Explainer: What is the role of the federal government in managing health care?

Amid confusion over vaccines and health care coverage policies, Massachusetts became the first state to require insurers to cover vaccines recommended by the state rather than by the federal government.  
 
HKS asked Kimberlyn Leary, a psychologist who studies how systems change, to share her insights on this unprecedented move and the role of government in health care. Leary is the Emma Bloomberg Lecturer in Public Policy and Management at HKS and holds academic appointments at Harvard Medical School and the Harvard T.H. Chan School of Public Health. With more than 20 years of experience working as a practitioner and in executive roles in academic health systems, she is a close observer of organizational change and has seen how policy choices reverberate inside institutions and affect the people they serve.

Q: Why is the government in the business of healthcare?

United States health care systems as we know them today have been shaped by decades of legislation and regulatory rulemaking. They also reflect market evolution, the emergence of new products and services, and the changing nature of the public’s demand (and the values that inform those demands). Definitive histories capture the arc of these changes, among them, Paul Starr’s The Social Transformation of American Medicine.  

Before World War II, most people in the U.S. directly paid doctors or hospitals for the care they received, relied on charities and medical aid societies, incurred debt, or went without care.  

Baylor Hospital in Dallas, Texas was the first hospital to offer some form of modern health insurance. Designed in 1929 for local schoolteachers, Baylor’s plan offered 21 days of hospital care for a set, prepaid fee. Other hospitals began experimenting with similar models, seeing in prepaid care an opportunity to lower financial risk for patients and stabilize hospital revenue.  

By 1939, these plans backed by the American Hospital Association became a branded entity named “Blue Cross”.  

Physician groups soon created prepaid plans to cover doctors’ and office fees. The California Medical Association founded the California Physicians’ Service (CPS) in 1939 which marketed plans to cover physicians’ services to industrial groups and housing communities.

In certain jurisdictions, the Federal Public Housing Authority authorized CPS to bundle plans for physician services with rental fees creating favorable conditions to attract new medical practitioners to burgeoning communities in the region. Notably, this is also an early illustration of the role of patient voice and innovative models of health care delivery.  

By 1948, nine physician service plans joined together to form Associated Medical Care Plans, a precursor to the National Association of Blue Shield Plans. By 1982, Blue Shield and Blue Cross had merged into the Blue Cross and Blue Shield Association. The result was a clear win for consumers. Beneficiaries could elect a plan to defray the costs of both inpatient and physician care.

Employer-based health insurance also emerged as a war-time innovation. The Roosevelt administration introduced wartime wage controls to constrain inflation in 1942.  When employers could no longer attract workers with higher salaries, they began offering other benefits like pensions, paid time off, and health insurance. A subsequent ruling by the IRS that employer-paid health insurance premiums were not wages set the stage for employer-based health insurance to become a key vehicle for U.S. workers to obtain their health care. However, care gaps remained, especially for lower-income, elderly, and unemployed persons, groups that were least able to directly pay for health care.

Government again stepped in. The Social Security Amendments of 1965 created the architecture for Medicare (a federal program providing health insurance for those 65 years and older and later extended to some younger people with disabilities or with end-stage renal failure) and for Medicaid (a joint state–federal initiative providing health coverage for certain categories of low-income people). These programs provided coverage plans for many groups that markets had excluded.  

With expanded access came increased costs. In 1973, Congress passed the Health Maintenance Organization Act, an effort to incentivize controlling costs across Medicare, Medicaid, and employer coverage. A decade later, the Social Security Amendments of 1983 shifted payment structures to the average costs of caring for people with similar diagnoses. Rather than paying rates based on costs incurred, reimbursement was based on a fixed amount per discharge to bring more uniformity.  

Congress continued to expand eligibility for Medicaid programs especially for women and children. The Omnibus Budget Act of 1989 obliged states to provide Medicaid coverage to pregnant women and children up to age six in certain low-income groups.

The Patient Protection and Affordable Care Act of 2010 further expanded government involvement by continuing to broaden Medicaid eligibility, creating insurance marketplaces, and requiring coverage for people with preexisting conditions. It also established mental health and substance use care as “essential health benefits,” building on legislation aimed at mental health and addiction care parity.

Concurrently, new products, treatments, and services from advances in medical imaging to personalized immunotherapies for cancer to the introduction of linked electronic health care records have enabled transformative leaps in what patients have come to expect from the health providers and health systems that care for them. Each step reinforced the same dynamic: market innovations drove demand and the government acted to expand coverage and close gaps while also trying to curtail new costs.

National health expenditures represent nearly 18% of U.S. GDP. The private sector retains a compelling interest in financing and developing treatments, hospital systems, and in sponsoring innovation. During President Trump’s first administration, Operation Warp Speed, a public-private partnership, rapidly accelerated the production of multiple COVID-19 vaccines, including the mRNA vaccine co-developed by Moderna and the National Institutes of Health.  

Currently, the rapid introduction of GLP-1 drugs for diabetes, obesity, and weight loss has continued to illustrate how nimbly private firms can operate and the speed with which they can bring products to market. Government typically enters later by regulating safety, setting coverage rules, and negotiating payments.  

The government entered and remained in the business of health care, balancing dual overlapping and sometimes contradictory policy goals: expanding coverage because markets do not cover everyone, while also trying to contain the costs of the expanded care it has authorized. 

Q: Given the federal government’s comprehensive authority over health care, how is it that states can take their own actions that seem to counter or go beyond federal policy?

This is an excellent question, especially considering Governor Maura Healey’s action to mandate full coverage of COVID-19 vaccines in Massachusetts after federal policy changes. Healey acted after a series of decisions by U.S. Department of Health and Human Services (HHS) Secretary Robert F. Kennedy Jr. to overhaul vaccine policies.  

In June of 2025, HHS announced it would reconstitute the Centers for Disease Control’s (CDC) vaccine advisory panel to “restore public trust” and address “conflicts of interest.”  

In August, HHS indicated it would begin a coordinated wind down of the Biomedical Advanced Research and Development Authority (BARDA) mRNA vaccine development program, a significant shift given BARDA’s role in sponsoring vaccine technologies including during Operation Warp Speed.  

Most recently, the Food and Drug Administration’s (FDA) issued new guidance for COVID-19 vaccines, limiting them to people 65 and older or those with underlying conditions. Although the secretary maintained that all who wanted to receive vaccines would still have access, the new guidance has introduced confusion about whether insurance plans would cover vaccines. It may also mean that people who previously received over-the-counter COVID-19 shots at pharmacies might now need prescriptions. 

At first glance, it may seem puzzling that states could act after the FDA had already restricted vaccine access. Yet a number of governors moved quickly to do so. In New York, Governor Kathy Hochul declared a disaster emergency and signed an executive order, allowing pharmacists to administer COVID-19 vaccines to people aged three and older, lifting the requirement of a prescription. In Massachusetts, as noted, Governor Healey ordered state-regulated insurers to continue covering COVID-19 vaccines and issued a standing order allowing pharmacies to vaccinate all eligible residents aged five and older. A coalition of governors from California, Oregon, and Washington launched the West Coast Health Alliance to coordinate health guidelines and align immunization recommendations across their states.  

While states cannot alter FDA approvals or contravene national safety standards, local leaders often have authority of their own to regulate insurers, mobilize public health departments, and use emergency powers to secure supplies and access to services. By using these tools, governors could expand vaccine availability within their jurisdictions and counterbalance federal guidance.

This is also another example of how health care is a matter of local politics and tied to place even in the context of federal laws and large-scale national funding and delivery systems.

Q: How does this affect communities and daily life even beyond the practicalities of arranging health care for yourself or your family?

Health care in America is an example of what C. West Churchman called “a wicked problem” because of complex interdependencies that are interwoven into practices and policies.

Given the scale of U.S. health care systems, considerable technical expertise is required to model the movement of dollars through insurance markets, hospital systems, and drug development pipelines; to track reimbursement rules and regulatory shifts; and to estimate the long-term costs of chronic disease, demographic change, and the impact of breakthrough therapies. Aggregating information and understanding across these domains requires a multisector imagination and the ability to integrate disparate facts across economics, law, epidemiology, and delivery-system design, to name but a few of the relevant disciplines. And then these models must also address political cycles and real-world shocks like pandemics.  

The scope of those interdependencies has only expanded with technology. Electronic health records enable considerable reach across systems if a patient’s information reliably follows them across providers, and if payers authorize providers to have the necessary time to digest them. Early uses of Generative AI are beginning to shape how diagnoses are made, how care is allocated, and likely how it will be delivered (including, one might expect, in partnership with AI agents). Because health care is fundamentally intimate, focused on our bodies and their vulnerabilities and failures, when medical data is breached, the loss of that information can be experienced as even more personal betrayal than other forms of cyber theft and further undermine institutional trust.

Even the most sophisticated medical tools and advanced techniques rely on the infrastructure of trust to have an impact. Different communities carry well-earned memories of exploitation and neglect—from the Tuskegee syphilis study to coerced sterilizations and continuing disparities in treatments offered and outcomes received. For expertise to be meaningful to communities, it must also remain accountable to the day-to-day realities people face when they seek health care and encounter its policy architecture.

For most people, health decisions are never abstract. Former Obama HHS Secretary Kathleen Sebelius said these are “the questions you might be asking around the kitchen table.” In this context, trade-offs aren’t remote abstract debates, they encompass painful decision points about whether people—and those they love—can afford care, whether someone must skip treatment, and who should decide when to suspend medical care at end-of-life. These are fundamental choices of personal consequence.  

And behind those choices are competing values that make health care policy, like other policy domains, a highly contested terrain. Spreadsheets don’t always capture the larger adaptive questions in play: about how much responsibility we are willing to take for others, what dignity we want for ourselves and would afford our neighbors, and our beliefs about whether health care is primarily a right or a commodity.

Policy questions also reflect existential reflections about the limited time allotted to us. Do we build systems for our future selves? At what cost should our current selves invest?  Economists are part of this discussion. They remind us that moral hazard runs through health care raising the concern that when people are shielded from costs, they may use more care than they “need,” taking advantage of others by pushing costs onto them. In short, fail to appreciate the shared responsibility that makes coverage economically feasible.

Whether one sits at the academic conference table, the policy convening table, or the kitchen table, in the end, every debate about health care is not only a question about how we spend our dollars but about how we choose to live in community.