Expectations for state leadership in health reform have never been higher. States are thought to function as "laboratories of democracy," but they do not fulfill this role effectively because insufficient attention is paid to experimentation and knowledge translation. Congressional proposals to encourage state action cover too narrow a span of state health policy, do not provide states with sufficient authority to tackle major health policy challenges, and supply insufficient funding. This paper concludes with a description of a more robust state-federal partnership that would be more likely to yield substantial health reform.