How to close North Carolina's projected $139 million Medicaid shortfall this year is once again breeding conflict between the governor's office and Legislature.

Severance payments and benefits have been drawn down for at least 1,600 laid-off state government and education workers since July, North Carolina's state budget office said Wednesday. It again raises questions about the extent of layoffs caused by the Republican-penned budget.

Democratic Gov. Beverly Perdue and Republican legislative leaders confirmed Wednesday an agreement to fill a $515 million funding gap for the North Carolina state employee health insurance plan while keeping a free premium option for workers intact for at least another year.

A key North Carolina House committee on Wednesday approved a Republican budget proposal that critics say makes avoidable cuts in public education and health programs but that GOP leaders argue protects classroom teachers and health services for the poor.