Introduction
North Carolina’s Medicaid program is facing a critical financial crossroads. As sweeping new federal rules tied to the One Big Beautiful Bill Act (OBBBA) take effect, state Medicaid leaders are racing to identify a viable funding strategy — all while the state remains the only one in the nation without an approved budget. With a January 2027 compliance deadline approaching, officials warn that legislative action must happen before the end of March 2025 to avoid putting coverage for nearly 3 million residents at risk.
The Federal Mandate Driving Change
Signed into law by President Donald Trump last summer, the OBBBA represents one of the most significant overhauls to federal Medicaid policy in decades. The law is projected to reduce Medicaid spending by nearly $900 billion over ten years. Key provisions include mandatory work engagement requirements, stricter eligibility redeterminations, and tighter limits on retroactive Medicaid coverage — a mechanism frequently used by hospitals to offset costs for uninsured patients.
Beginning January 1, 2027, most Medicaid participants must demonstrate they are working, volunteering, or enrolled in school for at least 80 hours per month to maintain their benefits. For North Carolina, this change most directly affects the more than 700,000 residents who gained coverage through the state’s 2023 Medicaid expansion.
New Requirements, New Administrative Costs
Melanie Bush, assistant secretary for NC Medicaid, presented a detailed breakdown of the program’s administrative funding challenge to the state legislature’s oversight committee earlier this month. The core problem, she explained, is not whether the infrastructure exists to comply — much of it is already in place — but how to pay for the expanded administrative workload.
Among the most significant cost drivers is a shift from annual to semi-annual eligibility redeterminations for expansion enrollees. This change will double the workload for county social services departments already managing a heavy caseload, requiring additional staff, updated systems, and new vendor contracts.
NC DHHS estimates that an additional $7.8 million per quarter will be needed to support county eligibility determination functions. The federal government has provided $1.9 million toward implementing work requirements, but the state still faces an estimated $6.5 million in startup costs and $3.3 million per quarter in ongoing administrative expenses. Costs are also expected to rise for income verification services through Equifax, which will now be needed twice annually for 700,000 Medicaid expansion enrollees rather than once.
Current state law “hard codes” administrative funding at $7.6 million per quarter for county eligibility workers and $3.3 million per quarter for state-level costs — amounts calibrated for annual redeterminations that are no longer sufficient.
Three Financing Options on the Table
NC DHHS, working alongside the North Carolina Healthcare Association and legislative staff, has identified three potential financing approaches — all requiring legislative approval.
The first option restructures how public hospitals contribute to Medicaid expansion funding through intergovernmental transfers. This approach would free up capacity under the new federal cap on provider taxes and allow hospitals to help finance the added administrative costs without increasing state general fund spending.
The second option redirects a larger share of insurance premium tax revenue from Medicaid managed care companies. Currently, 60% of that revenue supports expansion. Updated data suggests this share could rise to approximately 73%, shifting funds that are already in the system away from the general fund and toward Medicaid administration.
The third option would formally appropriate savings that Medicaid expansion has generated for other state agencies — including those overseeing behavioral health and corrections — back to NC Medicaid. This approach has not previously been used, and the savings have accumulated across various state departments without being redirected.
Bush indicated that the final solution may blend elements of all three options rather than relying on a single mechanism.
A Tight Legislative Timeline
State health officials have made clear that speed is essential. Systems must be developed and tested, counties must be trained, and Medicaid members must be notified well in advance of the January 2027 deadline for work requirements to take effect. Bush told lawmakers that two statutory changes are required: adjusting the administrative funding amounts fixed in law and authorizing one or more of the proposed financing mechanisms.
She indicated the deadline for this legislative action is the end of March — a challenging timeline given that North Carolina lawmakers are not expected to return to Raleigh until later in the spring following party primaries on March 3. The oversight committee has already canceled its February meeting, with its next session not scheduled until March 10.
Rep. Donny Lambeth (R-Winston-Salem), co-chair of the oversight committee, acknowledged the urgency while noting the uncertainty around the legislative calendar. He expressed support for hospital-focused financing strategies but indicated that a blended approach may ultimately be required to keep both hospitals and the general fund unaffected.
What Comes Next for NC Medicaid
The stakes are high. North Carolina has already invested significantly in the infrastructure needed to comply with federal Medicaid changes, but without a financing mechanism, that preparation cannot be fully utilized. If the General Assembly fails to act in time, the state risks falling behind on federal compliance, jeopardizing coverage for hundreds of thousands of residents who enrolled through the state’s Medicaid expansion.
State health officials continue to urge lawmakers to treat this as a matter of urgency, even as the broader state budget debate remains unresolved. The coming weeks will be decisive in determining whether North Carolina can meet its federal Medicaid obligations on time.
