As N.C. House and Senate Republican budget negotiators struggle to reach an overall compromise on the delayed 2025-26 state budget, state health officials prepare to implement up to $319 million in Medicaid funding cuts.
The funding reductions — prompted by passage of the controversial “One Big Beautiful Bill” by Congress — will take effect on Oct. 1.
However, it’s unclear whether Republican House and Senate leadership will take up potential legislation to address the funding gap during a second extra legislative session set to begin Monday and last through Thursday.
Instead, the focus is expected to be on a planned wide-ranging public-safety bill in response to the fatal attack of Ukrainian refugee Iryna Zarutska on a Charlotte passenger rail line.
The issue at hand is what is known as the Medicaid rebase: the funding required to both maintain current services and payment rates to providers caring for Medicaid-eligible patients.
About 3 million North Carolinians benefit from Medicaid services, including 680,085 expansion enrollees as of Sept 2. The goal set for Medicaid expansion enrollees was 600,000.
The most recent estimate is the need for a $919 million Medicaid rebase, of which the legislature provided $600 million in House Bill 125, the primary “mini-budget” bill passed in response to the state budget bill delay.
“We have been working in conference on it, and the House will file a mini budget bill to freeze the rates while monitoring month-to-month results through the (2026) short session,” said Rep. Donny Lambeth, R-Forsyth, and the lead House budget writer.
“We plan to add $174 million to help with the growth in demand.”
Lambeth said, “At this point, the feedback from the Senate is unclear if they will take it up.”
“The alternative is for the governor to hold off on the reductions and continue to work with the General Assembly on a better solution.”
Governor’s response
Stein weighed in Thursday via a letter sent to House and Senate Democratic and Republican legislative leaders.
Stein urged them to pass a 2025-26 state budget that invests in public safety, raises pay for teachers and state employees, and funds health care for North Carolinians.
North Carolina is one of two states that have entered their fiscal year without a budget.
“North Carolina is also on the clock to fully fund Medicaid,” Stein wrote.
“I am committed to working with the General Assembly to find a solution that keeps the program running so that North Carolinians do not lose their health care,”
Stein said that although DHHS said $319 million is required to fund Medicaid fully, “we understand that General Assembly staff believe the amount needed is closer to $190 million.”
“I am willing to compromise at $190 million with a commitment to reevaluate in January, where expenditures are trending six months into the fiscal year.
“At that point in time, we can work together to determine if the funding is sufficient, additional funding is needed, or provider cuts will need to be implemented.”
Potential cuts
Without the additional $300 million in funding for 2025-26, the N.C. Department of Health and Human Services projects the following cuts:
All Medicaid providers will face a minimum 3% reduction in reimbursement rates.
Some services — including physicians, hospice care, behavioral health, long-term care and nursing home services — are seeing steeper cuts of 8% and 10%. “These reductions may cause some providers to stop accepting Medicaid patients, as the lowered rates could make it financially unsustainable to continue offering care,” DHHS said.
The state Medicaid program would halt coverage of GLP-1 prescriptions for weight loss. Medicaid recipients became eligible in August 2024 for coverage of Food and Drug Administration-approved obesity management medications. Eligible for those medications are those ages 12 and older enrolled in either NC Medicaid Direct or NC Medicaid Managed Care, according to DHHS. They are covered under the program’s Outpatient Pharmacy benefit. Covered medications include drugs from manufacturers enrolled in the Medicaid Drug Rebate program, which are covered for the FDA-approved indication of treating obesity.
End of financial funding for the Integrated Care for Kids pilot program.
State Health Secretary Dr. Dev Sangvai addressed the funding gap, saying, “Underfunding NC Medicaid now after years of building a nationally recognized program that delivers real outcomes for the people we serve is a serious setback.”
“The forced cuts from the budget shortfall threaten care for those who need it most and include some of North Carolina’s most vulnerable populations.
“Over time, the combination of underfunding, the loss of key initiatives like the Healthy Opportunities Pilots, and administrative budget shortfalls risks a fundamental erosion of the NC Medicaid program.”
Advocacy appeals
That lack of urgency has prompted a coalition of 15 N.C. healthcare advocacy groups to express their concerns in a letter last week to Sangvai.
“We are deeply concerned at the timing and the estimated overall impact of these planned cuts, which, combined with the projected loss of federal matching funds, will total in the hundreds of millions of dollars for just the current state fiscal year,” according to the letter.
Among the coalition members are N.C. Healthcare Association, N.C. Academy of Family Physicians, N.C. College of Emergency Physicians, N.C. Health Care Facilities Association, N.C. Medical Society, N.C. Nurses Association and N.C. Senior Living Association.
“Additional federal reductions scheduled to begin phasing in within the next year as a result of the One Big Beautiful Bill add to long-term planning disruptions and anxiety to honoring our shared commitment to ensuring access to quality care across North Carolina,” according to the coalition.
“We strongly urge you not to implement the planned cuts, and to allow for more time and effort for the department and General Assembly to reach an agreement on a sustainable path forward.”
The coalition urges DHHS and the legislative Fiscal Research Division to work together “to develop a consensus forecasting model to determine present and future rebase needs.”
“A more uniform modeling approach should help remove any unintentional and unnecessary barriers to the development of a trusted and reliable Medicaid rebase number moving forward.”
Lambeth said his goal is to develop a long-term solution to the Medicaid rebase financing challenge.
“We must reevaluate the runaway cost of Medicaid that is increasing four times higher than inflation,” Lambeth said. “This is just not sustainable, and our work is ongoing to fix this longer term.”
Other factors
State legislative analysts say another factor is House and Senate negotiations over funding levels for a planned children’s hospital in Apex.
According to Raleigh TV station WRAL, about $216 million in taxpayer funds has been spent, and another $639 million is under consideration through June 30, 2027.
It is also uncertain whether the House will hold override votes on six vetoes from Gov. Josh Stein held over from the August extra session.
Political analysts have said the postponements likely signal House Speaker Destin Hall, R-Caldwell, lacks the support of at least one House Democrat supporter, or confidence in the absence of enough Democrats at a voting session for Republicans to have at least a three-fifths majority present.
Those bills are: Senate Bill 50, titled “Freedom to Carry NC;” Senate Bill 153, titled “N.C. Border Protection Act;” Senate Bill 227, titled “Eliminating DEI in Public Education;” and Senate Bill 558, titled “Eliminating DEI in Higher Education.
House Bill 171, titled “Equality in State Agencies/Prohibition on Diversity, Equity and Inclusion,” has not been taken up so far by the House. HB171 would eliminate state diversity, equality and inclusion initiatives in public K-12 schools, higher education and local and state governments.
The House also placed on the Sept. 22 floor calendar a potential veto override vote of Stein’s Aug. 5 veto of House Bill 87 that promotes a federal scholarship donation tax credit program.
rcraver@wsjournal.com
336-727-7376
@rcraverWSJ
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