Governor's Final Budget Targets Medicaid to Close $1.5 Billion Gap

Colorado’s projected $1.5 billion budget shortfall for the 2027-28 fiscal year forces a difficult choice on healthcare spending. Governor Jared Polis, who leaves office in January, released his final budget proposal on Monday. The plan aims to close the gap by significantly reducing state Medicaid costs.

The proposal targets the state's largest healthcare program, which currently covers approximately one in five low-income residents. Polis stated that unchecked Medicaid costs are growing at a rate that threatens funding for education, housing, and public safety. He warned that without intervention, Medicaid spending would rise by 15 percent next year. This rate is roughly three times the growth limit allowed for overall government spending under the Taxpayer’s Bill of Rights, or TABOR.

To meet his targets, the plan reduces Medicaid growth to 4.3 percent. Specific cuts include eliminating adult dental coverage and reinstating prior authorization for behavioral health services. The proposal also includes reductions to long-term services. These measures are designed to curb the rapid cost increases driven by expanded coverage, rising demand for elderly care, and administrative errors that have led to millions of dollars in payment mistakes and fraud.

The budget also addresses federal changes stemming from the One Big Beautiful Bill Act, which was passed by congressional Republicans last year. This law ties cuts to the Supplemental Nutrition Assistance Program to each state’s payment error rate. Mark Ferrandino, executive director of the Office of State Planning and Budgeting, estimated this change could cost the state more than $100 million in the upcoming fiscal year.

State officials suggest that additional funding from the universal free school meals program could offset most or all of the SNAP losses. Voters approved measures in 2025 to lower deductions for high earners and raise the program’s revenue cap. However, initial projections were insufficient, and state officials say about $30 million in expected revenue must be refunded to taxpayers if the cap is not raised again. Polis recommends placing a measure on the November 2027 ballot to increase this limit.

Education spending stands out in the proposal. The plan increases general fund dollars for K-12 schools by $125 million as part of the new school funding formula passed in 2024. The budget also proposes privatizing Pinnacol Assurance, the state’s workers’ compensation insurer of last resort. This move is projected to generate a $100 million windfall, which Polis intends to use for a childcare trust fund, although the legislature has previously rejected similar attempts.

The final fiscal outcome depends on the results of Tuesday’s gubernatorial election and two major tax measures. Proposition NN, supported by Polis, would raise approximately $500 million for K-12 education by allowing the state to retain excess revenue. Amendment 87, which Polis opposes, would create a graduated income tax projected to raise $2 billion for healthcare, education, and childcare. Polis said he will update the budget on January 2, 2027, to reflect the results of these measures.

The General Assembly, which includes the incoming governor, will craft and pass the final budget during its session from January to May. The current administration’s plan serves as a starting point for these deliberations. The legislature must pass a balanced budget by law, making the resolution of these healthcare and revenue issues a central task for the next two years.