State governments play many roles in local health insurance markets. This paper focuses on the role of states as employers. As managed care and health care costs continue to grow, state governments engage in a variety of health insurance purchasing practices that influence the structure of health benefits offered to state employees. Descriptive analysis shows that many states have adopted managed competition to some degree, as well as traditional cost-reducing measures such as utilization review and self insurance. The experience of state governments can provide a benchmark for other public and private employers.