Colorado’s budget deficits will continue until Medicaid spending improves.
As the National Association of State Budget Officers has pointed out, Colorado’s “FY25 spending gap was due, primarily, to Medicaid related over-expenditures.”
As reported by the Colorado Sun, Joint Budget Committee Staff Director Craig Harper has warned that the Colorado legislature will continue to produce budgets with $1 billion deficits. Most Band-Aid fixes have already been tried. State payrolls have been repeatedly delayed into the next fiscal year, cash funds have been raided, and the statutory reserve fund remains below the required 15 percent of General Fund appropriations, leaving the state more vulnerable to economic downturns.
Even the progressive Colorado Health Institute admitted that Colorado’s Medicaid expansion was “larger—and costlier—than almost anyone anticipated.” In fact, Independence Institute policy analysts, and many others, predicted as early as 2015 that taxpayers were “in for a shock” because Medicaid enrollment was already 40 percent higher than predicted and could cost state and federal taxpayers $1 billion a year more than expected.
A billion dollars is a lot of money. For perspective, Denver’s entire 2026 city budget is $1.66 billion.
The ‘fee’ sleight of hand
Higher taxes will not solve the problem, but elected officials will strive to raise them. Taxpayers either pay up or leave. Politically, they are easier to deal with than angry supporters of a bloated program facing cuts.
In 2009, the Democrats controlling Colorado state government raised taxes to fund Medicaid, putting new taxes on hospital, outpatient, and nursing home charges. They knew voters still suffering from the 2008 recession would not approve new taxes at the ballot box, so they called them “fees” instead and imposed them without a vote.
Colorado courts approved this sleight of hand and the state went on a fee spree, with “fee” revenue growing from $742 million in 1994 to $25.8 billion in 2024.
The “fees” that raised health care costs for the private sector now bring in more than $1.3 billion a year.
It’s never enough
In recent years state officials have turned to Certificates of Participation (COPs) to fill budgetary gaps. COPs let the state raise money by borrowing against assets like office and school buildings. The state then makes specified “lease” payments to repay the debt.
Between 1979 and 2002 the state issued eight COPs. Debt service payments totaled just $69.6 million by 2015. As Medicaid spending growth put a squeeze on budgets, outstanding COPs debt zoomed to $4.8 billion by 2024. Annual debt service payments totaled $266 million.
With limited exceptions, the Colorado Constitution prohibits state indebtedness. Though the financial markets treat COPs like general obligation debt, with credit rating companies approving of “the state’s ability to appropriate amounts [for lease payments] from any legally available source,” the Colorado courts have ruled that COPs do not create long-term obligations because a third party issues the debt and so the state does not guarantee repayment. Never mind that the University of Colorado loses ownership of the Anschutz Health Sciences Building if the state fails to make any of the annual lease payments due between now and 2041.
Medicaid bloat
The fundamental budget problem is that enrollment drives Medicaid spending. Colorado Medicaid controls the cost of Medicaid services, setting payment rates and, within broad limits, the quantity and quality of health care enrollees can consume. Payments are generally below costs already. Low payments coupled with spending on low value health programs tend to produce long waits for primary and specialty care.
In 2007, roughly 5.7 percent of the Colorado population (386,000 Coloradans), were enrolled in Medicaid. By the end of 2025, 20 percent of the population was enrolled, about 1.22 million people. In recent years Colorado redefined emergency care for noncitizens to include family planning services, dialysis, and a year of postpartum care. In 2025, it authorized Medicaid enrollment for children and pregnant women who are in the country illegally.
If coverage is essential to physical health, one would have expected to have seen large gains in physical health after Medicaid expansion. They have not materialized. This is in accord with evidence suggesting that many of the people swept into Medicaid after 2010 were relatively healthy. They were already obtaining the medical care they needed. It may be that the primary beneficiaries of the expansion were the insurers guaranteed monthly payments for providing unnecessary coverage.
Want to end budget deficits and improve Medicaid? End Medicaid bloat.
