Denver, Colorado — For the third time in two years, Colorado’s budget writers are scrambling to close a massive fiscal gap. This time, it’s a $1.5 billion shortfall in the state’s general fund — and once again, Medicaid is bearing the heaviest load.
The state’s Joint Budget Committee finalized its preparatory work last week, with a formal budget proposal expected to land at roughly $18.6 billion for the fiscal year beginning July 1. The numbers are grim, and almost everyone involved says the problem won’t be solved in a single session.
The Medicaid Squeeze
Medicaid accounts for about a third of Colorado’s general fund — in line with the national average — which means there’s simply no way to cut meaningfully without touching it. Since the pandemic began in 2020, the program’s costs have grown at an annual rate of 8% to 13%. That kind of growth, officials say, is “simply unsustainable.”
The state has few options: pay providers less, cover fewer people, or cut programs that aren’t federally required. That last category is where long-term care gets into serious trouble.
Among the programs most vulnerable to the ax are home- and community-based services — the programs that let people with disabilities and older adults stay out of nursing homes. Cut those, and the pressure shifts directly onto skilled nursing facilities. More people entering facilities means higher Medicaid costs, not lower. It’s a self-defeating spiral that health policy advocates have warned about for years. Medicaid home care cuts have already been linked to increased nursing home placements in research projecting the fallout from federal-level reductions.
A Pattern Playing Out Nationally
Colorado isn’t alone. The state’s predicament reflects a broader national pattern: enhanced federal Medicaid funds that helped states through the pandemic years have dried up, and the ripple effects are still being absorbed.
Budget writers have already agreed to cut overall Medicaid provider rates — a move that balances fiscal need against care access risk. They’ve also rejected salary increases for most state employees, absorbed health insurance cost hikes to keep take-home pay from shrinking, and are looking at cuts to substance use disorder treatment programs.
Colorado’s situation is made sharper by its constitutional spending cap, which limits how fast state revenue can grow. Every dollar that flows into Medicaid is one that can’t go elsewhere — education, corrections, public health. That math doesn’t get easier.
What It Means for Skilled Nursing
Skilled nursing operators in Colorado are watching this closely. Lower Medicaid rates directly compress margins at facilities where Medicaid covers more than half of all residents. If the state opts to cut provider reimbursements further, or scale back HCBS programs, facilities could see both reduced payments and a higher-acuity patient mix — exactly the combination that has driven closures in other states.
Industry observers note that state Medicaid cuts don’t happen in isolation. With the federal government also tightening its belt, the squeeze is coming from both directions. It’s not clear the state legislature has a clean answer — only difficult tradeoffs between who absorbs the pain and how fast.
