Colorado Medicaid Expansion Spurs Budget Strains Amid Upcoming Federal Cuts

Colorado's Medicaid expansion under the Affordable Care Act has significantly impacted the state's budget, now accounting for about 20% of the general fund spending. A recent report by the Common Sense Institute reveals that around 182 health-care bills enacted since 2019 have escalated costs by over $850 million annually, with federal funding covering just over a third.

Despite Colorado’s Medicaid enrollment being lower than the national average at 20%, the state’s spending per enrollee is approximately $11,263, which is $400 higher than the national average. The Joint Budget Committee faced a $1.2 billion spending cut to balance the approximately $17 billion budget, largely due to rising Medicaid costs. Notably, disabled and elderly full-benefit Medicaid enrollees constitute less than 10% of the population but account for about half the program's costs. The legislature managed to absorb Medicaid’s budget impact without cutting services, but this approach is unsustainable moving forward. Beginning in 2028, the Big Beautiful Bill (BBB) Act will reduce federal Medicaid funding and increase state operating costs, potentially adding $1 billion to $2 billion annually in expenses. Addressing these fiscal challenges involves options such as tightening Medicaid eligibility, limiting reimbursable treatments, reducing provider payment rates, or reallocating budget from other areas.

However, cost savings from the BBB's work and reporting requirements will likely fall short, as they mainly affect younger able-bodied populations who represent a smaller share of Medicaid costs. The report cautions that prior rapid Medicaid expansion driven by high federal matching grants has left Colorado vulnerable to funding reductions, especially with impending cuts to hospital provider fees. Policymakers face difficult decisions ahead to manage Medicaid’s growing financial burden without compromising service quality or imposing heavy costs on taxpayers.