Since the Bush administration promoted a decade of health information technology, activities have ranged from standards-setting efforts to early development of regional health information organizations. Now state governments are emerging as enablers of electronic records development and exchange.

As health payers and providers, states have interests in establishing connected systems of care just as their commercial counterparts do. Governors, a majority of whom face re-election this fall, are also facing pressure to find solutions to the high costs of health care. The costs of employee and retiree health benefits are skyrocketing. Medicaid is consuming 25 percent of state budgets. The numbers of uninsured people are rising. Citizens fear public health risks. As 16 percent of the gross domestic product, health care is a dominant economic engine that translates into jobs and tax revenues. It can't be ignored.

States are collaborating with employers and insurers to expand access to health coverage and promote consumer choice. Rhode Island Gov. Donald Carcieri is supporting a plan to offer incentives to small businesses to buy affordable employee health insurance and is pushing health information modernization to provide real-time, accurate networks of care. Kentucky Gov. Ernie Fletcher, a physician, is leading a collaborative effort to develop a statewide public and private health information exchange. Massachusetts Gov. Mitt Romney is spearheading a comprehensive effort to insure all citizens by capitalizing on consumer, employer and government revenue streams.

Those efforts require modern, flexible information technology systems that can support multiple plan types and enable unprecedented collaboration with consumers and providers.

States are also partnering with the federal government to measure outcomes and contain costs. The Centers for Medicare and Medicaid Services is driving the Medicaid IT Architecture into the states. Medicaid will borrow pay-for-performance approaches from Medicare. States will capitalize on the efforts of the Military Health System, the Department of Veterans Affairs and the Indian Health Service, which serve vast numbers of patients, provide complete systems of payment and care, and are modernizing their IT systems.

Health departments must become laboratories for seamless health information exchange. Beginning with newborns, Kentucky is implementing a master client index to electronically organize public health data, giving it the capability to create a statewide health records system. New York City's health department has a strategy to connect information across all public health programs, including community health centers.

Going forward, which state governments will we see playing pivotal roles in connected health IT? Look to those with the greatest need and the most dominant market position. Moderate-size states " not too large to generate consensus among divergent stakeholders or too small to replicate approaches " are in the best position. Consider those with more than 40 percent government-funded coverage for their citizens, where there are only one or two dominant commercial payers and where large and small employers believe that access and cost containment demand urgent attention.

Those states have the vested interest and the clout to navigate thorny issues of governance, privacy and regulation of records exchange and to craft incentives for providers to adopt health records.

O'Leary is director of health and human services in Microsoft's Public Sector division. He was formerly secretary of health and human services for Massachusetts.