market. Manufacturing standards, clinical trial requirements, and labeling rules are all set at the federal level.
Pricing is a different story. The federal government sets payment rates for drugs covered under Medicare, but for the broader market, there is no single federal price-setting mechanism. States have tried to step into this gap by passing laws aimed at drug price transparency, importation from other countries, and cost controls. These efforts run into serious legal obstacles, though, because federal law, particularly FDA authority and constitutional limits on state regulation of interstate commerce, can preempt state drug-pricing initiatives.15Taylor & Francis Online / National Library of Medicine (PubMed Central). The Burden of Federalism: Challenges to State Attempts at Controlling Prescription Drug Costs The result is a space where states have political will but limited legal room to maneuver, and the federal government has the legal authority but has been slow to use it comprehensively.
Emergency Powers and Public Health Crises
The COVID-19 pandemic put a spotlight on the question of who controls healthcare during an emergency. The answer turned out to be: everybody, and not always in harmony. Governors used their emergency powers to issue mask mandates, close businesses, restrict gatherings, and set vaccination priorities. State health officials directed contact tracing and enforced quarantine orders. The federal government, meanwhile, declared a public health emergency that unlocked regulatory flexibilities, funded vaccine development, and authorized emergency use of new treatments.
State legislatures responded to the pandemic experience by introducing hundreds of bills affecting emergency powers during the 2020 and 2021 sessions. Some bills enhanced these powers, expanding vaccine access and broadening which medical professionals could administer vaccinations. Others pushed in the opposite direction, establishing legislative oversight of executive emergency actions, limiting how long an emergency declaration could last, and restricting the scope of what governors could do during a declared emergency.16PubMed Central. Emergency powers and the pandemic The long-term effect is that the next pandemic will play out against a very different legal backdrop depending on which state you live in, because states have rewritten the rules based on their own political reactions to COVID-19.
One particularly contested area involves the intersection of federal emergency care requirements and state law. The federal Emergency Medical Treatment and Labor Act (EMTALA) requires hospitals that accept Medicare funding to stabilize any patient who arrives with an emergency medical condition, regardless of ability to pay. After the Supreme Court’s Dobbs decision overturned the federal constitutional right to abortion, the federal government argued that EMTALA requires hospitals to provide emergency abortion care even in states that have banned the procedure, since failure to do so could leave patients unstabilized. States with abortion bans have pushed back, arguing that their laws take precedence. This collision between federal emergency-care mandates and state reproductive-health restrictions remains legally unresolved and has real consequences for patients and physicians caught between conflicting obligations.17Annals of Internal Medicine. EMTALA After Dobbs: Emergency Reproductive Health Care in the Balance
Training the Workforce
The pipeline of new doctors is another joint federal-state endeavor. Graduate medical education, the residency training that newly minted physicians must complete, is largely funded by the federal government through Medicare. In 2015, combined federal and state support for graduate medical education reached about $16.3 billion, with the federal government contributing roughly $14.5 billion and state Medicaid programs adding about $1.8 billion.18JAMA. Moving the Financing of Graduate Medical Education Into the 21st Century Because Medicare funds flow to teaching hospitals based on formulas set decades ago, the geographic distribution of residency slots, and therefore of new physicians, is heavily influenced by federal policy choices. States that want more doctors trained locally have limited ability to redirect that pipeline on their own.
Why States Can’t Easily Go It Alone
Several states have explored the idea of creating their own universal coverage systems, sometimes called single-payer plans. Vermont passed legislation toward this goal in 2011 but ultimately abandoned the effort. California, New York, and other states have had similar proposals introduced repeatedly. The obstacles these efforts face illustrate why healthcare remains a shared enterprise even when one level of government wants to take the lead.
Three legal and fiscal constraints consistently block state-level single-payer plans. First, nearly all state legislatures operate under balanced-budget requirements, which makes it enormously difficult to absorb the financial risk of covering an entire state population. Second, the ACA and Medicaid law impose restrictions on how federal funds can be used, and any state trying to fold federal healthcare dollars into a single-payer system would need administrative waivers that require navigating complex federal rules and depend on the political willingness of whoever is running the federal Department of Health and Human Services at the time. Third, ERISA’s preemption of state regulation of employer health benefits creates uncertainty about whether states can impose the payroll taxes that would be needed to redirect employer contributions toward financing a universal plan.19PubMed Central. State-Level Single-Payer Health Care From a Public Health Perspective In other words, the same federal law that blocks states from regulating large employer health plans also blocks the most straightforward financing mechanism for a state-run alternative.
When Federal and State Authority Collide in Your Hospital Room
For patients, the practical effect of all this shared governance is that the rules governing your care depend on a patchwork of federal and state decisions that rarely line up neatly. Your insurance may be regulated by your state, or it may be a self-insured employer plan that only federal law governs. The drugs your doctor prescribes are federally approved but may be subject to state-level restrictions on coverage or pricing. Your doctor is licensed by your state, and if you want a second opinion via telehealth from a specialist across state lines, both states’ licensing rules come into play. If you show up at an emergency room, federal law guarantees you will be stabilized, but what “stabilization” means when your condition involves a procedure your state has restricted is an open legal question.
The system was never designed from scratch. It grew incrementally over more than a century, with each new federal program or state regulation layering on top of what came before. The result is a governance structure where control over healthcare is genuinely divided, frequently contested, and different depending on which specific aspect of healthcare you’re asking about. No single answer to “who controls it” holds for every situation, which is exactly what makes navigating the American healthcare system so uniquely complicated.