• During the first partial year of Medicaid expansion, total Medicaid expenditures in North Carolina increased by a staggering 29.3 percent
  • Currently, traditional Medicaid enrollees, such as disadvantaged children and the disabled, comprise only 41.3 percent of people in the state’s program
  • The federal government is contemplating reductions to Medicaid expansion, which would create an estimated $1.4 billion annual gap in the state budget

After holding off for 13 years, in December 2023, North Carolina became the 40th state to implement Medicaid expansion, extending Medicaid coverage to healthy adults with incomes up to 138 percent of the federal poverty line.

Unfortunately, Republican policymakers who long opposed the expansion were naively seduced into yielding their position by a $1.6 billion “signing bonus” from the American Rescue Plan Act pushed by the Biden administration and approved by Congress, and the empty vow that the federal government would fund 90 percent of the cost. It was foolish to believe that promise because the federal government covers only about 65 percent of traditional Medicaid groups’ costs. It is simply unreasonable to believe the federal government, which is $36.4 trillion in debt, would continue to pay 90 percent of Medicaid costs for healthy adults but only 65 percent for disabled children.

Austerity Rumors

As expected, roughly a year into it, there are already whispers that the federal government may reduce funding for Medicaid expansion from 90 percent to the traditional 65 percent. Should that happen, it would create an estimated $1.4 billion gap in the state budget annually — unless the expansion population of roughly 600,000 people were kicked off the rolls.

Thankfully, the 2023 legislation approving Medicaid expansion did indeed include a provision to discontinue the expansion coverage if federal funding were to drop below 90 percent. Nonetheless, if the reduction were in fact to occur, it would take state policymakers no small degree of political courage to follow through with eliminating Medicaid expansion.

Medicaid Background

When Medicaid was established in 1965, it was designed to provide health care to the most vulnerable groups in society, such as disadvantaged children and the disabled. Over the past several decades, however, Medicaid has evolved into a social welfare program seemingly determined to increase coverage to as many groups as possible. This “inclusivity” has generated a plethora of issues, including:

  • Uncontrolled spending: From 1966 to 2023, Medicaid’s total annual expenditures nationally skyrocketed from $1.9 billion to $878.1 billion, or more than 46,000 percent
  • Fraudulent payments: From 2013 to 2021, the rate of improper Medicaid payments increased from 5.8 percent to 21.7 percent
  • Unnecessary coverage: As many as 29 states provide Medicaid coverage for at least one type of gender-affirming care, and 13 states offer coverage for GLP-1 drugs to treat obesity
  • Overwhelming enrollment: By 2022, 16.7 million people were enrolled in Medicaid expansion, 10.2 million more than projected by the expansion states
  • Crowding out of traditional Medicaid enrollees: Diverting resources to fund Medicaid expansion has caused traditional Medicaid groups, such as disadvantaged children and the disabled, to experience a reduction in access to health care services
  • Budget shortfalls: In 2023, Medicaid expansion contributed to a $1 billion budget deficit in Indiana, and just to cover the shortfall partially the state reduced funding for the disabled

North Carolina Medicaid

In North Carolina, Medicaid is funded by a mixture of revenues from the federal government, state appropriations, and hospital fees.

In fiscal year (FY) 2024, which included only seven months of Medicaid expansion, total Medicaid expenditures in the state increased from $21.50 billion to $27.79 billion, or a jarring 29.3 percent.

In FY 2024, state-funded Medicaid expenditures increased from $4.61 billion to $5.47 billion, or 18.7 percent. The $5.47 billion in state-funded Medicaid expenditures represents 18.4 percent of the $29.79 billion in state appropriations in the FY 2024 budget. Furthermore, since FY 2010, the growth rate of state expenditures on Medicaid has easily outpaced total state-supported appropriations, 135.8 percent vs. 56.7 percent.

Since its inception through FY 1987, 100 percent of Medicaid enrollees in North Carolina were either disabled, elderly, disadvantaged children, or single parents. Beginning in FY 1988, however, North Carolina Medicaid began expanding coverage beyond these traditional groups. In FY 2024, the percentage of Medicaid enrollees from one of the traditional groups accounted for only 44.4 percent of people in the program.

Shockingly, a snapshot of the current enrollees in January 2025 reveals a further shift away from the traditional groups. Of the 3,061,953 people in the program, only 41.3 percent are from the original vulnerable groups that Medicaid was designed to serve.

Since the implementation of Medicaid expansion in December 2023, 609,811 people have enrolled in the program across the state, shattering former Gov. Roy Cooper’s goal for 600,000 by the end of 2025. While Cooper celebrated this feat, the prospect that enrollment could end up being double what was estimated poses a fiscal concern. As Medicaid expansion enrollment continues to swell, so does the potential gap in the state budget.

Moving Forward

The likelihood that the federal government will reduce its 90 percent financial share of Medicaid expansion expenses in 2025 is probably low; however, over the next decade, some sort of action is almost certain.

If North Carolina policymakers are not prepared to make cuts to other funding priorities or else raise taxes, they must have the conviction to follow through with the 90 percent provision and eliminate Medicaid expansion. At the very least, policymakers would need to reduce Medicaid expansion eligibility. For example, they could decrease the income limit from 138 percent of the poverty line to 100 percent. Reducing eligibility would not resolve the budget shortfall; however, it would lessen its severity.

Eliminating or altering Medicaid expansion would not be politically painless. Nevertheless, when the time comes, North Carolina policymakers would need to have the fortitude to restore Medicaid to its original intent to focus on the state’s most vulnerable populations.