As the calendar flips to autumn, a budget crisis is bearing down on several U.S. states, threatening the health care safety net for millions and sowing uncertainty across public services. Medicaid, the government health insurance program for people with low incomes or disabilities, finds itself at the epicenter of this storm, with North Carolina and Idaho already slashing provider payments and Michigan teetering on the edge of a government shutdown. The consequences are rippling from hospital corridors to family living rooms, leaving patients, caregivers, and entire communities bracing for impact.
In Chapel Hill, North Carolina, Alessandra Fabrello has spent nearly 18 years as both mother and medical caregiver to her son, Ysadore Maklakoff. Ysadore, who suffered acute necrotizing encephalopathy as an infant, qualifies for a broad array of medical services through North Carolina’s Medicaid program. But even before the latest round of cuts, Fabrello often found herself performing the duties of a nurse, therapist, or doctor, simply because she couldn’t secure enough help. "It is almost impossible to explain what it takes to keep a child alive who should be dead," Fabrello told KFF Health News, her voice heavy with exhaustion and worry.
Now, the state’s Medicaid agency has announced that, starting October 1, all providers treating Medicaid patients will see at least a 3% reduction in pay. Primary care doctors will face an 8% cut, and specialty doctors a 10% drop, according to the North Carolina Department of Health and Human Services. For families like Fabrello’s, these numbers aren’t just line items—they’re a looming threat. Her son’s dentist has already called to say the office will stop accepting Medicaid patients come November, making dental care yet another service that’s technically covered but practically inaccessible. "When you say, ‘We’re just cutting provider rates,’ you’re actually cutting access for him for all his needs," Fabrello said.
The state’s decision comes after its Medicaid agency received $319 million less than it requested in a mini budget passed by lawmakers in July. North Carolina, where more than 3 million people are enrolled in Medicaid, is projected to lose about $23 billion in federal Medicaid dollars over the next decade. Each year since at least 2019, the agency has asked for more funding than it received, relying on federal pandemic relief funds to bridge the gap—funds that are now gone. "It’s a difficult moment for North Carolina," Jay Ludlam, deputy secretary for North Carolina Medicaid, told KFF Health News. "The cut in the budget is absolutely the opposite direction of where we really want to go, need to go, have been headed as a state."
Shannon Dowler, the former chief medical officer for North Carolina Medicaid, warned that reduced payments will drive providers out of the program, resulting in "an immediate loss of access to care, worse outcomes, and cause higher downstream costs." She added, "This is like the layers of the onion. We are hurting ourselves in North Carolina way ahead of the game, way before we need to do this."
North Carolina’s budget crisis is compounded by a broader impasse in the state legislature. Lawmakers are returning to Raleigh this week, but after months of deadlock between House and Senate Republicans, there’s still no comprehensive budget. The mini budget passed over the summer allocated 25% less than what health officials said was needed for Medicaid, creating a massive shortfall. The scheduled provider rate cuts are expected to save the state $320 million, but they’ll also trigger the loss of $1.1 billion in federal funding, making the financial hit even more severe. According to The News & Observer, state officials have warned these reductions could drive providers out of Medicaid and threaten access to care for the most vulnerable residents.
The budget stalemate isn’t just squeezing health care. Public schools are also feeling the pinch, with some districts forced to cut positions or even adjust thermostat settings to save money. The uncertainty is especially acute in rural areas, where local governments lack the resources to fill funding gaps left by the state. Disputes among Republicans, particularly over how much to cut taxes, have stalled progress on a final budget. While lawmakers have begun work on another mini budget targeting health care and rural initiatives, that package has also hit roadblocks. As the legislative session looms, GOP leaders have taken to social media to trade barbs, with Senate leadership vowing not to "go back to the days of tax-and-spend catastrophes" and House leaders promising not to "gamble away" North Carolina’s future.
Meanwhile, in Idaho, the situation is similarly dire. Facing an $80 million state budget shortfall, leaders there cut Medicaid pay rates by 4% across the board in September. Idaho, with about 350,000 Medicaid enrollees and a projected 19% growth in Medicaid spending this year, is feeling the squeeze acutely. Nursing home operators and patient advocates have sounded the alarm, warning that the cuts could force facilities to reduce staff or accept fewer residents. The Idaho Hospital Association’s Toni Lawson told KFF Health News that small hospitals, especially those with 25 or fewer beds, are at risk, with some reporting less than two days’ cash on hand for payroll. "Hopefully, none of them will close," Lawson said, but she expects labor and delivery and behavioral health units—often money-losers—to be the first casualties. Several rural hospitals in Idaho closed their labor and delivery units last year, a trend that could accelerate if financial pressures mount.
Nationwide, Medicaid represents an average of 19% of a state’s general fund spending, second only to K-12 education, according to Brian Sigritz of the National Association of State Budget Officers. States enjoyed strong revenue growth in 2021 and 2022, buoyed by federal aid and a robust economy, but that momentum has faded. Revenue growth has slowed, some states have cut taxes, and spending on Medicaid, housing, education, and disaster response has climbed. The result: tough choices and painful cuts, even before the full effect of the Trump administration’s tax-and-spending law—which is set to reduce federal Medicaid spending by about $1 trillion over the next decade—kicks in.
Michigan, too, is on the brink. Thousands of state workers face an uncertain future as the legislature nears the October 1 budget deadline without a funding plan. A standoff between the Democratic-led Senate and Republican-controlled House over spending cuts and road funding projects could trigger a shutdown of many state operations, leaving workers and residents in limbo.
For families like the Fabrellos, the stakes are existential. Alessandra, who was nearly ruined financially before North Carolina allowed parents to be compensated for caregiving, now faces a pay cut that could threaten her home. "As parents, we are indispensable lifelines to our children, and we are struggling to fight for our own survival on top of it," she said.
As the clock ticks toward October 1, the fate of Medicaid—and the wellbeing of millions—hangs in the balance, with budget battles in statehouses showing no signs of abating.