Series 14: State Implementation of Work Requirements
On January 21, 2025, Governor Henry McMaster sent a letter to Acting HHS Secretary Dorothy Fink requesting the reinstatement of South Carolina’s Healthy Connections Community Engagement Initiative. The letter was careful in its framing, describing the initiative as a mechanism to “strengthen the Medicaid program’s dual missions of financing health services and improving opportunities for independence, self-reliance, and prosperity.” What McMaster was asking for, stripped of its careful language, was permission to offer limited Medicaid coverage to some of the roughly 150,000 to 180,000 South Carolinians trapped in the coverage gap, but only if they could prove they were working 80 hours a month. South Carolina would extend healthcare to people who currently have none, but only to those who could document that they deserved it.
Five months later, on June 23, 2025, the South Carolina Department of Health and Human Services submitted the Palmetto Pathways to Independence waiver to CMS. The timing was notable: the submission arrived in the midst of congressional negotiations over the One Big Beautiful Bill Act, which was 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% of the federal poverty level as intended under the ACA. 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 among states implementing work requirements. 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.
The Coverage Gap as Policy Context#
South Carolina’s coverage gap is among the most consequential in the country. Approximately 150,000 to 180,000 adults 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% FPL. These are not people who have declined available coverage. They are people for whom no public coverage pathway exists.
The demographics of the coverage gap reflect South Carolina’s broader economic geography. Black South Carolinians, who comprise approximately 27% of the state population, are disproportionately represented due to concentration in low-wage industries without employer-sponsored insurance and in rural areas with limited employment options. The Pee Dee region in the northeastern interior and the rural Midlands face deep, persistent poverty. Coastal economies around Myrtle Beach, Charleston, and Hilton Head generate tourism employment that is seasonal and rarely includes health benefits. The Gullah Geechee communities along the coast carry distinct cultural heritage and distinct health vulnerabilities.
The state’s uninsured rate, approximately 11%, is among the highest nationally. Maternal mortality rates rank among the worst in the nation, with severe racial disparities. Rural hospital viability is precarious in interior counties where uncompensated care burdens grow each year that the coverage gap persists.
Full Medicaid expansion would cover an estimated 250,000 to 300,000 South Carolinians with the federal government paying 90% of costs. Governor McMaster has called expansion “a disaster” and rejected it consistently. The Palmetto Pathways waiver is the alternative: a carefully bounded, work-conditioned, partial coverage pathway that avoids the political label of Medicaid expansion while extending some coverage to some people who currently have none.
The Waiver Architecture#
The Palmetto Pathways to Independence waiver, as submitted in June 2025, targets a specific population: adults ages 19 through 64 who qualify as parent caretaker relatives with incomes between 67% and 100% of the federal poverty level (effectively 67% to 95% FPL with a 5% income disregard). This is not a general adult expansion. It covers parents of minor children in a narrow income band, excluding childless adults, excluding those below the current Medicaid eligibility threshold, and excluding those above 100% FPL who can access marketplace coverage.
The waiver requires 80 hours monthly of qualifying activities: employment, job training, education, community service, or approved combinations. Exemptions follow standard categories: pregnancy, disability, certain medical conditions, and caregiving for disabled dependents. The enforcement model draws from South Carolina’s TANF experience, which has historically featured strict sanctions, high documentation requirements, and limited support services.
The Department of Social Services, which administers both TANF and Medicaid eligibility, would handle verification through existing infrastructure. This TANF-Medicaid integration is central to the state’s design philosophy. South Carolina is not building new compliance systems for Palmetto Pathways. It is extending existing compliance systems, with their existing enforcement culture, to a new population.
The waiver has history. The original Palmetto Pathways to Independence demonstration was approved by CMS in December 2019 during the first Trump administration, along with a companion waiver called Healthy Connections Works that applied work requirements to parents and caretaker relatives already on Medicaid. The Biden administration withdrew the work requirement components of both waivers in August 2021. McMaster’s January 2025 letter and the June 2025 resubmission seek to restore what Biden withdrew, updated for the current policy environment.
What Palmetto Pathways Is Not#
The analytical importance of South Carolina’s approach lies as much in what it excludes as in what it covers.
Palmetto Pathways is not Medicaid expansion. It does not extend coverage to all adults up to 138% FPL. It covers a subset of parents in a narrow income band. Childless adults in the coverage gap, estimated at the majority of the 150,000 to 180,000 total, receive nothing. A 35-year-old childless adult earning $15,000 annually in Florence County remains uninsured regardless of whether the waiver is approved.
It is not a response to OBBBA. The federal work requirement mandate applies to expansion populations. South Carolina has no expansion population. If the state did nothing, its Medicaid program would be entirely unaffected by OBBBA’s work requirement provisions. The waiver is pursued on the state’s own initiative, under the state’s own policy preferences, with the state bearing the design choices and their consequences.
It is not cost-neutral for the state. Traditional Medicaid expansion at 90% federal match would cost South Carolina roughly 10 cents on each dollar of coverage. The Palmetto Pathways waiver, depending on CMS-negotiated terms, may carry different matching rates for the newly eligible population. The per capita expenditure projections in the waiver application assume costs consistent with CBO’s Medicaid expenditure trends, with 6% annual growth.
Understanding these boundaries is essential to evaluating Palmetto Pathways on its own terms rather than as a proxy for the expansion debate. McMaster has positioned the waiver as the responsible alternative to expansion, a state-specific solution that avoids what he views as Medicaid dependency. Critics argue it is a mechanism to appear to address the coverage gap while leaving the majority of uninsured South Carolinians exactly where they are.
The TANF Enforcement Template#
South Carolina’s TANF program provides the operational and cultural template for how Palmetto Pathways work requirements will likely function. The state’s TANF history features high sanction rates, with a significant share of recipients losing benefits for procedural noncompliance rather than genuine refusal to work. Documentation requirements are strict. Support services, including transportation assistance, childcare, and job training, are limited relative to the demands placed on recipients.
The TANF model assumes that most noncompliance reflects behavioral choices that sanctions can correct. The Medicaid research base, particularly from Arkansas in 2018, suggests a different reality: most coverage losses occur among people who are working or qualify for exemptions but cannot navigate the reporting system. Whether South Carolina’s enforcement approach, imported from TANF, produces TANF-style outcomes or Arkansas-style outcomes will depend on how much the state invests in member support versus how much it relies on existing sanction infrastructure.
Racial dynamics are unavoidable in this analysis. South Carolina’s TANF sanction patterns have shown racial disparities, with Black recipients receiving sanctions at higher rates. The Palmetto Pathways target population, concentrated in rural communities with large Black populations in the Pee Dee and Midlands regions, faces these dynamics in the context of coverage that currently does not exist. The population has nothing to lose in the literal sense, as they have no Medicaid coverage now. But the waiver creates a pathway that some will access and from which others will be excluded through processes that may replicate existing disparities.
The Rural Implementation Challenge#
South Carolina shares with Kentucky and Arkansas the fundamental challenge of implementing work requirements in regions where employment is structurally limited. The Pee Dee region, parts of the rural Midlands, and interior Lowcountry communities face conditions analogous to Appalachian Kentucky: limited employers, transportation barriers, healthcare access gaps, and economic stagnation that no individual compliance requirement can address.
The state’s economic geography creates a three-tier implementation landscape. The prosperous Upstate region around Greenville and Spartanburg, anchored by BMW’s manufacturing plant and its supplier network, offers genuine employment opportunity. Coastal resort economies from Myrtle Beach to Hilton Head generate service-sector employment that is seasonal and often benefits-poor but available. The rural interior, particularly the Pee Dee and portions of the Midlands, faces persistent poverty and job scarcity that make documentation of 80 monthly work hours a different proposition entirely.
Approximately 33% of South Carolina’s population lives in rural areas where the closest Workforce Development office may be a significant drive, where broadband access remains incomplete, and where the informal economy substitutes for formal employment in ways that leave no verification trail.
The Expansion That Dare Not Speak Its Name#
Palmetto Pathways occupies an unusual political space. It extends Medicaid coverage to people who do not currently have it, conditioned on work. If it were called “partial Medicaid expansion with work requirements,” it would face opposition from a Republican base that views any expansion as capitulation to the ACA. By framing it as a community engagement initiative that happens to provide coverage, McMaster maintains political positioning while delivering a policy that functionally, if narrowly, expands the Medicaid-covered population.
The OBBBA context adds an ironic dimension. States that expanded Medicaid must now impose work requirements on their expansion populations. South Carolina, by refusing to expand, avoided the mandate entirely but is voluntarily pursuing work-conditioned coverage for a subset of the population it declined to cover. The state’s reward for refusing expansion is the freedom to design a smaller, more restrictive coverage program without federal compulsion, while expansion states that covered millions are now forced to add compliance infrastructure they never sought.
Whether CMS approves the waiver depends on the current administration’s appetite for non-expansion work requirement demonstrations. The first Trump administration approved the original Palmetto Pathways in 2019. The second Trump administration has signaled support for work requirements broadly. Approval is likely but not certain, and the terms, particularly around matching rates and evaluation requirements, will shape whether the program is fiscally viable for the state.
South Carolina hospital systems, which have advocated for full expansion to reduce uncompensated care, view Palmetto Pathways with measured expectations. The waiver addresses a sliver of the coverage gap. It does not address the underlying uncompensated care burden that only full expansion would meaningfully reduce. Rural hospitals serving Pee Dee communities will see marginal improvement at best.
What South Carolina Will Demonstrate#
South Carolina will demonstrate whether work-conditioned partial expansion can function as a durable alternative to full Medicaid expansion, or whether the administrative costs and narrow coverage scope produce a program that is expensive to operate relative to its coverage reach.
The population served, parent caretaker relatives in a narrow income band who can document 80 hours of monthly activity, is both small and selected. Coverage gains will be modest compared to the 250,000 to 300,000 who would gain coverage under full expansion. The question is whether even this limited coverage survives contact with the documentation and verification requirements that produced 95% procedural disenrollment in Arkansas and zero net enrollment gain in Georgia’s Pathways program.
If Palmetto Pathways produces meaningful coverage gains for working parents in the 67 to 100% FPL range, it establishes a model for other non-expansion states seeking middle ground between full expansion and the status quo. If it produces minimal enrollment against significant administrative investment, it reinforces the argument that work-conditioned coverage in non-expansion states is a political solution to a coverage problem that has a simpler answer the state continues to refuse.