Colorado Gov. Jared Polis signs state budget, with Medicaid taking brunt of cuts to close $1.5 billion gap

Colorado Gov. Jared Polis on Friday, May 8, signed into law a $46.8 billion state budget that cuts healthcare spending but preserves funding for K-12 education. 

The budget applies to the 2026-27 fiscal year, which begins on July 1, and caps months of work by lawmakers, who wrestled with how to close a roughly $1.5 billion gap that ultimately forced reductions to Medicaid funding and other programs. 

“This year was incredibly difficult and challenged each of us in a myriad of ways that put our values to the test,” said Rep. Emily Sirtota, a Denver Democrat and chair of the bipartisan Joint Budget Committee, which crafts the state’s spending plan before it is voted on by the full legislature. “It’s a zero-sum game. A dollar here means a dollar less over here.” 

The state’s spending gap was the result of several factors. 

The legislature is limited in how it can spend under the Taxpayer’s Bill of Rights, or TABOR, an amendment to the state constitution approved by voters in 1992 that limits government revenue growth to the rate of population growth plus inflation. 

Lawmakers are also dealing with the consequences of increased spending on programs they created or expanded in recent years, some of which have seen their costs balloon beyond their original estimates. Costs for Medicaid services, in particular, have surged, driven by inflation, expanded benefits and greater demand for expensive, long-term care services due to Colorado’s aging population. 

Medicaid cuts 

Medicaid recently eclipsed K-12 education as the single-largest chunk of the state’s general fund and now accounts for roughly one-third of all spending from that fund. 

Lawmakers, who are required by the state constitution to pass a deficit-free budget, said they had no choice but to cut Medicaid funding as a result. 

That includes a 2% reduction to the state’s reimbursement rate for most Medicaid providers. The budget also institutes a $3,000 cap on adult dental benefits, limits billable hours for at-home caregivers of family members with severe disabilities to 56 hours per week and phases out, by Jan. 1, automatic enrollment for children with disabilities to receive 24/7 care as adults.

The budget also cuts benefits and places new limits on Cover All Coloradans, a program created by the legislature in 2022 that provides identical coverage as Medicaid to low-income immigrant children and pregnant women, regardless of their immigration status. 

That includes an end to long-term care services for new enrollees, a $1,100 limit on dental benefits, and an annual enrollment cap of 25,000 for children 18 or younger. The cuts come as spending on the program has grown more than 600% beyond its original estimate, going from roughly $14.7 million to an estimated $104.5 million for the 2025-26 fiscal year. 

While the budget still represents an overall increase in Medicaid spending compared to this year, funding is roughly half of what it would have been had lawmakers not made any changes to benefits and provider rates, which total about $270 million in savings for the state. 

Healthcare leaders say the cuts will exacerbate an already challenging environment for providers, who are bracing for less federal support after Congress last year passed sweeping Medicaid cuts and declined to renew enhanced subsidies for the Affordable Care Act. 

For rural hospitals in particular, Medicaid is one of their key funding drivers. 

“While a 2% (Medicaid reimbursement rate cut) doesn’t sound like a whole lot, when we already have close to 50% of our rural hospitals statewide operating in the red and 70% with unsustainable margins, facing another 2% (cut) on top of that is just devastating,” said Michelle Mills, CEO for the Colorado Rural Health Center, which represents rural hospitals on the Western Slope and Eastern Plains. 

If the state provides less reimbursement for Medicaid services, Mills said it will lead to fewer providers accepting Medicaid plans. That in turn will mean fewer care options for people, particularly in Colorado’s rural counties, where healthcare services are already more limited. 

“I feel like all of the decisions and cuts that they’re making are hitting everyone,” she said. 

Rep. Rick Taggart, a Grand Junction Republican and budget committee member, said cuts to healthcare led to “a lot of tears.” 

“This was a tough budget, and nobody won in this budget, but we did what we had to do by way of the (state) constitution,” he said. 

While Medicaid saw some of the biggest cuts, lawmakers also trimmed spending from a suite of other programs, including financial aid for adoptive parents and grants providing mental health support for law enforcement. 

Preserving K-12 education 

One of the brighter spots for Polis and lawmakers in the budget is K-12 education. 

After years of chronically underfunding the state’s schools, lawmakers in 2024 rolled out a revamped funding formula and abolished what was known as the budget stabilization factor, a Great Recession-era mechanism that had allowed the state to skirt its constitutional funding obligation to schools for more than a decade.

The new funding formula went into effect this school year, and the state is set to continue delivering higher levels of K-12 funding in the 2026-27 fiscal year budget. The budget allocates roughly $10.19 billion in K-12 funding, an increase of roughly $194.8 million, though the specifics of that spending are still being worked out in a separate bill, the 2026 School Finance Act, which has yet to pass the legislature. 

The finance act guides how state and local funds are allocated to Colorado’s 178 school districts on a per-pupil basis. As it stands now, the bill is on track to increase per-pupil funding by $440 per student for the 2026-27 fiscal year, for a total of $12,314 per student.

“We are not returning to the days of underfunding our schools and a budget stabilization factor,” Polis said.

Still, there are challenges on the horizon for some districts. 

Combined with a proposed three-year averaging model for student counts instead of the current four-year averaging, recent dips in student enrollment across the state will weigh more heavily on how much funding is allocated to each district. The shift to three-year averaging advances the state’s plan to gradually phase in the new school finance formula by 2030-31.

With several districts seeing decreased year-over-year enrollment and rising operational expenses like healthcare, some Western Slope school districts are poised to see less funding compared to this year, while others are seeing their increases eaten up by inflation.

A note on wolves 

The topic of Colorado’s spending on gray wolf reintroduction hasn’t gone away, and while Medicaid headlined much of the budget discussions, lawmakers also used the spending plan to send a message on the future of the wolf program. 

While the budget allocates $2.1 from the general fund to Colorado Parks and Wildlife to spend on wolf reintroduction, it also contains a footnote from lawmakers asking the agency not to use the money to acquire new wolves. 

Footnotes are not legally binding, but rather serve as a direction or guidance from lawmakers to agencies on how they want certain funds spent. 

Under the footnote, the wildlife agency could still use gifts, grants, donations and non-license revenue from its wildlife cash fund to bring additional wolves to Colorado. Most of the agency’s wolf funding goes toward personnel, followed by operating costs, compensation for ranchers and conflict minimization programs and tools.

Education reporter Andrea Teres-Martinez and wildlife and environmental reporter Ali Longwell contributed to this story.