On April 30, 2026, North Carolina Governor Josh Stein signed legislation that includes Medicaid policy changes and closes an estimated $319 million shortfall in funding for the state’s Medicaid program for FY 2026. Many of the legislation’s Medicaid policy changes are related to implementation of the 2025 federal reconciliation law. The 2025 reconciliation law requires states to condition Medicaid eligibility for adults in the Affordable Care Act (ACA) Medicaid expansion group and enrollees in partial expansion waiver programs (Georgia and Wisconsin) on meeting work requirements starting January 1, 2027. The 2025 reconciliation law also limits states’ ability to raise the state share of Medicaid spending through provider taxes, restricts state-directed payments (SDPs) to hospitals, nursing facilities, and other providers, and increases barriers to enrolling in and renewing Medicaid coverage. As states are preparing to implement the reconciliation law provisions, many states are facing more tenuous budget situations with slowing revenue growth and broader reductions in federal funding.
This policy watch examines the current budget context in North Carolina, the state’s recently passed legislation, the state’s Medicaid Advisory Committee (MAC) meetings, and data from KFF’s Medicaid work requirements tracker to provide initial insight into how North Carolina is preparing to implement certain Medicaid provisions of the 2025 reconciliation law and how other policy changes may affect coverage and access to care. While some of the issues North Carolina is facing are unique to that state, others are likely to be faced by other states as they implement federal changes to Medicaid in the midst of other fiscal challenges.
What is the budgetary context as North Carolina prepares to implement the 2025 reconciliation law’s provisions?
North Carolina is facing a more tenuous fiscal climate like in other states, and state legislators have not yet enacted a comprehensive state budget for the FY 2025-27 biennium. In the past year, revenue volatility and rising costs have led to slowing state revenue growth following a period of record-breaking revenue and expenditure growth for states after the initial pandemic-induced economic downturn. In North Carolina, scheduled tax cuts have been projected to drive declines in state revenue, and debates over whether to proceed with the cuts have contributed to a budget stalemate in the legislature.
In August 2025, Governor Stein signed a stopgap funding bill that appropriated $600 million from the state general fund for Medicaid, but it left a $319 million shortfall for FY 2026 in funding for the cost of services for non-expansion (traditional) enrollees. The shortfall and budget stalemate led to rate cuts and the elimination of GLP-1 coverage, both of which were eventually restored. The Medicaid agency ceased “Healthy Opportunities Pilots” program services in FY 2026 due to a lack of appropriations. The pilots covered certain non-medical services that target social needs, including housing, nutrition, transportation, and interpersonal relationship supports to specific and limited enrollees, and evaluations of the “Healthy Opportunity Pilots” 1115 waiver showed lower costs over time and largely positive outcomes. The Medicaid agency also implemented changes to reduce administrative expenses, including reducing temporary staff and contractors, ending certain contracts, pausing quality improvement projects, and scaling back compliance and quality oversight activities. The legislation signed in April 2026 appropriated $319 million to close the shortfall for FY 2026 and made changes aimed at addressing financing pressures associated with new federal limits on provider taxes, which the state uses to help finance its Medicaid expansion and hospital state directed payment program (which increases payment rates for hospitals).
What are some of the Medicaid policy changes included in North Carolina’s recent legislation?
Eligibility and Cost Sharing
North Carolina’s new legislation includes more restrictive standards for how the state will implement work requirements than is required in current law. At a minimum, the 2025 reconciliation law requires states to look back one month immediately preceding the application month and one month between renewal periods to confirm compliance with the requirements. North Carolina’s legislation requires the state to confirm compliance for the three months preceding the application month. At renewal, the state must confirm compliance for at least three of the six months since the last determination of eligibility. The North Carolina legislation also prohibits the acceptance of self-attestation as the only evidence in verification of eligibility requirements (unless required by federal law or regulation, or pursuant to a court order). States await guidance from CMS as to whether self-attestation of medical frailty, parent/caretaker status, or other exemptions or work status can be accepted, but most states report plans to accept self-attestation if allowed.
The legislation increases the frequency of data checks to identify changes in circumstances for Medicaid enrollees from quarterly to monthly. The state will review information on earned and unearned income, employment status and changes in employment, residency status, enrollment status for other public assistance programs administered by the state and outside of the state, financial resources, incarceration status, and lottery and gambling winnings. States are required to follow up on reported changes that potentially affect eligibility and give individuals an opportunity to respond before taking adverse action. In North Carolina, when data indicates an individual is no longer eligible, enrollees only have 10 days in advance of case closure to submit documentation verifying ongoing eligibility. Increasing the frequency of periodic data checks with insufficient response times can lead to procedural disenrollments and exacerbate churn.
The Medicaid agency will be required to set Medicaid copayments at the highest allowable amounts for both traditional Medicaid enrollees and ACA expansion enrollees. Current federal rules limit cost sharing in Medicaid because of enrollees’ low income and limited ability to pay out of pocket costs. The maximum allowable cost sharing varies by type of service and enrollee income. North Carolina has set current cost sharing amounts, regardless of enrollee income, at $4 per service. Starting July 1, 2027, the legislation requires the Medicaid agency to increase current cost sharing amounts for services where the maximum allowable amount is more than $4 and to increase cost sharing for ACA expansion adults with income 100-138% FPL to up to 10% of the cost of the service, except for prescription drugs and non-emergency use of the emergency department. Beginning in October 2028, when states are required to implement mandatory cost sharing of up to $35 per service for ACA expansion adults with income between 100%-138% FPL, the state will be required to set cost sharing amounts at $35 per service, except for prescription drugs, for all non-exempt services for this group.
The legislative text implementing the changes to Medicaid eligibility for certain lawfully residing immigrants effectively ends the state’s long-standing optional Medicaid coverage for lawfully residing children and pregnant immigrants without a five-year waiting period. The law limits Medicaid coverage for immigrants to coverage that is required under federal law. However, North Carolina is one of 40 states that have taken up the option to extend Medicaid and/or CHIP coverage to children and/or pregnant adults who are lawfully residing and waive the five-year wait for these groups. The 2025 reconciliation law imposed additional eligibility restrictions for many lawfully present immigrants but allows states to maintain the option to cover lawfully residing children and pregnant adults. By limiting coverage for immigrants to only what is required by federal law, the state law effectively ends this optional coverage as of October 1, 2026. In a recent Medicaid Advisory Committee (MAC) meeting, the Medicaid agency indicated it was working with the legislature to make “corrections” and restore coverage for these populations.
The legislation requires the Medicaid agency to report certain Medicaid applicants and enrollees for whom it cannot verify citizenship or “satisfactory” immigration status to the Department of Homeland Security. These include applicants and enrollees who, after a reasonable opportunity period, have not verified satisfactory immigration status or whose final verification indicates that they do not have a satisfactory immigration status and are not lawfully present. This group would include those found ineligible based on immigration status and individuals receiving Emergency Medicaid services (where Medicaid pays hospitals for emergency care provided to ineligible immigrants who would otherwise be eligible for Medicaid based on their income).
Medicaid Financing
The legislation increases intergovernmental transfers (IGTs) from public hospitals, reducing reliance on the state’s hospital taxes for financing the nonfederal share of Medicaid spending. The 2025 reconciliation law imposes significant new restrictions on states’ ability to generate Medicaid provider tax revenue, including prohibiting all states from establishing new provider taxes or from increasing existing taxes, as well as reducing existing provider taxes for states that have adopted the ACA Medicaid expansion. North Carolina uses provider taxes to help finance the nonfederal share of Medicaid spending. State law requires the nonfederal share for the expansion program to be fully funded by certain non-general fund sources, including hospital taxes and hospital IGTs, and requires the end of expansion coverage if those sources cannot fully fund the nonfederal share. The state estimates $14.3 million in one-time administrative costs for the current state fiscal year and $44.4 million in recurring annual administrative costs (including both state and county expenditures) for the expansion program to implement work requirements and six-month eligibility redeterminations that existing financing mechanisms did not account for. The increased public hospital IGTs aim to offset the financing of some of the existing costs under the state’s hospital tax, as well as to help finance the new administrative costs.
By increasing reliance on IGTs as a financing source, the state may aim to retain higher hospital SDPs under new federal provider tax limits, but new federal requirements for state directed payments are expected to require further changes. North Carolina’s Healthcare Access and Stabilization Program (HASP), a hospital SDP program launched alongside Medicaid expansion in 2023, is also financed through hospital taxes and IGTs. An earlier state report indicated the new federal provider tax limits would eliminate all or most of HASP SDPs. The state has been using HASP payments to incentivize hospitals to relieve medical debt, and as of October 2025, more than $6.5 billion in debt had been relieved for more than 2.5 million North Carolinians under the initiative.
There is significant uncertainty about how federal regulations and state legislation may affect the state’s plan for financing the nonfederal share of Medicaid spending, including for the Medicaid expansion and HASP. New proposed rules on state directed payments and forthcoming provider taxes may affect the state’s financing plans. The state’s legislation created a “trigger” to end the new funding should HASP payments fall below certain thresholds or a change in federal law or regulation result in at least a 20% decrease to IGTs.
