North Carolina's Medicaid program is facing a $319 million shortfall, state health officials have warned, causing them to slash the payments medical providers receive for serving people on Medicaid.
Providers say they these reductions, on top of other rising costs, are pushing them toward a "breaking point" where they can no longer afford to treat Medicaid patients. Medicaid already pays rates well below what private insurance pays.
Gov. Josh Stein called legislators back to Raleigh for a special session to address Medicaid funding this week. But Republican leaders of the House and Senate said their funding standoff does not amount to an "extraordinary occasion" and refused to convene the session.
This story provides a detailed look at how the standoff started and the impact it could have on the roughly 3.1 million North Carolinians who receive their health insurance through Medicaid.
No state budget, no Medicaid funding adjustment
Typically, additional Medicaid funding to account for variance in actual Medicaid spending is rolled into the state budget. With the House and Senate unable to come to an agreement on a new comprehensive budget so far, that money needs to come from a separate bill.
Medicaid budgeting relies on forecasting costs, as well as predicting how frequently people will use health services.
Costs themselves are unpredictable right now, with inflation still on the rise. And forecasting how people will use health care is difficult since people generally don’t choose to have a heart attack, or take a trip to the emergency room.
DHHS' first Medicaid budget projections were part of budget conversations, and included a request for $700 million additional dollars. In the months since then, DHHS says rising costs and how people actually use care mean it actually needs an additional $819 million.
Medicaid is funded by state and federal governments, with money going to health care providers to pay for services used by low-income individuals and families. The funding gap in question is part of the state's portion.
Over the summer, the General Assembly agreed to kick in an additional $500 million for Medicaid. But DHHS is saying that because of the remaining $319 million shortfall, it needs to cut how much doctors, health systems and other providers receive to treat Medicaid patients.
What is the rebase?
North Carolina splits the costs of Medicaid with the federal government. As the fiscal year progresses, health officials update their projections for how much the state will spend on the program and asks the General Assembly for that money.
This year, DHHS initially asked for an additional $700 million for Medicaid. By mid-July, that had been updated to $819 million.
North Carolina's Medicaid program cost a total of $27.8 billion in fiscal year 2024, with the federal government paying $18.8 billion. The state government's contribution was just under $5.5 billion, according to DHHS data. Taxes on doctors, hospitals, and other providers make up the remainder.
With the rebase adjustment the General Assembly has appropriated so far, DHHS is projecting that the state will spend roughly $6 billion this year. It's important to note that these are only projections, and the actual spending could vary depending on which services recipients use.
The rebase adjustment only pays for the roughly 2.4 million people in North Carolina's core Medicaid program — not the 675,000 people covered by North Carolina's Medicaid expansion. The expansion is entirely funded by the federal government and a tax assessed on hospitals.
But the provider reimbursement rate cuts impact all Medicaid recipients, whether they are in the expansion population or the core Medicaid population.
What has the General Assembly done?
In the mini-budget passed in July (House Bill 125), the General Assembly appropriated $600 million to the state's Medicaid program.
DHHS used $100 million to address contracts that are used to manage Medicaid in North Carolina.
The agency used the other $500 million to address the rebase shortfall.
Still, that left a gap of $319 million between what DHHS has said it needs and what the General Assembly has appropriated.
In September, both the House and Senate passed their own bills funding about $190 million of the remaining request from DHHS.
Neither the House nor the Senate took up the other chamber's legislation due to a separate disagreement between the bodies. That dispute revolves around funding for a proposed UNC Health and Duke University Health System children's hospital in Wake County and NC Care, a collaboration between UNC Health and East Carolina University that would lead to three rural health clinics.
The Senate legislation (House Bill 562) included that funding. The House Bill (Senate Bill 403) did not.
In October, the House once again tried to pass legislation funding Medicaid, even though the adjournment resolution between the two chambers limited the terms of what could be considered during that session.
The House passed a bill (Senate Bill 405) that provided an additional $190 million for the Medicaid rebase, while also allocating about $85 million to manage the state's Medicaid managed care program. And it passed another bill (House Bill 491) which would have drawn $190 million from the Medicaid Contingency Reserve to fund the program.
The Senate refused to consider both bills the House passed in October, as well as legislation amending the adjournment resolution.
Senate Rules Chairman Bill Rabon, R-Brunswick, said that rather than passing new bills in October, the House could have agreed to bills the Senate had already sent it in September. Under the agreement between chambers, those bills were eligible for votes when legislators met in October.
"Such gamesmanship is not a serious effort to solve the issues facing our state and should be viewed as such," Rabon wrote in a statement.
Why is a children's hospital part of the Medicaid funding debate?
When the Senate proposed its budget earlier this year, it appropriated funding for both the children's hospital and NC Care. In ensuing months, the Senate has maintained that the funding represents the third year of a planned drawdown of American Rescue Act funds that the House agreed to as part of the 2023 state budget process.
The House, however, did not include the funding in its own budget proposals. And it has rebuffed any efforts to attach the children's hospital funding to separate legislative efforts.
"The children's hospital project is not going to receive any support over here until and unless we have a comprehensive budget deal. And that doesn't mean that we're just simply going to do what's already been in prior bills or what prior plans were. It needs a close look to determine the feasibility of that project, what the demand is, what the need is," Speaker of the House Destin Hall, R-Caldwell, told reporters in October.
As Medicaid funding conversations seemed set to run aground in September. Senate Leader Phil Berger was asked what he would say to people frustrated that the rebase deal hadn't come to fruition.
"Ask the House why they changed their position on the other matters that are in there. They have previously agreed to do those things," Senate leader Phil Berger, R-Rockingham, told reporters.
For his part, Stein said earlier in November that he supports the Senate position that the projects should be funded but takes the House side that it should be separate from the increased Medicaid funding.
"This is not the time or place to fight that fight. That fight should stay in the overall budget negotiations. It is time to fund Medicaid because if they fail to do so, people are suffering and it is unacceptable," Stein said.
How is DHHS trying to save money?
On October 1, state health officials slashed the reimbursements medical providers receive for providing services to Medicaid recipients.
Virtually every kind of provider received a reduction of at least 3%, while DHHS decreased some payments like ambulatory surgical centers, behavioral health therapy for people who have been diagnosed with autism spectrum disorders and hospital care by 10%.
While DHHS had warned for months that the cuts were coming, it still represented an escalation.
DHHS Secretary Dev Sangvai's stance has been that the department can't remain on a path to spend money that hasn't been budgeted for it.
"We cannot spend money we don't have. We've often used the phrase, 'We can't put these costs on a credit card.' So we're $319 million short to be able to meet our Medicaid obligation for this year," Sangvai told reporters on November 5.
During an October 14 meeting of the Joint Legislative Oversight Committee on Medicaid, Rep. Donna McDowell White, R-Johnston, called the cuts "shocking" and "hurtful." White said she was particularly worried about people with intellectual and developmental disabilities or people who are aging.
"When we look at all of those services possibly being — definitely being — reduced, possibly being shut down and then we've got to start over again, I cannot imagine that we could not have a little bit of patience to work on something and continue to work on something that we have all been working on for many months and had a plan that we thought was moving forward," White said.
Republican legislators insist the provider reimbursement cuts are unnecessary, arguing there is enough funding to provide full reimbursements until next spring.
That should, they say, give the General Assembly plenty of time to resolve any funding shortfall.
"There is adequate money in Medicaid for them to move forward without making the cuts that they're making. I think they got themselves caught with trying to leverage the threat of cuts and when that didn't work they've got themselves in a bind and are really having to struggle with it," Berger told reporters in October.
How could the cuts impact care for Medicaid recipients?
Democrats and Republicans agree that if the lower reimbursement rates remain in place, some providers will stop seeing Medicaid recipients.
"People are going to be without care. There are doctors who can no longer provide to serve patients on Medicaid. There are going to be entire healthcare systems and programs that cease to be available to people who are in desperate need," Stein said on November 5.
During that same press conference, Sangvai said "a handful" of large practices and large providers have given dates certain to North Carolina Medicaid officials, saying they will no longer see recipients due to the reduced rates.
Sangvai said some of those dates are at the end of November.
"There's a domino effect with that," Sangvai said. "If it's a specialty practice, for example, and you're a primary care provider, it's going to impact your ability to deliver care, even if you're still seeing Medicaid, because you don't have access to specialists in Medicaid."
Why isn't the Medicaid special session happening?
On November 13, Berger and Hall sent Stein a letter saying the special session would not convene because it represented an unconstitutional attempt by the governor to set the legislative calendar.
Berger and Hall also told Stein that the Medicaid funding debate is not an "extraordinary circumstance" that is required for North Carolina's governor to call a special session. That's because, they wrote, the pressure on Medicaid is being caused by DHHS' decision to cut provider reimbursement rates.
"To that end, if circumstances surrounding the Medicaid rebase are in fact extraordinary, it is only in the context of your administration's failure to address them," the legislative leaders wrote.
Stein responded by writing that the legislature has time to meet to redistrict to give Republicans an advantage in an 11th U.S. Congress seat but not to provide needed funding for Medicaid.
"NCDHHS can't put health care costs on a credit card. The longer the General Assembly refuses to fund our Medicaid program, the more they erode our health care system," Stein wrote.
