Wisconsin Gov. Scott Walker talks about the budget bill during an interview in his office at the Capitol in Madison, Wis. on Friday. (Morry Gash/AP)

Two weeks after President Obama signed the nation’s health-care overhaul into law, then-Wisconsin Gov. Jim Doyle (D) issued an executive order creating an Office of Health Care Reform.

Over the next eight months, the Badger State made more headway than virtually anywhere else in the country at preparing to carry the statute out. It designed — and presented at the White House — the country’s only prototype for how people and small businesses could navigate a new health insurance marketplace online. It produced a 205-page blueprint envisioning that marketplace as a “transformative force,” steering people toward care of high quality and low cost.

Then, in late January, Doyle’s Republican successor, Scott Walker, issued his own executive order, dissolving the health reform office and replacing it with the Office of Free Market Health Care.

“We view this as a fundamentally different approach than what the past [Wisconsin] administration was doing — and what . . . the Obama administration is pushing,” Walker said in the first interview he has given about health-care reform since assuming office.

Wisconsin’s U-turn, as sharp as anywhere in the country, illustrates how the views of state leaders are shaping the way the health-care overhaul envisioned by Congress will work on the ground. It illustrates, too, the treacherous terrain the Obama administration and congressional Democrats are walking by entrusting states to carry out major parts of the plan now that 29 governors are Republicans, including 18 who — like Walker — have taken office this winter. In Wisconsin, as in five other states, both chambers of the legislature also have just switched to GOP control.

“We’ve gone from one kind of boldness to another,” said Robert Kraig, executive director of Citizen Action of Wisconsin and a leading liberal activist on health care in this university town with its granite-domed state Capitol.

But being dead set against the health law is not proving to be a simple matter of saying no to everything it contains. The new opposition is subtler but no less profound — a process of picking and choosing provisions to embrace or reject, of taking some grants offered by the federal government while spurning others, of striving to kill the law in Congress or the courts while preparing a conservative alternative.

Walker, best known for his effort to demolish rights to collective bargaining for government employees, thinks that the health-care statute is unconstitutional and that the government has no business influencing people’s health-care choices. Doyle’s aides estimated that the law would save Wisconsin $850 million by the end of the decade; Walker’s estimate that it would cost $433 million.

Where Wisconsin is coming from

With states required by 2014 to carry out the law’s core features — among them, widening access to private and public insurance — Wisconsin is in a more auspicious starting place than most. Just 6 percent of its residents lack health coverage, the second-lowest proportion in the country. And over the years, Wisconsin repeatedly has expanded Medicaid, called BadgerCare here, so that an unusually large share of people already has public insurance.

Those distinctions are part of the Walker administration’s justification for resisting federal requirements. “Wisconsin . . . already has accomplished much of what [the law] aspires to do,” said Dennis G. Smith, the new secretary of the state’s Department of Health Services.

Smith, the driving force behind Wisconsin’s about-face, arrived from Washington in January with a reputation as a mild-mannered, highly conservative thinker on health policy. Under President George W. Bush, he was in charge of Medicaid at the U.S. Department of Health and Human Services. More recently, he was at the Heritage Foundation, writing criticisms of the new federal law. He said in an interview that he did not have ties to Wisconsin or know Walker before mutual acquaintances, including Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, suggested to both men that they should talk.

In a primary example of obeying the law selectively, Walker and Smith said they will create, as the statute envisions, one or more marketplaces called exchanges to help individuals and small businesses buy insurance. But the exchanges will not do everything the law says. “We believe it’s got to be free-market driven, not government driven,” Walker said.

Specifically, Smith and the governor said they disagree with a requirement that every health plan sold through an exchange must cover a list of “essential benefits” that HHS will define. They also object to the law’s idea of “qualified health plans” — meaning that insurers in an exchange must provide those benefits and specific levels of coverage.

“Lots of people” would prefer less expensive insurance that covers only catastrophic medical problems, Smith said, and small businesses might prefer to band together to buy insurance privately, rather than use an exchange designed by the state.

Walker also balks at an expansion of Medicaid to all residents whose incomes are up to one-third above the federal poverty line. According to state health officials, most people in that income group already are in the program, but about 64,000 are on a waiting list for a recent expansion of BadgerCare to a limited number of adults without children. Adding those people “is not able to happen,” Walker said, at a time when Medicaid is the biggest culprit in the state’s strained budget.

New leadership, a change of plans

His predecessor, Doyle, a moderate Democrat, had presided over two significant expansions of Medicaid — to all children, as well as some childless adults — and had explored, but not created, a state insurance exchange for small businesses. When the federal law passed, Karen Timberlake, Doyle’s health services secretary, and her colleagues were aware that he was not seeking a third term and “felt an obligation to leave a trail of bread crumbs,” as she put it, to guide their successors in implementing the law.

They focused on planning for an insurance exchange, so it would act as a powerful lever to reshape the way health care in Wisconsin is paid for and delivered. According to Jason Helgerson, Wisconsin’s Medicaid director at the time who did much of the reform office’s staff work, he and colleagues wanted to make it easy for people to slide back and forth between Medicaid and private insurance as their incomes changed. And they wanted to employ ratings, then give financial incentives to health plans, providers of care and consumers for preferring high-quality, low-cost services with an emphasis on prevention and coordination of care. Health care should become “more of a team sport,” said Helgerson, now the Medicaid chief in New York state.

The Doyle administration’s work had important allies in the state legislature. Last summer, lawmakers formed a study committee, with representatives from all corners of the health-care system and its consumers, to draft proposals to carry out the federal law that Democrats and Republicans could support.

In January, the committee was to vote on a proposal for how Wisconsin’s insurance exchange should be governed. The two Republican lawmakers who had just become the panel’s leaders abruptly canceled the meeting. “I would be shocked if we ever meet again,” said one of its two former Democratic chairmen, state Sen. Jon Erpenbach, a proponent of universal health coverage.

One of the new chairmen, state Sen. Alberta Darling (R), said, “We are going to reconstitute the committee” with members who share a free-market “philosophical bent.” She is waiting, she said, for a formal health-care plan from Smith.

As they develop their plan, Wisconsin’s new leaders are accepting some federal help — but not all. Walker accepted a $37 million grant from HHS to help make Wisconsin a role model for other states in information technology to run exchanges.

On the other hand, Bobby Peterson, the liberal executive director of ABC for Health, a public interest law firm devoted to health care, got a phone call from the insurance commissioner’s office, directing him to give back $235,000 his group had received as part of a $637,000 federal grant to help consumers find and afford care. Insurance Commissioner Ted Nickel said the grant duplicated advice provided by state agencies. Peterson said its termination “leaves consumers in a situation to take their lumps and pay the bill.”

It is the only grant Wisconsin has returned so far, but Walker said that “we’re reviewing it all.”

A broader question is how Wisconsin’s new leaders will handle their disagreements with the law: Will they ask for federal permission to omit parts they dislike — or simply ignore the requirements?

White House and HHS officials say the law gives states considerable flexibility. Late last month, the president, trying to appease disgruntled governors, said he favored giving states “waivers” by 2014 — three years earlier than allowed by the law — to deviate from its requirements, as long as they meet the same goals.

Smith called Obama’s offer “a cheap carnival trick: We’ll let you pick any prize, as long as it’s the one prize we want you to pick.”

“What we don’t have right now is the flexibility to say what’s actually in the exchange,” Walker said. “We will continue to push as far as we can.”