The federal spending bill passed by Congress last July known as the One Big Beautiful Bill is set to reshape Medicaid, which provides health coverage to more than 3 million North Carolinians.

State Health and Human Services officials told state lawmakers Tuesday that one of the most urgent questions is how to pay for the new work requirements tied to Medicaid expansion. The work requirements are meant to reduce federal spending, but they cost states money to enforce.

But lawmakers might not convene in Raleigh for months, according to a top state budget writer.

“I’m not sure we’ll be back before April,” said Rep. Donny Lambeth, who is senior chair of the House Appropriations Committee. A new legislative session begins April 21.

The House and Senate, both led by the GOP, ended last year at odds over the budget, including disagreements over whether to postpone scheduled tax cuts, as well as a stalemate over funding for the state’s Medicaid rebase. That’s separate from the federal Medicaid funding debate and is a recalculation of state Medicaid costs.

“We have a very, very short runway to implement this,” said Sarah Gregosky, chief operating officer at NC Medicaid.

The cost of work requirements for Medicaid

She said the first communications will go out in June and July of this year to notify beneficiaries that they’ll be subject to the requirements.

Work requirements for Medicaid expansion recipients are scheduled to begin in early 2027. Enrollees would need to work, volunteer, or engage in approved activities for at least 80 hours per month to maintain coverage, though parents and others may qualify for exemptions. States must also recheck eligibility every six months.

Jonathan Kappler, the Department of Health and Human Services deputy secretary for external affairs and chief of staff, previously told The News & Observer that the work requirements could lead to the end of Medicaid expansion if the state does not act, because they could trigger a clause in North Carolina’s 2023 expansion law that ends the program if the state has to use state dollars to cover the costs.

“A lot of the infrastructure we already have in place to allow us to get into compliance by Jan. 1. What we don’t have in place right now is a financing mechanism for the additional cost to implement work requirements,” said Melanie Bush, assistant secretary with NC Medicaid.

In North Carolina, some Medicaid applications and eligibility checks are processed automatically, while others are handled by county departments of social services.

Bush said DHHS has been working with the North Carolina Healthcare Association, which represents hospitals, and central staff at the General Assembly to think through funding options.

She said legislative action was needed “as soon as possible so that we can begin building and testing our systems and notifying our members and working with our counties to prepare for Jan. 1.”

She said ideally that action would come by March 31.

According to DHHS estimates presented to lawmakers, it would cost just over $30 million per year to support county eligibility functions, with $6.5 million needed this year for state start-up costs and $13.2 million per year for ongoing state administrative costs beginning in 2027.

Bush said the state could choose from three options — or a combination of the three — to cover the new costs: move around hospital funding to maximize it and cover new administrative costs without using state dollars; increase the share of premium tax revenue from Medicaid plans that can be directed to expansion instead of going to the state’s general fund; or redirect state savings generated by Medicaid expansion.

She said the General Assembly would need to pass legislation to allow one of these mechanisms.

She said lawmakers can expect a final proposal within the next three weeks.

“We certainly can move on what options we need in terms of getting that legislation ready. But again, timing here is, I think, an issue,” Lambeth said.

“But I understand the urgency. I do think we need to have serious discussion with leadership here about when we might be back together,” he said.

County costs and authority

Kevin Leonard, executive director of the N.C. Association of County Commissioners, said the federal spending bill, including its work requirements, would create major new administrative and financial burdens for counties.

In North Carolina, counties are tasked with carrying out much of the administrative work tied to Medicaid and eligibility for SNAP, the Supplemental Nutrition Assistance Program, or food stamps.

The One Big Beautiful Bill Act is “is one of the most significant unfunded mandates and one of the largest shifts of administrative and economic responsibility, that our state and our counties have seen in generations,” Leonard said.

“I have concerns, members, that many of our (county) commissioners have yet to fully grasp the significant financial impacts of HR 1,” he said.

Leonard asked lawmakers to request more time from Congress, more funding clarity, clearer federal guidance, and workforce support.

He said counties were limited in funding options, adding “counties still do not know where the funding is going to come from, and that makes budgeting very challenging. Plus, we’re hearing from others that the General Assembly may have interest in limiting” property taxes, which could reduce funding for local government.

Officials also discussed whether some social-services work typically done by counties should be “centralized” in North Carolina.

“North Carolina is in a minority of states that does a county administration,” said Sen. Benton Sawrey, a Clayton Republican and chair of the Health Care Committee.

“It’s no longer just a county issue. It’s a state issue, because we’re risking state funding,” he said.

But Leonard said when it comes to social services: “Simply converting county employees into state employees is not going to solve the challenges that we face today.”

Local government, he said, is “the closest to the people, and I think in a centralized approach, you might lose some of that touch with the people and understanding the community.”

“I think the centralization of mental health treatment in North Carolina is example of taking away some of those responsibilities from counties that have not always resulted in improved outcomes for patients in those communities, especially the most rural ones,” said Sen. Amy Galey, a top health appropriator and a former Alamance County commissioner.

SNAP penalties

The federal spending bill also makes changes to SNAP, including adding work requirements and shifting more costs onto states, as well as penalizing states beginning in October 2027 that don’t stay below a 6% payment error rate. North Carolina’s was over 10% in 2024, according to data shared by DHHS during a committee meeting earlier in the day on SNAP.

The state could have to pay as much as $420 million based on the federal fiscal year 2024 payment error rate and benefit cost amounts, according to DHHS. North Carolina’s preliminary payment error rate through August 2025 is 7.05% — pointing toward improvements, said Michael Leigh, deputy secretary for Opportunity and Well-Being at DHHS.

Starting October 2026, the federal government will pay 25% of SNAP administrative costs. The state and counties will pay 75% of the administrative costs for SNAP.

The federal government currently pays 100% of SNAP benefits and 50% of administrative costs.

Administrative costs are estimated at $16 million for the state and $69 million for counties annually, according to DHHS.

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