Colorado governor says state Medicaid spending is out of control, proposes measures to rein it in

Colorado Gov. Jared Polis on Friday said the state needs to slash spending on Medicaid to prevent the low-income health insurance program from forcing ongoing cuts to virtually every other service the state provides.

Over the last decade Medicaid spending has risen at a rate of 8.8% a year — about double what the state government is allowed to spend under the Taxpayer's Bill of Rights, according to the governor's office. As a result, the rest of the state government has steadily shrunk to make room for the rapid growth in health care spending.

If the state doesn't change course, Polis said, "the increases in Medicaid costs would crowd out essentially everything the state does. We would largely just fund schools and Medicaid — no money for roads, no money for public safety, no money for housing."

Under the state constitution, the TABOR cap limits public spending to the combined rate of population growth and consumer inflation — averaging about 4.4% since 2015, Polis said. But critics of TABOR have long argued the formula used to calculate the spending cap is a poor match for public agencies, which spend money on things like health care and road construction, the costs of which have long risen faster than other consumer goods.

Polis' remarks came during a Friday afternoon news conference where he released his budget proposal for the 2026-27 fiscal year, which starts July 1. The governor's annual spending recommendations are just that — a series of requests to the Joint Budget Committee, which ultimately writes the budget each year, subject to approval by the rest of the General Assembly.

The legislature is expected to face another tight budget year. Lawmakers almost certainly won't be able to maintain the current levels of government programs and services.

In September, nonpartisan fiscal analysts told the legislature's Joint Budget Committee that providing the same level of government programs and services next fiscal year is predicted to cost $850 million more than the legislature will have available to spend.

The governor's plan calls for increasing Medicaid spending next fiscal year by nearly $300 million. That's less than half of the $631 million increase in projected costs if the state kept its Medicaid offerings the same. About 1.2 million Coloradans are covered by the program, which is funded by a mix of federal and state dollars.

The governor's office said the savings could come in part from codifying an executive order Polis issued Friday cutting $12 million to $15 million in Medicaid spending this fiscal year, including by capping some reimbursement rates for providers and limiting how much recipients can receive in dental benefits.

Other Medicaid cost-saving proposals from the governor's office include limiting home caregiver hours and changing how much is paid to people who supervise people with autism.

"No one loses their coverage," the governor said of his plan, though he conceded that his proposal would reduce the benefits Medicaid recipients receive. "There's two levers on Medicaid. One is how many people you cover and two is what you cover. There have been a number of benefits that have been added in recent years and some of those aren't sustainable over time."

Polis pointed specifically to dental benefits under Medicaid. It used to be capped at $1,500 annually. Then the state did away with the cap. Now, Polis wants a cap reinstated, but at $3,000.

In the long term, Polis wants to tie increases in Medicaid spending to the TABOR formula that determines how much government spending can grow by year over year.

"That plan doesn't have to be accepted by the Joint Budget Committee of the legislature," Polis said. "But it's an important exercise to show what sustainability in Medicaid looks like."

Polis' plan is unlikely to sit well with legislative Democrats, who control both chambers. Top leaders, including JBC Chair Jeff Bridges and House Speaker Julie McCluskie, have called for changes to the TABOR cap itself. But advocates for amending the constitution are still searching for a proposal that can both win approval from the electorate and pass legal muster.

The governor this year has already slashed some Medicaid spending to balance the budget after congressional Republicans' federal tax and spending measure, called the One Big Beautiful Bill Act, blew a roughly $750 million hole in state finances.

In recent years, lawmakers have debated at length how to reduce spending on health care. But efforts to do so have consistently run into the same problem: Health care costs don't go away if the state stops funding them. They simply get shifted to someone else — either patients or safety net health care providers that are already facing financial problems at today's spending levels.

Some have already been forced to close in recent years due to rising uncompensated care. And health care administrators expect things to get worse under recent federal changes to Medicaid reimbursements.

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Education

Aside from Medicaid, education makes up the largest share of the state's budget.

Polis has called for limiting tuition increases to 2.6% for in-state students and 3% for those from other states. But funding for higher education has long been a point of tension between Polis and university officials, who have said the governor's proposals in years past didn't provide enough money to meet his tuition targets.

This year, higher education institutions are especially vulnerable, in the wake of deep federal funding cuts and plummeting enrollment from international students.

For K-12, Polis proposes implementing 30% of Colorado's new school finance formula, the rollout of which has been slowed down amid the state's budget woes.

Other balancing proposals

Overall, Polis' proposal calls for general fund spending to increase 2.3% to $18.6 billion, up from $18.2 billion in the current budget year.

Polis' proposal would keep the state's rainy day fund at 13% of what it spends on general expenses — down from the 15% lawmakers have sought to keep in reserve in recent years.

And, the governor is once again asking the legislature to privatize Pinnacol Assurance, the state-affiliated workers' compensation insurer. Past estimates have suggested the sale of the insurer to private ownership could generate nearly $700 million for the state, which Polis wants to use to cover the cost of Colorado's $200 million senior homestead property tax break next year. He suggests spending the rest on public building maintenance and to shore up other gaps in the budget or build up the reserve.

Lawmakers across multiple administrations have balked at the idea, arguing that it would leave Colorado without an insurer of last resort. Critics say it could lead to businesses being denied coverage. Supporters of the move say it would make Pinnacol more competitive in the modern insurance market. Under its current structure, it is prohibited from insuring out-of-state employees.