Medicaid Growth Is Crowding Out Everything Else

in Colorado’s Budget

Colorado’s budget writers face another large shortfall for the 2027-28 fiscal year, with Legislative Council Staff and the governor’s office projecting a gap of roughly $1.6 billion once known obligations are counted. Revenue collections have improved modestly from earlier forecasts, yet the gap remains because spending pressures, led by Medicaid, continue to outrun the growth allowed under the Taxpayer’s Bill of Rights.

Fewer People, Much Higher Costs

Medicaid enrollment has fallen about 30 percent since the height of pandemic-era continuous coverage. Average monthly rolls dropped from roughly 1.72 million to 1.21 million between fiscal years 2023 and 2025. Over the same period, total program spending rose by more than $2 billion, and average spending per member climbed from about $7,900 to nearly $13,000. The remaining enrollees are simply using far more services.

Long-term services and supports for elderly and disabled Coloradans account for the largest share of the increase. That group represents roughly 8 percent of enrollees but nearly half of Medicaid costs. Community-based long-term care, behavioral health, and pharmacy spending have grown especially fast. General Fund appropriations for these categories have expanded by well over a billion dollars in recent years, far outpacing the rest of state government.

Legislative Expansions That Overran Estimates

Part of the pressure comes from programs the legislature itself created and then watched exceed their fiscal notes. Cover All Coloradans, enacted in 2022 on a party-line vote, provides Medicaid-like coverage to pregnant women and children who meet income guidelines but are ineligible for standard Medicaid because of their immigration status. Nonpartisan analysts originally projected roughly $15 million in General Fund costs for an early full year and a few thousand enrollees. Actual spending reached about $104.5 million in the current fiscal year, with enrollment near 28,000 to 30,000 people, mostly children. Projections for the following year climbed higher still, more than six times the original estimate.

Lawmakers later approved limits on dental benefits, new long-term care enrollments, and other services under the program to contain the overrun. Those adjustments came only after the costs had already contributed to successive billion-dollar budget gaps. Similar patterns appear in other state-funded expansions that added ongoing obligations without corresponding revenue or utilization controls. Emergency services for noncitizens remain a smaller, federally matched share of total Medicaid spending, but the state-funded expansions sit fully on Colorado taxpayers.

TABOR Limits and the Crowding-Out Risk

TABOR restricts state revenue growth to the combined rate of inflation and population growth, typically around 3 to 4 percent. Medicaid General Fund spending has grown at roughly twice that pace in recent years. The program now consumes a third or more of the General Fund operating budget. Officials have warned that, left on its current trajectory, Medicaid would eventually consume nearly all available General Fund resources for other departments, with some projections pointing to the early 2040s.

Lawmakers already reduced certain Medicaid provider rates and limited some services in the current budget to close a prior gap. Those steps have not been enough to offset higher utilization or the cost of expansions that grew far beyond their original forecasts. Without sustained reductions in the rate of growth, further cuts to education, higher education, transportation, and other core functions become unavoidable.

Federal Changes Add Pressure

New federal rules under the One Big Beautiful Bill Act will further constrain Colorado’s options. Caps on hospital provider fees, which the state uses to draw federal matching funds for Medicaid, begin to tighten in the 2027-28 budget year. Losses start in the range of $100 million and grow as the allowable percentage of net patient revenue declines toward 3.5 percent. The same law shifts additional Supplemental Nutrition Assistance Program costs onto the state, estimated at roughly $158 million in the near term, and imposes new eligibility and work requirements.

Economy and the November Ballot

Forecasters describe a slow-growth environment with limited hiring and firing. Higher-income households have supported consumer spending, while delinquency rates on credit cards, auto loans, and other debt have risen. Some analyses place recession odds near 40 percent, citing trade tensions, energy prices, and other risks.

Voters will decide several measures in November that could alter the revenue picture. One would replace the flat income tax with a graduated structure and dedicate new collections to education, health care, and child care, exempting the added revenue from TABOR limits. Another would raise the TABOR cap to retain surplus dollars primarily for K-12 education. A third would lock the current 4.4 percent income tax rate in statute. Any of these could change the size of the gap, but none would automatically slow the underlying growth in Medicaid utilization or reverse the cost of expansions that already overshot their estimates.

The pattern is consistent: enrollment falls while intensity of service rises, past expansions lock in higher baselines, and federal matching funds become less flexible. Closing the gap will require choices about what services the state can sustainably fund, not simply another round of temporary reductions or new revenue requests.