What it sounds like is a state can now apply for a waiver releasing them from having to conform with the Clinton welfare reform policy known as Personal Responsibility and Work Opportunity Act. If they submit an alternative plan to HHS that (From your link):
HHS stressed that any alternative should still aim to get welfare recipients into gainful employment. Any plan that "appears substantially likely to reduce access to assistance or employment for needy families," will not be approved, the memo said.
Which could go either way, gives more power to the states to enact plans better suited to their needs but still has to fall into the guidelines (And receive approval from) the HHS.
I dont know too much about welfare reform, just trying to look at it objectively.