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Proposed Rules Rolled Out on State Innovation Waivers in Health Care Overhaul

By Jane Norman, CQ HealthBeat Associate Editor

March 10, 2011 -- The Obama administration seized another opportunity to stress its flexibility when it comes to the health care law with an announcement of proposed rules on how states may apply to change certain sections of the law as long as the law's goals are met.

Republicans who want to repeal the law, though, continued to contend that the "state innovation waivers" are pointless because the federal government would keep control over basic elements of the overhaul that the GOP says are unworkable. And these waivers would come into play three years after the law takes effect.

Under the law (PL 111-148, PL 111-152) beginning in 2017, states could apply for the waivers to be able to devise their own health care approaches. President Obama in a recent meeting with the nation's governors said he supports bipartisan legislation (S 248) authored by Democrat Ron Wyden of Oregon that would move up the effective date for such waivers to 2014.

That bill has five cosponsors in the Senate—Republican Scott P. Brown of Massachusetts and Democrats Patrick J. Leahy of Vermont, Ben Nelson of Nebraska, Mary L. Landrieu of Louisiana and Joe Manchin III of West Virginia.

Steve Larsen, the director of the Office for Consumer Information and Insurance Oversight at the Department of Health and Human Services, told reporters in a conference call that the administration backs the measure because "if states have good ideas we believe there is no reason they have to wait until 2017 to put them into action." Nonetheless it's not clear there's much traction for the legislation in Congress.

The "state innovation waivers" would apply to items in the law such as the qualified health plans and what benefits they would include, the structure of the health benefit exchanges, cost-sharing standards for people enrolled in health plans and the tax credits available to help pay for health insurance. States that are interested in pursuing waivers would have to enact state laws and prepare waiver applications.

Larsen said the state has to provide coverage as comprehensive and affordable as coverage under the law and to a comparable number of residents. The changes can't increase the deficit, as evaluated by HHS and the Department of the Treasury. States would have to submit regular reports to show their progress.

The waivers couldn't change consumer protections in the law such as the ban on denying people coverage because of preexisting conditions, which begins in 2014, or a current requirement that young adults up to age 26 be allowed coverage on their parents' policies. Insurance companies providing large group plans would still have to spend at least 80 percent of their premium dollars on health care.

Chiquita Brooks-LaSure, director of coverage policy in the HHS Office of Health Reform, said that states could create new systems for providing the tax credits or enrolling residents in coverage. Waivers are provided for five years and can be renewed.

But Brooks-LaSure said officials couldn't really list what possible innovations states might come up with in their waiver requests. "We certainly have a couple of thoughts about what states might come in and ask for but states are very creative and we could sit here and come up with a list but guarantee states will come up with new ideas," she said.

Larsen said that if a state wants a single-payer system and it meets the criteria in the proposed rule, it would be considered by HHS.

But a Republican spokesman for the House Ways and Means Committee said the law has little to offer for states that want to go their own way on health care. "The plan still lets the federal government set the rules, the processes and the procedures that the states must follow if they have any hope of getting an exemption, and even if a state meets all the requirements the Obama administration could still deny the state's request," said the spokesman.

Under the proposed rule, the waiver application to the Department of Health and Human Services must specify which sections of the federal law that would be waived and an explanation of how the state would meet the goals of the federal law. The application has to include a budget plan showing that the waiver wouldn't increase the federal deficit.

In addition, the state will have to submit actuarial certifications and economic analyses to support the state's projections and analyses of the waiver's impact on provisions in the law that are not waived.

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