South Carolina is the only state voluntarily pursuing work requirements for a population it is not required to cover. Governor Henry McMaster requested reinstatement of work requirement authority in January 2025. The Department of Health and Human Services submitted the Palmetto Pathways to Independence waiver in June 2025. The timing was notable: submission arrived during congressional negotiations over the One Big Beautiful Bill Act, signed eleven days later. But OBBBA’s work requirements, which apply to Medicaid expansion adults, do not apply to South Carolina. The state has never expanded Medicaid. It is one of ten states that declined to extend coverage to all adults up to 138 percent of the federal poverty level. South Carolina’s waiver pursuit is voluntary, an independent policy choice layered on top of, rather than compelled by, the federal mandate.
This makes South Carolina analytically distinctive. Every expansion state is responding to a federal law it cannot avoid. South Carolina is choosing to condition coverage on work for a population it is not required to cover, in a framework it designed, for a group of people so poor they currently have no coverage at all. The Palmetto Pathways waiver is not Medicaid expansion with work requirements attached. It is work requirements with limited coverage attached, and the distinction matters.
South Carolina’s coverage gap contains approximately 150,000 to 180,000 adults who earn too much for traditional Medicaid, which covers very few non-disabled adults in the state, but too little to qualify for marketplace subsidies, which begin at 100 percent FPL. These are not people who have declined available coverage. They are people for whom no public coverage pathway exists. The demographics reflect South Carolina’s economic geography: disproportionately Black (approximately 40 percent), concentrated in rural areas, and employed in industries offering limited hours and no employer-sponsored insurance. Manufacturing, retail, food service, agriculture, and hospitality dominate employment patterns characterized by seasonal variation, part-time schedules, and wages clustering just above Medicaid eligibility but well below subsidy thresholds.
The Palmetto Pathways waiver proposes covering working-age adults ages 19 to 64 with incomes up to 100 percent FPL, the ceiling for marketplace subsidies, not the 138 percent FPL that defines Medicaid expansion. Coverage would be conditional on 80 hours monthly of work, job training, education, community service, or caregiving. The state estimates the waiver could cover 30,000 to 50,000 individuals initially, though eligibility extends to the full coverage gap population if resources and enrollment allow. This is not full expansion. It is partial coverage with mandatory work requirements for South Carolina’s poorest adults.
The waiver’s enrollment cap and benefit limitations create a tiered coverage structure fundamentally different from Medicaid expansion. Palmetto Pathways offers coverage approximating benchmark plans, not the comprehensive Medicaid benefit package expansion states provide. The state retains discretion to limit enrollment if costs exceed projections or if compliance verification proves administratively burdensome. This creates coverage uncertainty that traditional Medicaid expansion does not impose. People meeting requirements in January might lose coverage in March not because they stopped working but because the state hit its enrollment ceiling or decided verification was too difficult.
South Carolina’s political environment enables this approach. The legislature that rejected full expansion for over a decade sees work-conditioned partial coverage as politically acceptable where unconditional expansion was not. Republicans control the governorship, both legislative chambers, and the policy debate. Democrats and advocacy organizations have consistently supported full expansion, arguing that work requirements add administrative burden without addressing the fundamental problem: that South Carolina leaves more people uninsured than almost any other state. But the political math has not supported unconditional expansion, and partial coverage with work requirements represents what Republicans will approve.
The waiver’s implementation would occur without the federal funding structure that makes traditional expansion financially attractive. Full Medicaid expansion provides states a 90 percent federal match for expansion populations, creating fiscal incentives that drove expansion in states with Republican governors like Ohio, Indiana, and Louisiana. Palmetto Pathways operates under South Carolina’s standard Medicaid match rate of approximately 70 percent, making partial coverage fiscally less favorable than expansion while serving a smaller population with more administrative complexity.
Administrative challenges mirror those expansion states face but without the infrastructure investment expansion prompted. South Carolina’s Medicaid program operates largely through fee-for-service with managed care limited to certain populations. The state would need to build employment verification systems, exemption determination processes, and compliance monitoring workflows from scratch for a voluntary initiative serving a fraction of the coverage gap population. Whether DHHS invests resources comparable to what expansion states are deploying for 18.5 million people to serve 30,000 to 50,000 South Carolinians remains uncertain.
Coverage loss risk operates differently than in expansion states. People who lose Palmetto Pathways coverage for work requirement non-compliance return to having no coverage at all, not to alternative insurance options. The waiver’s marketplace exclusion provision, mirroring federal law, means non-compliance eliminates access to subsidized coverage. For expansion states, work requirement losses create coverage gaps and uncompensated care burdens. For South Carolina, losses eliminate the only coverage option people in the coverage gap ever had.
The hospital and provider community’s position is complicated. South Carolina’s hospitals have advocated for full Medicaid expansion for years, citing uncompensated care burdens that partial coverage would only marginally address. The South Carolina Hospital Association estimates that full expansion would reduce uncompensated care by hundreds of millions annually. Palmetto Pathways would cover a fraction of the coverage gap population for as long as they maintain compliance, providing limited relief. Hospitals face the prospect of work requirements creating coverage churn that increases administrative burden without proportional uncompensated care reduction.
South Carolina demonstrates what happens when work requirement philosophy supersedes coverage expansion goals. The state is building limited coverage around work requirements rather than building work requirements around coverage expansion. The distinction reveals that for some states, the requirement to work is more important than the outcome of coverage. Whether CMS approves a waiver conditioning coverage for the nation’s poorest adults on their ability to document 80 hours monthly of qualifying activity will determine whether South Carolina’s approach becomes a model other non-expansion states pursue or remains an outlier experiment in making coverage conditional for people who currently have none.