The North Carolina House of Representatives approved a budget plan on May 22 for the next two fiscal years that would cut some vacant positions in the health department, loosen child care regulations and eliminate Medicaid coverage of GLP-1 drugs, such as Ozempic, for weight loss.
The House’s budget plan came about a month after the N.C. Senate released theirs. Both the House and Senate spending plans increase rates for child care subsidies so that low income families with children can work, and they cut funding to a Medicaid pilot program that has drawn national attention and praise.
The House’s plan would spend far less than the Senate’s on a new children’s hospital.
The two chambers of the General Assembly also have plans that differ on taxes; the Senate’s plan would reduce the income tax rate for North Carolinians from 4.25 percent to 3.99 in 2026 and 3.49 percent in 2027. That would mean overriding rules set in place to restrict tax cuts based on revenue levels. Meanwhile, the House’s plan would keep the planned reduction to 3.99 percent in 2026 but raise the threshold for approving continued tax cuts after that.
For a single North Carolinian making $40,000 in 2026, that tax cut will save them less than $100 compared with 2025. A North Carolinian making $200,000 in 2026 will save close to $500.
The chambers will have to hash out their different visions for state spending over the next few weeks, a process that usually takes place behind closed doors. The budget is due by June 30, the end of the fiscal year, but lawmakers often miss that target. A change to state law made in the 2018 budget means that after the new fiscal year starts, the prior year’s numbers apply to state spending until a new plan is ratified.
The almost 1,200-page House spending plan calls for allocating about $32.6 billion in the coming fiscal year and almost $33.3 billion in the next — the same top-level numbers as the Senate’s proposal. Part of that spending will go to replenishing the state’s “rainy day” reserve fund.
Rep. Donny Lambeth (R-Winston Salem) said during a news conference on May 19 that the uncertainty around federal funding streams made it “a challenge” to figure out the Department of Health and Human Services section of the state budget.
The U.S. House of Representatives passed a reconciliation bill on May 22 that cuts roughly $700 billion in Medicaid over a decade. While hefty, the proposed cuts aren’t as bad as some anticipated, Lambeth said. If a federal budget does get passed soon, state lawmakers will have to figure out how to deal with any reductions, he said.
North Carolina House Republicans said the chamber’s budget process was transparent and involved feedback from stakeholders and House Democrats to create a plan that involves “historic” increases for public school teachers. But Rep. Marcia Morey (D-Durham) said at a news conference on May 20 that the plan “robs from Peter to pay Paul” by cutting vacant positions to achieve savings.
Under the House’s plan, most state employees would receive a 2.5 percent average salary increase. It would also bump the state base pay for starting public school teachers from $41,000 to $48,000 this year and $50,000 next year. Over the next two years, the average teacher salary increase would work out to 8.7 percent, Rep. Erin Paré (R-Holly Springs) claimed at the news conference. Newer teachers would get much larger percentage increases than more experienced teachers, according to state budget documents.
New children’s hospital
The House’s spending plan cuts more than $100 million in state funding to the planned partnership between the UNC and Duke health systems to build a freestanding children’s hospital. That could be a sticking point with the Senate, whose plan directed an additional $638 million to the project, which is slated to cost upwards of $2 billion.
Lambeth said he supports having a children’s hospital in North Carolina so families with very sick children don’t have to go out of state for care. For families whose children need hospital care for months on end, the new facility would be “a game changer,” he said.
But there’s an “information deficit,” Lambeth said. The project organizers need to do a better job explaining the economic benefits to state lawmakers, especially since there’s less money to go around this year, he said.
Healthy Opportunities on the chopping block
The House and Senate spending plans both effectively cut funding for the Healthy Opportunities Program, a Medicaid pilot project that provides services to people in three rural areas of the state. Since its launch in 2022, the program has provided assistance to nearly 30,000 people and drawn national interest.
Beneficiaries are eligible for deliveries of food, rides to doctor’s appointments and other services designed to combat social, economic and geographic issues that contribute to poor health outcomes and increased cost.
An independent evaluation shows the pilots have driven down the cost of health care by as much as $1,020 each year for each Medicaid beneficiary who’s participating in the pilot — largely by preventing those people from getting sicker or from using more expensive kinds of care.
Lambeth said the concept of Healthy Opportunities is “really good.” But he hasn’t seen compelling evidence of the cost savings the program promises to create.
Rep. Eric Ager (D-Fairview) said during the initial House budget vote on May 21 that Healthy Opportunities has had “a huge impact” on his district in Buncombe County.
“If people can live in a safe house and get good food and have a car to go to work…they do the things they need to do before they get really sick,” he said.
Rep. Rodney Pierce (D-Roanoke Rapids) also spoke in favor of the program, noting how it was the first of its kind in the country. In his district, the program gave people access to fresh fruits and vegetables, he said. (One out of four children is food insecure in northeastern N.C.)
Failing to invest in Healthy Opportunities and eliminating Medicaid coverage for weight-loss medications such as GLP-1 drugs “will raise long-term healthcare costs and lead to more hospitalizations, complications, and preventable deaths,” a DHHS spokesperson said.
Medicaid rebase
Medicaid, the state- and federally funded program that provides health care services for more than 3 million North Carolinians, has costs that fluctuate each year based on the number of beneficiaries and the cost of their care. The state health department creates an annual forecast of how costs might change and asks the legislature for funding adjustments based on those predictions — known as the “rebase.”
The budget presented last month by Gov. Josh Stein funded that rebase to the tune of $700 million. But the House and Senate spending plans allot only $500 million for the rebase.
According to a DHHS spokesperson, the House budget falls short of what’s needed for the rebase.
“There is a disagreement between central staff at the General Assembly and the governor’s office as to what is rebase and what’s included,” budget crafter Sen. Ralph Hise (R-Spruce Pine) argued.
Other Medicaid tweaks
The House’s budget proposal also eliminates the Medicaid Contingency Reserve, a pot of money set aside for times when the Medicaid program needs less or more money than expected. The budget would transfer the roughly $970 million currently in the reserve to the State Emergency Response and Disaster Relief Fund.
Lambeth said budget writers decided to consolidate some of the reserves to replenish the savings and disaster relief funds.
Rep. Tracy Clark (D-Greensboro) argued during the initial House budget vote on May 21 that the state should keep those funds in place, given the uncertainty of federal funding for Medicaid. The program covers four of every 10 births in the U.S., she said, among other vital functions.
The reserve reassures beneficiaries, providers, health plans and vendors that there is a financial safety net, a DHHS spokesperson said. There are “significant concerns” with zeroing out the fund with uncertainty around federal Medicaid funding, potentially underfunding the Medicaid rebase at the state level and the ongoing Helene recovery process, the spokesperson also said.
“Considering the complex and dynamic factors at play, there is a greater possibility in the next biennium of needing access to the Contingency Reserve to support programs,” the spokesperson wrote.
The House budget proposal would also cut roughly $20 million each year in state dollars for the state-authorized regional mental health services management organizations, known as LME-MCOs. The Senate plan proposed larger cuts.
LME-MCOs use these funds for services to help uninsured and underinsured people with mental health, substance use and intellectual and developmental disabilities, among other needs, according to DHHS. The funds also support mental health crisis services for people without a way to pay for care.
Rep. Sarah Crawford (D-Raleigh) said on the House floor during the budget debate on May 22 that the cuts would hurt the organizations’ ability to provide those services. Some of those dollars support people with services while they wait to get off the decade-long waitlist for N.C. Innovations, a Medicaid program that connects direct support professionals to residents who are unable to live independently without this type of assistance.
Vacant position cuts
The House’s spending plan would also require the state health department to cut enough vacant positions to save $10 million each year from 2025 to 2027— but not cut positions from the Division of Aging, Division of Public Health or the Division of State-Operated Health Care Facilities, which manages the state’s psychiatric facilities.
The lapsed salary money from cut vacancies would be redirected to a pot of money where the funds can be used to increase existing employees’ salaries to improve recruitment and retention.
Lambeth said DHHS asked for more flexibility with salary money. The department was also using some of the lapsed salary money to pay for other programs, so the budget would help make sure personnel money is going where it should, he said.
The DHHS spokesperson said while there is some flexibility in the measure, it’s still a challenge, especially as federal-level cuts are also eliminating some positions.
The state-operated health care facilities have struggled to recruit health care staff, but managers of those facilities have tended to use money from the unpaid salaries to fill in the gaps by hiring contract workers, who are often more expensive than state employees.
Charles Owens, a health care technician at state-operated Cherry Hospital, said the facility is short-staffed and people often work overtime. Public workers such as himself aren’t taken care of by legislators, he said.
Child care changes
The House budget would also use federal block grant funds to increase child care subsidy reimbursement rates. Child care subsidies help eligible low-income families pay for child care so parents can go to work.
This money would increase the rates to what’s recommended in a market rate study conducted by NC DHHS in 2023.
The rate increase is much needed, because inflation and labor costs have put more and more pressure on child care providers in the past couple of years, said Charles Hodges, director of the NC Licensed Child Care Association. Costs have kept going up since the 2023 study was completed, he said.
Parents receiving the subsidy are currently required to pay 10 percent of their income for child care. This bill would decrease that cost sharing to only 7 percent.
The budget plan also contains language from House Bill 412, which passed the House on April 15. One provision directs NC DHHS to propose a plan to decouple the child care subsidy payments from the state’s system for rating the quality of child care facilities.
Currently, licensed child care centers are rated from one to five stars using a point system based on program and education standards. Child care subsidy funds help eligible families afford child care programs that have earned three or more stars, along with religiously sponsored programs that meet health and safety standards.
The bill would also allow a lead teacher, or someone who’s more highly qualified, to oversee two groups instead of one. Another provision would increase the maximum group size for 0- to 12-month-olds from 10 to 15 children, and for 12- to 24-month-olds from 12 to 18 children. The staff ratio would remain the same.
Hodges said that increased flexibility will ease some of the pressure on providers.
Aging health
The House budget bill also includes language from House Bill 485, which passed the House April 16. The measure would direct NC DHHS to ask the Centers for Medicare and Medicaid Services to extend Medicaid eligibility to cover personal care services for eligible residents of adult care homes, or assisted living facilities. Personal care services include help with daily activities like bathing, eating and dressing.
Currently, people must be under a certain income limit to qualify for Medicaid to cover personal care services, but that income level was flat from 2008 to 2022 with only small increases since, said Jeff Horton, executive director of the NC Senior Living Association, an advocacy organization for adult and care homes. One of his members said they turn away three to four families a month who are just over the limit.
If made law, this provision would allow more people to access Medicaid for those services and therefore allow assisted living facilities to take in more people, Horton said.
The House budget would also fund four more regional long-term care ombudsmen, or advocates for residents of long-term care facilities like nursing homes. Aging advocates had been hoping for 10 new ombudsmen, but four “is a very good start,” said Mary Bethel, chair of the board of directors for the North Carolina Coalition on Aging.
The federal funding for the ombudsman program is at risk, she said. Ombudsmen can help resolve conflicts between residents and facilities before they have to go to state regulators.
The House budget did not cut state funding for the Senior Health Insurance Information Program, which the Senate plan had proposed. The program provides free, unbiased Medicare counseling for older adults in the state and is heavily used by seniors during the annual Medicare enrollment period.
The program is essential for Medicare beneficiaries in the state, Bethel said. Federal funding for this program is at risk, so to lose state funding as well would be “devastating,” she said.
Other items
- Reorganizes the Office of Health Equity into the Division of Public Health. The office works on the elimination of health disparities and the improvement of health access issues.
- Includes language from House Bill 434, which passed April 30, that would restrict health insurers’ use of the prior authorization process, where insurance companies require patients and doctors to follow specific and sometimes lengthy procedures before they’ll approve some treatments, tests or doctor visits.
- Includes language from House Bill 297, which passed May 7, that would require insurance companies to expand covered screenings for breast cancer, including mammograms and other imaging.
- Increases Medicaid reimbursement rates by 3 percent for providers, including speech-language therapy services, optical and optometry services, podiatry services, clinical pharmacists, nurse midwives and chiropractic services.
This article first appeared on North Carolina Health News and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
