The U.S. Department of Health and Human Services (HHS) issued a proposed rule published in the Federal Register March 14, 2011, that outlines the steps states must take to obtain a Waiver for State Innovation under the health reform law. Section 1332 of the ACA authorizes the Secretary of HHS and the Secretary of the Treasury to waive certain requirements falling under their respective jurisdictions for health insurance coverage within a state for plan years beginning on or after January 1, 2017. However, the Obama administration has endorsed bipartisan legislation, "Empowering States to Innovate Act," introduced by Senators Ron Wyden (D-Ore.) and Scott Brown (R-Mass.) that would make waivers available to states beginning in 2014. For more information, see the December 9, 2010, issue of the Health Law Update.

The proposed rule requires that states applying for a Waiver for State Innovation must enact state legislation authorizing such waiver request and must demonstrate that the state's proposed waiver will (1) provide coverage that is as comprehensive as the coverage offered through Health Insurance Exchanges; (2) make coverage as affordable as it would have been through the Exchanges; (3) provide coverage to as many residents as otherwise would have been covered under the ACA; and (4) not increase the federal deficit. In a February 28, 2011, White House Blog posting, Secretary Kathleen Sebelius praised governors of both political parties that have "shown true leadership in applying the expertise of their states in devising approaches that best fit their own market conditions." Thus far, the Obama administration has granted more than 1000 waivers from certain ACA provisions. A few of the state reform models the Secretary highlights in the February 28 posting include, among others, linking tax credits for small businesses with tax credits for low-income families, automatically enrolling people in health plans and alternative health plan options to increase competition and provide consumers with additional choices.

Consistent with what is required by the law, the proposed rule says that an application for a Waiver for State Innovation must include (1) the provisions of law that the state seeks to waive; (2) an explanation of how the proposed waiver will meet the goals related to coverage expansion, affordability, comprehensiveness of coverage and costs; (3) a budget plan that does not increase the federal deficit, with supporting information; (4) actuarial certifications and economic analysis to support the state's estimates that the proposed waiver will comply with the comprehensive coverage requirement, the affordability requirement and the scope of coverage requirement; and (5) analyses of the waiver's potential impact on provisions that are not waived, access to healthcare services when residents leave the state and deterring waste, fraud and abuse. The proposed regulations include provisions that will allow for public input in the review and approval of the Waivers for State Innovation. Additionally, states that are granted waivers will be expected to comply with certain reporting and evaluation measures, including submission of quarterly and annual reports used to track measures for affordability, comprehensiveness of coverage, the number of people covered and impact on the federal deficit. Comments to the proposed rule are due on or before May 13, 2011.