North Carolina is in a mess. It was an entirely predictable mess. Indeed, I and others have been predicting it for more than two years. But former Gov. Roy Cooper — coming soon to a US Senate race near you — and lawmakers of both parties didn’t listen. They expanded Medicaid to include hundreds of thousands of childless, able-bodied North Carolinians — without a realistic means of paying the bill.

That is, they claimed taxpayers wouldn’t have to fund any of the multi-billion-dollar cost of North Carolina’s Medicaid expansion because, get this, the federal government would cover it, either directly through appropriations or indirectly by reimbursing “state taxes” on health providers.

Yeah, I know. The federal government has billions of spare dollars sitting around? An entity running annual deficits counted in 12 digits? The jokes essentially write themselves.

There’s nothing funny about the resulting mess, however. As Carolina Journal and other news outlets are reporting, the congressional enactment of a reconciliation bill that caps provider taxes and imposes work requirements on some Medicaid recipients will rip a big hole in the state’s finances. Projections differ, but the annual fiscal impact will likely begin in the hundreds of millions of dollars and then, as the various federal provisions kick in, grow into the billions.

While I believe the General Assembly was imprudent back in 2023 when it gave in to Cooper’s incessant pleading for Medicaid expansion, legislative leaders did insist on a failsafe. If the (on-paper) state share of the cost of serving the new enrollees exceeds 10%, Medicaid expansion automatically disappears.

Everyone now agrees that when fully implemented over the next three years, the federal legislation’s Medicaid reforms will trip the failsafe. Not everyone agrees on what should happen next. Cooper and his successor, Gov. Josh Stein, oppose any rollback of Medicaid expansion. Some conservative lawmakers support a complete rollback. Other lawmakers of both parties appear determined to keep at least some of the expansion population in the program, either by squeezing Medicaid itself for savings or finding resources elsewhere — cuts in other state spending, for example, or delaying currently scheduled tax reductions.

None of these options will be pleasant. That’s what makes the situation such a mess.

I have never been opposed to funding a medical safety net for poor people or those with significant physical or mental afflictions. What I opposed, what fiscal conservatives across the country have opposed for decades, is a fiscally reckless strategy of layering new public expenditures on top of America’s existing structure of direct subsidies, tax expenditures, and government-imposed transfers.

Contrary to popular belief, our country already devotes more public resources to health carethan nearly every other country on the planet. Alas, much of the largesse is misdirected to people who are neither poor nor chronically ill, including middle-income households consuming low-priority services and upper-income professionals getting paid for those services.

Medicare in its current form is unaffordable at anything lower than ruinous tax rates. That’s also true for Medicaid in its current form, and for the various exclusions from income, payroll, and sales tax of private expenditures on health insurance and medical expenses (which reduce federal revenues alone by around $300 billion a year).

Stein and the North Carolina legislature can’t do anything about Medicare, the federal tax code, or the basic structure of Medicaid. That work must be performed in Washington. What state leaders can do — and what they are now compelled to do by state law — is close the projected hole in the state budget.

Although many were frustrated that the North Carolina Senate and House failed to strike a budget deal before the start of the 2025-26 fiscal year, this may turn out to be a blessing in disguise. Lawmakers should take the opportunity to push the reset button, looking at updated projections of revenues and expenditures over the next three years and making the necessary changes — including to Medicaid eligibility, services, and reimbursements — to bring them into line.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy and American history.