NC Senate budget plan filled with health care policy initiatives

By Grace Vitaglione and Rose Hoban

The North Carolina Senate’s proposed budget for the next two fiscal years is packed with policy around new health care initiatives, including repealing North Carolina’s hospital capacity regulation laws, trimming vacant state job openings and increasing rates for child care subsidies.

The spending plan — just over 1,000 pages — calls for allocating about $32.6 billion in the coming fiscal year and $33.3 billion in the next. Part of that spending will go to replenishing the state’s “rainy day” reserve fund, and $700 million is earmarked to Hurricane Helene recovery. 

The Senate’s plan would also reduce the income tax rate for North Carolinians from 4.25 percent to 3.49 percent in 2027. In the past, the General Assembly mandated that income taxes could only be reduced further if the state met certain revenue levels, but Senate leader Phil Berger said the budget bill would eliminate some of the restrictions that would have prohibited income tax reductions.

Members of the Republican majority in the Senate say that the spending plan saves taxpayer money while still meeting the needs of North Carolinians. The chamber’s Democrats say the budget falls short on rural health care access while increasing tax cuts that they say disproportionately help the wealthy. They also say that the budget underfunds Medicaid and fails to account for state employees’ increased cost of living.

This spending plan is only the first step in the biennial budgeting process. The plan now moves to the state House of Representatives, which is slated to present its plan in coming weeks. Then both chambers will hash out their different visions for state spending in a conference committee. The budget is due by June 30, the end of the fiscal year, but lawmakers often miss that target.

“State budgets are multibillion-dollar puzzles that we have to put together carefully,” Senate Leader Phil Berger (R-Eden) told reporters in an April 14 news conference about the budget.

Sen. Michael Garrett (D-Greensboro) told reporters after his chamber’s vote on Wednesday that the budget process lacks transparency — the plan was put together without any committee hearings where the public could provide input. He said even some members of the Republican caucus didn’t know what was in the spending plan.

“If you genuinely want to see bipartisanship in the budgeting process, that needs to be transparent, open and done in regular order, and that’s just not the way this leadership operates,” he said.

Under the senate’s plan, state employees would receive a 1.25 percent raise in the coming fiscal year, as well as a $3,000 bonus spread over the two years of the state biennium. State-funded registered nurses, licensed practical nurses and certain health care technicians would receive an additional 2 percent raise.

The spending plan also cuts hundreds of state jobs, including more than 425 positions in the Department of Health and Human Services. The majority of those DHHS job cuts — 290 — would come from the behavioral health budget. Most of those 290 positions would be hard-to-fill jobs at the state’s hospitals and health care facilities that largely serve people with mental health and developmental disabilities where the positions have been vacant for more than a year. 

Medicaid funding gets tweaked

Medicaid, the state- and federally funded program that provides health care services for more than 3 million North Carolinians, has costs that fluctuate each year based on the number of beneficiaries and the costs for their care. The state health department creates an annual forecast on how costs might change and then asks the legislature for funding adjustments based on those predictions — known as the “rebase.” 

The budget presented last month by Gov. Josh Stein funded that rebase to the tune of $700 million, which is what forecasters at the Department of Health and Human Services say is needed in the coming year.

DHHS also asked for an additional $87 million to support the Healthy Opportunities Program, a pilot project providing services to people in three rural areas of the state. Since its launch in 2022, the program has provided assistance to nearly 30,000 people across three regions of the state. 

Beneficiaries are eligible for deliveries of food, rides to doctor’s appointments and other services designed to combat social, economic and geographic issues that contribute to poor health outcomes and increased cost.

An independent evaluation shows that by providing qualifying enrollees support for housing, food, transportation and safety, the pilots have driven down the cost of health care by as much as $1,020 per pilot participant per year — largely by preventing beneficiaries from getting sicker or from using more expensive kinds of care. 

“In Western North Carolina, this translates to $11.9 million in annual savings through participants’ improved health and reduced hospital and emergency room use,” wrote Laurie Stradley, who leads Impact Health, the organization that oversees implementation of the program in western North Carolina.

The evaluation also predicted that savings will grow over time as participants’ health outcomes improve. 

In contrast, the proposed Senate budget provides $500 million for the Medicaid rebase this year and does not explicitly designate extra funding for continuation of Healthy Opportunities (often referred to as HOP). 

“The governor’s request was above and beyond the HOP expansion that is in the base budget. He asked for additional funds,” argued budget crafter Sen. Ralph Hise (R-Spruce Pine). “There is a disagreement between central staff at the General Assembly and the governor’s office as to what is rebase and what’s included.”

“This lack of funding for the existing HOP regions puts at risk the positive health and economic outcomes that North Carolina communities, including counties in western North Carolina impacted by Hurricane Helene, have seen through the pilot program,” said a statement from a DHHS spokesperson. 

The spokesperson also said HOP partners have been instrumental in helping people in communities affected by Hurricane Helene recover.

State staffing cuts

To realize some savings, Senate budget writers cut state positions that have been vacant for at least 12 months. 

Most of those positions at HHS would likely be cut from the three state psychiatric hospitals, Central Regional Hospital, Cherry Hospital and Broughton Hospital, according to DHHS.  

Those facilities have struggled to recruit health care staff, but managers of those facilities have tended to use money from the unpaid salaries to hire contract workers, who are often more expensive than state employees, to fill the gaps. 

Permanently cutting the staff numbers will reduce the number of patients the facilities can safely serve, the departmental spokesperson argued. 

“There are kids that are in EDs,” said Senate minority leader Sydney Batch (D-Raleigh). “We have places that we need to put people in crisis. Mental health crises are increasing, suicidality is increasing, and yet we are doing absolutely nothing. And what you do is say, instead of the crisis where the spigot is wide open, we’re going to actually prevent individuals from getting help, and by eliminating positions that we absolutely need.

“Pay people and they’ll work.” 

Berger said he’s not surprised by agency pushback against cuts. He said departments were using lapsed salary money for other things that may not receive adequate oversight.

“We need to pull that money back and make decisions as to whether or not that money might be needed somewhere else,” he said.

Senator Jim Burgin (R-Angier) said he’s in talks with other hospitals about ways to help open beds in those facilities and get patients in there, rather than having people showing up to emergency rooms.

Boost to child care services 

The Senate budget plan also allocates an additional $80 million — $45 million recurring from federal block grants and $35 million recurring from the state’s General Fund — to increase child care subsidy rates. Child care subsidies help eligible low-income families pay for child care so parents can go to work.

This money would increase the subsidy rates to what’s recommended in the 2023 Market Rate Study. NC DHHS conducts these studies — as mandated by the state legislature — to figure out the cost of providing child care.

Charles Hodges, director of the NC Licensed Child Care Association, said the increase is a “step in the right direction.

“The better we can align reimbursements with the true cost of care, that improves the providers’ ability to hire and retain staff, which ultimately will improve access to care for working families,” he said.

One downside is that the adjustment is only to the 2023 rate — costs have increased since then, he said. 

Parents receiving the subsidy are currently required to pay 10 percent of their income for child care. This bill would decrease that cost sharing to only 7 percent, which Hodges said the association supports and parents would welcome.

The budget plan could also open up some changes to NC Pre-K, which provides money for preschool programs for eligible 4-year-old children. The bill directs the state health department to report on the number of unused NC Pre-K slots after the 2022-23 program year, as well as think of options for changes that would allow unused slots — which currently are allocated by geography — to be reallocated elsewhere. 

Hodges said that would hopefully lead to better utilization of the NC Pre-K program. It’s unfortunate to hear of unused slots in some counties when there is a waitlist for children to get into the program in other parts of the state, he said.

The budget plan is intended to better support the child care industry in tandem with regulatory changes in Senate Bill 528, said Sen. Amy Galey (R-Burlington). Senate Bill 528 — which Galey has sponsored — loosens some regulations around staffing and capacity for child care providers. 

Aging faces significant trim

To the surprise of advocates, the senate’s spending plan would cut all state funding for the Senior Health Insurance Information Program, as well as eliminate 11 positions from the state-level agency. The program provides free, unbiased Medicare counseling for older adults in the state and is heavily used by seniors during the annual Medicare enrollment period.

“This would have a devastating impact on SHIIP and its ability to assist the state’s 2.2 million Medicare beneficiaries,” said Jason Tyson, communications director at the NC Department of Insurance.

SHIIP counselors help save Medicare beneficiaries money by directing them to Medicare plans that will work best for them. In 2024, SHIIP counselors counseled more than 69,000 Medicare beneficiaries, and staff answered 24,000 calls and processed 1,063 complaints, according to Tyson.

Tyson said cutting SHIIP funds “would not save a dime,” of the state’s general fund; the Department of Insurance reimburses the state with funds from the Insurance Regulatory Fund.

“Not funding this program may eliminate the best and most reliable free and local resource that Medicare beneficiaries have in North Carolina,” he said.

The Senate’s spending plan keeps dollars for other aging services flat, even as the state’s aging population is swelling. The population of people ages 65 and older in North Carolina is projected to grow from 1.9 million in 2022 to more than 2.8 million by 2042, according to data from the N.C. Office of State Budget and Management.

Mary Bethel, chair of the board of directors of the NC Coalition on Aging, said that increase in the older adult population means there are increased demands for supports and services, but the state investment has not kept up.

She pointed to a lack of state dollars appropriated for adult protective services. County departments of social services that provide adult protective services must rely on federal funding and county resources to protect seniors from abuse. 

Bethel said older adults are concerned about having enough funding for these services, especially with increasing reports of abuse, neglect and exploitation of older adults.

LME-MCOs cuts to single stream funding

The spending plan cuts single stream funding for the state-authorized regional mental health services management organizations, known as LME-MCOs.

Those LME-MCOs use state funds, known as single stream funds, for services to provide help for uninsured and underinsured people with mental health, substance use and intellectual and developmental disabilities, as well as people with traumatic brain injury, according to DHHS. The funds also support mental health crisis services for people without a way to pay. 

Budget writers claim those cuts to single stream funding would be offset with money received by the state from the national settlement against drugmakers for their alleged role in facilitating the nation’s opioid overdose crisis. 

However, a DHHS spokesperson said those aren’t equal replacements. She pointed out that, by the terms of the settlement signed by North Carolina, those settlement dollars must be used for specific projects, whereas single stream funds are supposed to be flexible for LME-MCOs to use as needed.

“Reducing flexible state appropriated funding and back-filling them with funds that have significant restrictions undermines the purpose of these dollars and limits other programs, which have no other funding mechanism,” the spokesperson said.

Other health care policy items of significance

• The budget contains the language of a bill that would repeal the state’s certificate of need laws, which regulate how much spending and building hospitals can undertake in a given geographic area. Some lawmakers have long complained that the certificate of need laws constrain competition. Hospitals, on the other hand, say the restrictions on health care spending help keep costs down by eliminating duplication of expensive services and machinery.

• The plan directs an additional $638.5 million to the partnership between the UNC and Duke health systems to build a freestanding children’s hospital. The hospital would also be exempted from certificate of need reviews. “The children’s hospital is, I believe, a project that is beneficial for health outcomes for children,” Senate leader Berger said. “I think the children’s hospital also is an economic development project that will spin off additional economic development opportunities, whether it’s just the infrastructure that gets built around the hospital, but there’s also the research possibilities.”

• The plan allocates $2.7 million in the first fiscal year and $6.9 million in the second for the Partnership and Technology Hub, or PATH NC. This software is designed to assess and track children monitored by the state’s child welfare system.

• The plan directs NC DHHS to move ahead with seeking a work requirement for Medicaid recipients if the federal government gives the okay. 

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