North Carolina's Medicaid Program Ran Out of Money. The Fix Cost $319 Million — and 27,000 People Their Coverage.

North Carolina's fiscal year began on July 1, 2025, the way North Carolina's fiscal years are supposed to begin: with an enacted budget.▸ This one didn't have one. The House and Senate had each passed their own two-year spending plan months earlier, but the chambers never reconciled them, and more than three million North Carolinians who depend on Medicaid were left funded by a stopgap. On August 6, 2025, Health and Human Services Secretary Dev Sangvai said the plainest part out loud: the $600 million lawmakers had included for the Medicaid rebase and the Medicaid Oversight Fund left the rebase itself $319 million short. It would take the state another eight months to close that gap — and the bill that finally did, signed April 30, 2026, came with new conditions attached.

With no budget deal and no reserve to draw on, NC Medicaid did what a program funded a percentage point short of its costs eventually has to do: it cut what it pays the people who deliver the care.▸ A Sept. 25, 2025 provider bulletin set reimbursement cuts effective October 1 — 3% on ambulance rides and home health visits, 8% on personal care, 10% on hospitals and nursing facilities. A handful of services paid through the state's "non-published fee schedule," including non-emergency medical transportation and Innovations/TBI waiver services for people with intellectual and developmental disabilities, were cut 97%.

The cuts didn't survive long.▸ Parents of children receiving autism therapy sued, and on November 10, 2025 a Wake County Superior Court judge granted an injunction blocking the reduction for their services. More litigation followed. On December 10, 2025, Governor Josh Stein directed NCDHHS to restore every rate to its September 30 level, citing the court rulings and warning that the $319 million shortfall remained unresolved. The rate cuts had lasted about ten weeks. The money they were supposed to save was still owed.

House Bill 696 — Session Law 2026-1 — reached Governor Stein's desk in late April 2026, nearly a year after the fiscal year it was funding had begun.▸ Its Medicaid section appropriates exactly the sum NCDHHS had flagged eight months earlier: $319,000,000 from the Medicaid Contingency Reserve, retroactive to July 1, 2025. The same bill funded shortfalls the stalemate had opened elsewhere in state government — $80 million for the Department of Adult Correction, $21.6 million for the DMV, $3.7 million for the State Bureau of Investigation — but Medicaid took three of every four dollars in the package.

Money wasn't the only thing HB 696 changed.▸ It writes North Carolina's version of the federal Medicaid work requirement into state law, directing NCDHHS to implement community engagement requirements — proof of compliance at application and at redetermination — to the fullest extent federal law allows. Under the underlying federal rule, laid out in a June 2026 CMS interim final rule implementing the 2025 reconciliation law, non-pregnant adults ages 19–64 in the expansion group must document 80 hours a month of work, school, or community service by January 1, 2027. It also moves eligibility checks to a monthly cadence and sets Medicaid copays at the maximum the federal government allows.

The bill also narrows who qualifies.▸ In his signing statement, Governor Stein said HB 696 "will eliminate health care coverage for nearly 27,000 pregnant women and children who are lawfully present in the United States, including victims of human trafficking, green card holders, and refugees," while noting the same bill "also protects coverage for more than 725,000 North Carolinians who benefit from Medicaid expansion." He signed it anyway — flaws and all, because the alternative was letting the program run out of cash entirely.

Three months after HB 696, and one year to the day after the missed July 1, 2025 deadline, the General Assembly passed the actual two-year budget.▸ Senate Bill 257 — the $34.4 billion 2026 Appropriations Act, Session Law 2026-41 — cleared both chambers July 1–2, 2026 and was signed July 7, 2026. It refills the reserve HB 696 had drained: the bill reserves $333,000,000 to the Medicaid Contingency Reserve for FY2026-27 and transfers $200 million of it back to the Division of Health Benefits to support the state's share of Medicaid costs. Reporting on the budget's full line items puts total FY2026-27 Medicaid funding near $1 billion once recurring appropriations are included — a figure this piece could not independently trace line by line inside the budget's 634 pages, so it's presented here as reported, alongside the $200 million contingency-reserve transfer this piece verified directly in the ratified text.

Dollar figures for HB 696's shortfall appropriations and SB 257's Medicaid Contingency Reserve transfer are drawn directly from the ratified legislative text. The $1 billion total FY2026-27 Medicaid figure is reported via WFAE's coverage of the budget rather than independently traced through the full 634-page appropriations act, and is disclosed as such.