Medicaid cuts to begin soon in NC, including ending coverage of weight loss drugs

Medicaid cuts are coming sooner than expected.

The North Carolina Department of Health and Human Services will start trimming $319 million by the end of this month — including across-the-board provider rate reductions — to meet an Oct. 1 effective date unless lawmakers step in, DHHS Secretary Devdutta Sangvai told legislators in a letter.

The reductions are separate from those tied to the federal spending bill titled the “One Big Beautiful Bill,” but DHHS said they will have significant effects.

“Despite careful efforts to minimize harm, the reductions now required carry serious and far-reaching consequences. Most immediately, reduced rates and the elimination of services could drive providers out of the Medicaid program, threatening access to care for those who need it most,” Sangvai said in the letter addressed to legislative leaders.

Why is there a shortfall in Medicaid funding?

DHHS shared updated projections with lawmakers on July 16 for the Medicaid rebase — the funding needed to maintain current services and provider payment rates — for the fiscal year running July 1 to June 30, 2026. The projections showed $819 million was required, up from the $700 million in Democratic Gov. Josh Stein’s budget request, which used January data, Sangvai said. DHHS is part of the governor’s Cabinet.

In late July, unable to agree on a full budget, the Republican-led legislature passed House Bill 125, a mini-budget bill appropriating $600 million for the Medicaid rebase. After administrative costs, only $500 million would go toward the Medicaid rebase, leaving a $319 million shortfall, Sangvai said.

Sangvai wrote that DHHS “remains hopeful” more funding will be provided to prevent reductions, but without that additional funding, “we must take the necessary steps to implement the legislative reductions by October 1, 2025.”

Sangvai warned that a slew of changes and cuts over time “risks a fundamental erosion of the NC Medicaid program.” For example, the Healthy Opportunities pilot, launched in 2022, uses Medicaid funds to address needs such as food and housing. It has not received funding to continue.

The federal spending bill makes various changes and cuts to Medicaid, including work requirements for Medicaid expansion recipients, scheduled to begin in early 2027. DHHS previously told The News & Observer these work requirements could trigger the end of Medicaid expansion if the state does not cover the added costs from their implementation and other administrative mandates in the bill.

What will be cut

To address the shortfall in state funding, Sangvai said DHHS would implement a 3% across-the-board provider rate reduction — with deeper cuts for some providers.

The state plans to end Medicaid coverage of popular glucagon-like peptide-1 drugs such as Wegovy, used for obesity and weight loss, Sangvai said.

Coverage of these drugs for diabetes, heart disease and other Food and Drug Administration approved uses would remain.

A total of 91,000 Medicaid recipients used GLP-1s from Aug. 1, 2024, to July 31, 2025. This includes those using GLP-1s for diabetes and for weight management. Of this total, 47.8% (43,500 members) used a weight management GLP-1 like Wegovy, Saxenda or Zepbound, DHHS spokesperson Summer Tonizzo told the N&O.

She said the department will also pull back financial funding for the Integrated Care for Kids Pilot, which coordinates physical, behavioral, and social services for some children on Medicaid, and which will now end early. This will also take effect on Oct. 1. She said DHHS has attempted to make these cuts reversible in the event that additional funding is approved.

Reaction from Republican lawmakers

Republican leaders pushed back on the department’s approach. They also tied the dispute to broader budget negotiations.

“This would leave little left to fund core services or raises,” House Speaker Destin Hall’s spokesperson, Demi Dowdy, said in a statement sent by email. “House leadership is also concerned that the department is not exercising sufficient cost control or exploring alternative cuts that are less disruptive,” Dowdy said.

A big part of the dispute between the House and Senate on the budget is over state employee pay raises. The House is seeking higher raises than the Senate and wants to cancel future tax cuts unless state revenue is high enough and “triggers” are met. Dowdy said without those tax changes, providing DHHS the extra money it’s requesting “would use up about half of the state’s recurring funds for 2026-27.”

Lauren Horsch, Senate leader Phil Berger’s spokesperson, called DHHS’ rate cuts “a new, disruptive tactic that is geared toward eliciting outcry from providers, rather than responsibly managing the department’s budget.”

“During the negotiations for the mini-budget, Senate budget writers pushed to include $680 million for the rebase, plus additional funds for administrative costs based on our nonpartisan projections,” Horsch said. “The House would not agree to that. Senate Republicans remain hopeful that we can work together with the House to approve additional funding.”

Double hit

The increased funding need is driven by lawmakers appropriating less than required to keep pace with rising medical costs, higher service use, and scheduled federal cost-sharing changes, Sangvai said in the letter. Medicaid expansion is not part of the estimate. He added that although the rebase has fallen short in recent years, the state has previously used federal COVID-19 and other temporary funding to cover gaps — but no such funds remained to address the shortfall.

Some providers would take deeper cuts than others. Inpatient and residential services — including acute care hospitals, nursing homes, psychiatric residential treatment facilities — will see rate reductions of 10%, except for what are known as intermediate care facilities, which will face an 8% cut. Research-based behavioral health therapy and applied behavior analysis services, primarily used for people with autism, will also see a 10% reduction.

DHHS shared a table with The N&O outlining estimated reductions in Medicaid provider spending for fiscal year 2025 -26. While these reductions are expected to save the state $320 million, they will also result in a loss of $1.1 billion in federal funding, as the federal government matches state funding for the Medicaid non-expansion population at approximately 65%.

Sangvai said DHHS also plans to scale back Medicaid’s operations by “reducing temporary employees who perform critical permanent functions, halting key projects, and scaling back compliance and quality activities.“

“These cuts will significantly impair NC Medicaid’s ability to be responsive to emerging needs and inquiries, monitor services for quality and compliance, and continue making timely operational improvements. North Carolina will no longer be able to depend on the level of service that providers and individuals have come to expect — service that is foundational to the success of the intentionally designed managed care program,” he said.

The combination of state underfunding and upcoming federal cuts and changes has some warning of a double hit.

Charlotte mother and Little Lobbyist advocate Stacy Staggs, who previously shared her story with The Charlotte Observer, is one of those concerned. She fears her daughter Emma could be institutionalized if she loses access to the care Medicaid helps provide.

“It’s a house of cards, and the whole thing falls apart. I could start a timer on how many days Emma could stay with us in the house before I’d have to surrender her to a hospital,” she said.

Emma is one of Staggs’ two 11-year-old twin daughters, both of whom require medical care. Medicaid covers Emma’s needs that are not covered by the family’s primary insurance.

Through Medicaid, she has been able to secure nursing care at home, medications, therapy and more for Emma.

“By cutting provider reimbursement rates, which, by the way, have been stagnant for decades, people are going to have to close shop. And there’s going to be fewer doctors that accept Medicaid and fewer therapists and providers that are able to function. So right now, we’re looking between two and six months for specialist appointments. That’s gonna blow up,” she said.

“Medicaid affects every minute and every activity and every bit of Emma’s future to stay in our home with a family who loves her and the toys that she loves,” she said.

The work requirements laid out in the federal law are set to start in January 2027 — and so, Staggs said, “we thought we had more runway.”