In October, a group of Medicaid providers warned Colorado lawmakers that they were in trouble. One after another, the providers — from hospitals, mental health clinics and community health centers — described a budgetary collision that’s played out for more than a year: Hundreds of thousands of Coloradans lost Medicaid coverage after the pandemic ebbed, resulting in less money for the clinics’ already-thin operations. Though those patients’ health insurance disappeared, they still needed care — but it’s no longer been reimbursed by the state.  The results, the providers said, have been layoffs, hiring freezes, reduced hours and anxious number crunching. “This is very serious,” said Devra Fregin, the executive director of Clinica Colorado, whose clinics treat low-income patients. “Something needs to change, or we’re not going to be able to serve our state to the best of our ability.” The providers’ pleas found a legislature — and a Medicaid system — at a crossroads. As clinics ask for help, lawmakers convening this week for the 2025 legislative session are bracing to cut hundreds of millions of dollars from the state budget. Legislators have said they’re loath to cut Medicaid and further strain a sagging system. But the program takes up roughly a third of the state’s general fund budget, and K-12 schools — which lawmakers recently celebrated funding fully after decades of exploiting legal loopholes — account for another third. That reality may force legislators to spread the pain to the most critical parts of the budget. It also may spark a deeper examination of Medicaid, the safety-net system that provides coverage for roughly a quarter of the state’s residents. On Monday, budget-writers are set to hold a daylong hearing combing through the spending of the Department of Health Care Policy and Financing, which manages Medicaid.  Citing that coming hearing, department officials declined an interview request last week. In emailed responses to written questions, executive director Kim Bimestefer said HCPF was “very concerned about state budget constraints and the impact on Medicaid over the short and long term. Despite some recent fluctuation, medical inflation continues to outpace growth in other goods and services.” She said the agency also planned to discuss potential cuts during the Monday meeting with lawmakers. The fiscal debate is set to dominate the legislature, which meets for four months beginning Wednesday, as lawmakers jockey for sparse funding for new programs — while also fighting to protect their priorities in a budget that must be balanced. “I don’t want to cut Medicaid, and I don’t think there’s huge political appetite to cut Medicaid,” said Sen.-elect Judy Amabile, a Boulder Democrat who sits on the Joint Budget Committee and previously served in the House. “I think there’s political appetite to try to fix what is going wrong.” Providers will also be watching anxiously: Many, including Denver Health, have asked for additional money to offset rising costs in the state’s next fiscal year, which begins July 1. Some acknowledged that, realistically, they’re just hoping to avoid any more reductions. “We want to be partners with the state, and we want to talk to the state about, how do we help you find the half a billion or a billion dollars that you’re going to need to cut?” said Jennifer Riley, the CEO of Memorial Regional Health in Craig. “How do we do that? … I don’t have the answers.” Rep. Emily Sirota speaks as Sen.-elect Judy Amabile listens during a Joint Budget Committee hearing at the Legislative Services Building in Denver on Thursday, Dec. 19, 2024. The committee’s members have grappled with how to provide sufficient Medicaid funding. (Photo by AAron Ontiveroz/The Denver Post) As enrollment dropped, costs ballooned The massive budget hole facing the state — estimated at between $670 million and $1 billion —has lawmakers not just looking under couch cushions, but contemplating selling the proverbial couch as they try to make red numbers turn black. Even on the low side, the gap dwarfs entire government agencies. The total cost of the departments of Agriculture, Local Affairs, and Military and Veterans Affairs amounts to less money than the budget shortfall. The deficit emerged from a mix of constraints imposed by the Taxpayer’s Bill of Rights, or TABOR, as well as increased costs to the state — in particular, a steep, steady rise in spending by the health care policy department, even as total enrollment declines. That department is the state vehicle for Medicaid dollars. TABOR limits state spending growth using a formula that accounts for population growth and inflation, both things that have slowed for the upcoming year and restrained the budget increases allowed.  Rocketing costs of Medicaid services, which the state must cover in a joint program with the federal government, provide an additional bite into other state spending. The state budgeted $5 billion from the general fund for the HCPF Department for this fiscal year. Its total cost, however, is buoyed by $9 billion from the federal government and nearly $2 billion from other sources, bringing HCPF’s total budget to almost $16 billion. Enrollment in the program, which expanded greatly during the pandemic, has declined since the end of the public health crisis. More than 500,000 people who were enrolled in March 2023 have since lost coverage in Colorado, part of a sweeping unwind of COVID-era assistance protections that’s stripped insurance from a larger proportion of people in Colorado than in nearly any other state. The state estimates a caseload of more than 1.2 million patients this year. But as enrollment has dropped, use has gone up — driving up costs even though fewer people are enrolled in the program. That seemingly paradoxical trend left providers and state officials searching for answers while the program overshot its budget last year by more than $120 million. As officials scramble, costs are expected to continue growing. Rising Medicaid costs aren’t unique to Colorado, providing little solace for state officials tasked with filling the gap. “If you ask me, ‘Where’s the most uncertainty in the budget?’ (My response) would be, ‘What is that Medicaid forecast?’ ” Mark Ferrandino, Gov. Jared Polis’ budget director, told lawmakers in December. As a result, the governor’s office has now recommended directing more than $131 million in additional funding to Medicaid next year, according to an updated budget proposal released Thursday afternoon. It reflects a rosier economic picture that, while improved from earlier forecasts, still predicted a significant budget shortfall. The extra money proposed by Polis would help cover the program’s projected caseload increases. In a statement Thursday, Polis spokesman Eric Maruyama said the governor “will continue to prioritize supporting providers and patient access given the tight state budget, as (he) has historically.” But, Maruyama continued, the budget committee “is going to need to make difficult choices and potentially deeper cuts to other areas of the budget if they choose to increase rates for Medicaid providers without finding sustainable ways to fund them.” In his initial Nov. 1 budget request, Polis noted a $622 million increase in estimated caseload costs, or services the government is mandated to provide. Caseload costs include children enrolled in schools, prisoners in the Corrections Department and people who use human services. Of that projected increase, $458 million comes from higher-than-expected use of Medicaid care over several years. Another factor in growing costs is that lawmakers launched a separate expansion of Medicaid in 2022 to, among other things, provide coverage to low-income pregnant people and to children from low-income families otherwise ineligible because of their immigration status. The program, which kicked off this month, is now expected to blow past its earlier-forecast cost of about $4 million this year, rising to nearly $28 million. A medical staff worker reaches for a tool during an outpatient surgery at Denver Health on March 15, 2023. Denver’s safety-net hospital is among those that have reported soaring costs for uncompensated care. (Photo by RJ Sangosti/The Denver Post) That program, which Democratic Rep. Shannon Bird called a “huge moral dilemma,” has already been contentious: At a budget hearing last month, Sen. Barbara Kirkmeyer, a Brighton Republican, said the legislature would have to decide which “people you want turned away” and said the program — called Cover All Coloradans — would help people “who aren’t actually Coloradans.” Amabile and another Democrat on the budget committee, Rep. Emily Sirota, have both said that they would not support gutting the program. They argued that blocking people from obtaining Medicaid would only increase their health care costs later. “There is a conversation to be had about moral values and how our providers manage this — that perhaps it’s better to have more people covered than not at all,” Sirota said. A hesitance to cut widely used program Despite Medicaid’s huge share of the budget, members of the Joint Budget Committee have expressed an aversion to cutting back. Republicans, including Kirkmeyer, have raised concerns about the strains on rural providers that already operate on thin budgets. Democrats like Amabile have noted that cutting Medicaid would mean more costs from uninsured patients turning up in emergency rooms for preventable illnesses, on top of the overt negative impact on people who lose health insurance. Still, the Joint Budget Committee’s chair, Sen. Jeff Bridges, has repeatedly warned: The legislature must cut as much as $1 billion from a $16 billion budget, and Medicaid is a big piece of that total cost. When an official from another state agency told the committee last month that a 10% cut would be painful, Bridges replied that cutting care for nearly a quarter of the state would hurt, too. He later told The Denver Post that lawmakers must look for cuts everywhere else before turning to Medicaid or schools. One challenge is the higher cost of care for people on Medicaid. According to state budget documents, per-capita costs have skyrocketed over the last decade for Medicaid users. Between the fiscal year that ended in June 2015 and estimates for the 2025-26 fiscal year, the per-person cost of care for Medicaid enrollees has jumped from about $4,300 to $8,400. For elderly and disabled people covered by Medicaid, the cost of care has jumped from between $15,000 and $23,000 per person to more than $40,000 over the last decade. Those people with the costliest care, however, make up a small minority of total enrollment, about 10%. By far, most of Colorado’s Medicaid enrollees are the state’s poorest adults and children, at 57% of the total caseload — even as those were the groups most likely to drop from the rolls following the pandemic. Clinica Family Health’s dental clinic sits empty on Thursday, May 2, 2024, in Adams County. The health clinic, where 57% of patients were on Medicaid at one point, was forced to shutter some services, including the dental clinic, and lay off nearly 50 people due to pandemic-era Medicaid programs ending for patients. (Eli Imadali/Special to The Denver Post) The average cost of care for that population is among the least expensive, but it has nonetheless shot up over the last decade. The cost of care for low-income adults has risen from about $3,800 per person to about $6,000. Care for those children has almost doubled, from just shy of $1,900 to about $3,700 for this upcoming year, according to state estimates. Addressing the spikes poses its own complexities. The state can’t outright deny care, and it splits much of the costs with the federal government. “Whenever you cut Medicaid dollars, you’re cutting at least as many dollars from the state economy,” said Bethany Pray, the legal director for the Colorado Center for Law and Poverty, which has helped lead a Medicaid monitoring group. “That’s kind of a hard thing to stomach, especially in a rural economy where you might have 40% of the population on Medicaid.” Related Articles Politics | Here’s what Democratic leaders expect on housing, Trump and a labor fight when the Colorado legislature convenes Politics | Colorado lawmakers prepare new legislation — and approach — to limit high-powered gun sales Politics | Task force proposes sweeping reforms to Colorado’s child abuse laws in wake of 7-year-old’s death Politics | Metro Denver renters pay $136 extra each month when landlords use rent-setting software, report says Politics | Colorado lawmakers to address municipal court sentencing disparities, criminalization of missed hearings Polis raised his own suggestions during his fall budget presentation. His proposals include paying some health care providers less for Medicaid services, by chipping away at an increase in provider rates that lawmakers celebrated during the 2024 legislative session; changes to dental coverage reimbursements; and more state oversight of which procedures get approved. “We simply cannot sustain all of these investments,” Polis wrote in the letter accompanying his budget proposal. The degree to which budget writers accept his proposal, if at all, remains to be seen. But they can pare back Medicaid in a few ways: They could cut provider rates, meaning the money paid to doctors and nurses, mental health clinicians and autism experts. They also could trim or drop “voluntary” services provided by Medicaid, like covering prescription drugs.  They could also look at administrative costs within the Health Care Policy and Financing Department. Some legislators have already begun discussing a broader examination of how Medicaid operates and how money is spent. Bimestefer, HCPF’s leader, said that only 4% of HCPF’s costs go to administration, making it “by far the most efficient health plan in the state.” Still, Amabile said she consistently hears from “operators” across the Medicaid system who raise concerns about a lack of money. Patients, she said, worry about their inability to receive care. “We have a system where every level is failing,” she said. Stay up-to-date with Colorado Politics by signing up for our weekly newsletter, The Spot.