Some of the most interesting developments in health care policy these days aren’t taking place in Washington. They’re taking place in Sacramento and the rest of California, where public officials, private sector leaders, and activists are working to implement the Affordable Care Act.

Remember, under the terms of the law, states must must do everything from setting up new insurance exchanges to slapping regulations on insurers. (If states don't, the feds step in.) That generally means enacting legislation and, this week, California lawmakers were busy doing their part--passing bills that would, among other things, give California regulators more power to reject unreasonable premiums and streamline enrollment into Medicaid. Health Access, an advocacy group that has championed these measures, has all the details at its blog.

California is not the only state moving aggressively to implement health care reform. For all of the news that opponents of the law have generated, several states have embraced it. Mostly it’s more liberal states, like Maryland, where lawmakers have already passed legislation to create an insurance exchange and where, last week, the governor appointed the people to run it. But even some more conservative states are moving forward. As Politico’s Sarah Kliff reported on Friday, the governor in Alabama has issued an executive order to prepare an exchange and is busy fighting with the Republican legislature over securing adequate funds for the law’s planned expansion of Medicaid.

But California is, as always, a unique place. I visited there last month, on a reporting trip sponsored by the Kaiser Family Foundation. I came away convinced that no single state better showcases the perils of reform -- or the promise.

The challenges begin with the state’s size and diversity. Somewhere between one in five and one in four Californians have no health insurance, depending on which survey you believe. The health care markets for each region are different: In the Bay Area, you see more integration and managed care. As you move south, to Los Angeles and San Diego, the systems become more fragmented.

In addition, government authority is fractured. Counties traditionally have responsibility for taking care of the uninsured. In heavily populated counties, this is typically through some combination of clinics and public hospitals. Regulation of insurance is divided between a Department of Managed Care, that oversees HMOs and other integrated systems, and a Department of Insurance, that oversees more traditional payers. And while California’s Medicaid program is overseen by a single state agency, its dollars are divided and spent by multiple state departments.

The biggest problem for California, though, is money. Starved for revenue, thanks in no small part to anti-tax laws and a dysfunctional state legislature, it’s deeply in the red. In order to balance the budget, Governor Jerry Brown is reducing Medicaid spending. But California’s Medicaid already pays so little that recipients can have difficulty finding doctors willing to see them, particularly specialists. Taking so much money out of Medicaid now could mean that, come 2014, millions of Californians get insurance that, although better than nothing, offers inferior access to care.

But California has a lot going for it, too, starting with experience. The state first tried to create something like an exchange, for small businesses, in the early 1990s. (Many hoped it would become part of, or at least a model for, the ill-fated Clinton health care reforms.) And it made several serious efforts to implement universal coverage statewide, perhaps coming closest in 2008 when then-Governor Arnold Schwarzenegger’s proposed reforms died in the legislature.

Enactment of the Affordable Care Act gave Schwarzenegger a chance to realize part of his vision: He was the one who, just before leaving office, signed the legislation creating California’s new insurance exchange. And, no less important, his chief health care advisor, the highly respected Kim Belshe, is now among its commissioners.

The expertise extends to the local level, particularly in San Francisco -- which, in one of the most under-appreciated stories of recent years, created its own public insurance program and even enacted an employer mandate to help pay for it. “Healthy San Francisco,” as the program is known, won’t disappear once the Affordable Care Act remains in place: Undocumented workers, among others, will remain uninsured and in need of coverage. ("I would have been fine if health care reform worked me out of a job," says program director Tangerine Brigham. "But people will still depend on a safety net.") But the experience of running that program means local officials are prepared for tasks like enrolling eligible people in public programs and building "medical homes" that can provide continuous, ongoing care to patients with chronic disease.

The most important asset California may have in implementation is its forward-thinking private sector. California is home to Kaiser Permanente, which many experts consider a model of integrated medical care. Business leaders have a history of collaborating to demand, and then support, more efficient models for delivering care. Industry leaders still act like, well, industry leaders: The commercial insurers are pretty unhappy about that rate regulation proposal, for example. But overall they’re not trying to fight reform. Says consultant Peter Harbage, who has worked with policy-makers in Washington and across the country, "More than in most places, California's health policy community is dedicated to making reform work."

Does these strengths guarantee success? No. But they make success much more likely. "It's the best of times and worst of times," says Anthony Wright, executive director of Health Access. "The severity of the uninsured crisis and our state budget woes forced California to be early and innovative in considering health reforms, and to embrace the opportunity of the federal law aggressively."

Update: I originally described the funding for Healthy San Francisco as a straight-up tax on business. But it's actually closer to an employer mandate/pay-or-play scheme, under which businesses contribute to Healthy San Francisco only if they are not otherwise subsidizing health care costs for employees. The requirement exempts small businesses and some non-profits.